Category: Current Affairs
What should I ask John Arnold?
Yes, I will be doing a Conversation with him. John might be the smartest person I know about the energy sector and also about philanthropy. Here is the opening of his Wikipedia entry:
John Douglas Arnold (born 1974) is an American philanthropist, former Enron executive, and founder of Arnold Ventures LLC, formerly the Laura and John Arnold Foundation. In 2007, Arnold became the youngest billionaire in the U.S. His firm, Centaurus Advisors, LLC, was a Houston-based hedge fund specializing in trading energy products that closed in 2012. He now focuses on philanthropy through Arnold Ventures LLC. Arnold is a board member of Breakthrough Energy Ventures and since February 2024, is a member of the board of directors of Meta.
So what should I ask him?
How to do regulatory reform (from my email)
“Philip Howard here. I enjoyed your discussion with Jen Pahlka. Here are a few notes:
1. This current system needs disrupting, but I fear DOGEs indiscriminate cuts are making the status quo look good. Here’s Peter Drucker, criticizing Gore’s reinventing got: “patching. It always fails. The next step is to rush into downsizing. Management picks up a meat-ax and lays about indiscriminately. …amputation before diagnosis.” (from Management, revised ed).
2. Most of the newcomers to the realization that govt is paralyzed (Ezra Klein, Dunkelman etc) think that the red tape jungle can be pruned, or organized with better feedback loops (Pahlka). This is falling into Gore’s pit. There’s a fatal defect: the operating system is designed around legal compliance–instead of human authority to make tradeoff judgments. Law should be a framework setting the boundaries of authority, not a checklist. That’s why some reforms I championed (page limits, time limits) haven’t worked; there’s always another legal tripwire. I describe what a new framework should look like in this recent essay. https://manhattan.institute/article/escape-from-quicksand-a-new-framework-for-modernizing-america
3. Public unions: Democracy loses its link to voters–quite literally–if elected executives lack managerial authority. The main tools of management– accountability, resource allocation, and daily direction–have been either removed by union controls or are subject to union veto. Government is more like a scrum than a purposeful organization. There’s a core constitutional principle –private nondelegation–that prevents elected officials from ceding their governing responsibility to private groups. Stone v Mississippi: “The power of governing is a trust…, no part of which can be granted away.” That’s the basis of the constitutional challenge we’re organizing. The Trump admin could transform state and local govt by invoking this principle.
Fwiw, I see these points– authority to make tradeoff judgments, authority to manage— as microeconomic necessities, not policy positions. Nothing can work sensibly until people are free to make things work. We’re organizing a forum at Columbia Law School, The Day After Doge, on the morning of April 23. Here’s the lineup. https://www.commongood.org/the-day-after-doge. Let me know if you’d like to weigh in.”
Problems in Treasury markets (from my email)
Max writes to me:
“Hope you’re doing well. And the craziness in the world hasn’t been affecting you too much. I know I’ve written to you about cash-treasury basis a couple of times over the years. The situation has unfortunately become somewhat more acute and has started to get wider media attention.
There are some good accounts of the issue in the media, by Matt Levine for example But, there are a few things being missed even in high quality media accounts:
- The issue is now a global one, which has not been the case historically. German bunds now trade at a negative swap spread (the yield on cash bonds is higher than on similar tenor swaps). This is a fairly recent development. It suggests the problem has shifted from being primarily a shortage of USD cash (though that is still true to a significant degree), to a global oversupply of longer dated bonds.
- A crunch in repo funding does not seem to be primarily responsible here. Balance sheet efficient methods of intermediating repo (sponsored repo) are more available now than they have been in the past. And they haven’t solved the problem.
- Permitting bond basis to fluctuate is quite pernicious. It meaningfully reduces the negative correlation between long bonds and risk assets. Meaningully reducing the attractiveness of holding them in a portfolio and increasing funding costs.
- At this point, global government debt outstanding is so large basis is so high that failing to correct this issue has a meaningful budget impact. Not only in the US, but across the Western world.
I think there is a straightforward solution: The Fed has clear cut authority to trade Treasury forwards during open market operations. Which would alleviate the pressure on dealer balance sheets, relieve market dysfunction, and help restore basis to more natural levels. And do so without relying on emergency authorities.”
Parallels between our current time and 17th century England
That is the topic of my recent essay for The Free Press. Excerpt:
Ideologically, the English 17th century was weird above all else.
Millenarianism blossomed, and the occult and witchcraft became stronger obsessions. This was an age of religious and economic upheaval; King James I even wrote a book partly about witches called Daemonologie. The greater spread of pamphlets and books meant that witch accusations circulated more widely and more rapidly, and so the 1604 Witchcraft Act applied harsher punishments to supposed witches.
People were more likely to fear imminent transformation, and new groups sprouted up with names such as “Fifth Monarchy Men,” devoted to the idea that a new reign of Christ would usher in the end of the world. Protestantism splintered, giving rise to Puritanism and numerous sects, many of them extreme.
Meanwhile, Roger Williams brought ideas of free speech and freedom of conscience to America, founding what later became the state of Rhode Island. The development of economics as a science with an understanding of markets (credit Nicholas Barbon and Dudley North) dates from that time, as do the first libertarians, namely the Levellers, a liberty-oriented group from the time of the English Civil War.
All of these developments were supported by the falling price of printing, giving rise to an extensive use of pamphlets and broadsheets to communicate and debate ideas, often in London coffeehouses. Johannes Gutenberg had built the printing press for Europe much earlier, in the middle of the 15th century—but 17th-century England was the time and place when a commercial middle class could start to afford buying printed works.
I explore the parallels with today at the link, recommended.
It seems DOGE is dwindling?
The National Institutes of Health told employees Thursday it was rolling back directives from Elon Musk’s Department of Government Efficiency to probe worker productivity and limit purchases and travel on company cards, according to messages obtained by POLITICO.
It’s a possible sign that the agency’s recently confirmed director, Jay Bhattacharya, is willing to break with Musk and DOGE.
“Please disregard any future reminders or instructions on this directive from OPM or the Department of Health and Human Services,” said one message, referencing the White House’s personnel office. “NIH manages its own performance review processes and will notify employees directly if any information related to work duties or performance is needed.”
Purchasing cards will “be restored to full capacity and use” later today, according to another message from NIH management. Staff will again be able to travel for business and won’t have to seek permission from HHS or the NIH director’s office, the message said.
Here is the full story by Danny Nguyen. I believe Jay is not the most left-wing NIH head we have had, so the imperatives of bureaucracy are reasserting themselves perhaps? More data will be on the way. But the general point I have been making — that DOGE needs to prioritize and needs more Congressional and also public support — is looking more true each day.
America’s Tourism Deficit: How the French Are Winning the Currency War One Croissant at a Time
Every year, American tourists pour billions of dollars into France, wandering the Louvre, sipping overpriced espresso in Montmartre, and snapping selfies along the Seine—while far fewer French tourists bother making the reverse pilgrimage to admire, say, Disney World. The result? A massive tourism deficit.
On paper, this reflects wealth differentials and revealed preferences – Americans, being richer and more numerous than the French, express a high demand for old world Parisian experiences. But behind this innocent wanderlust is something more sinister. When Americans vacation in France, that’s counted as a US import of tourism. When French people vacation here—fewer, more begrudgingly—that’s a US export. So voilà, the tourism deficit creates a trade deficit, an excess of imports over exports!
The tourism deficit means there is a steady leak of the world’s reserve currency into the hands of a nation famous for its cheese, wine, and suspicion of American capitalism. France, using little more than museums and moodiness, is accumulating dollars from innocent American travelers. And they’re not just hoarding them for kicks. Those dollars are claims on real assets. First it’s a Napa vineyard. Then a Brooklyn fintech startup. Eventually, who knows? The Port of Long Beach? The Federal Reserve’s snack bar?
Make no mistake: France’s true comparative advantage isn’t wine or luxury goods—it’s the ruthless extraction of tourism dollars, performed with flawless precision, a disdainful shrug, and a little help from Emily in Paris. We’re being out-traded, one overpriced pastry at a time, by a nation whose strategic horizon spans centuries—and whose Netflix marketing is impeccable.
The political implications are, shall we say, obvious.
From now on, we demand a tourism balance. No more visa waivers, no more jet-setting to Provence until they send an equal number of French tourists to Branson, Missouri. It’s high time the French get over their Napoleon complex and start to appreciate American corn dogs and Dolly Parton. France needs to treat us with the same respect as the friendly countries that enthusiastically dispatch high-spending tourists to our shores.
It’s one-for-one, or the deal is off. Tourism parity or rien! Point final.
Claims about China
Tariffs don’t just alter trade flows — they redirect resources and reshape industrial structures. If Trump’s goal was to curb China’s technological progress, he would keep tariffs low on the bulk of Chinese exports to the US, locking the country into low-margin basic manufacturing. He would encourage high-tech exports to China, making sure that progress in its advanced components stalls.
But this is the opposite of what’s happening. Ironically, just as the “China shock” pushed the US out of low-end manufacturing, the “Trump shock” is propelling China to reallocate resources into higher value, advanced technologies that compete directly with the US.
Here is more from Keyu Jin at the FT.
My Conversation with the excellent Jennifer Pahlka
Here is the audio, video, and transcript. Here is the episode summary:
Jennifer Pahlka believes America’s bureaucratic dysfunction is deeply rooted in outdated processes and misaligned incentives. As the founder of Code for America and co-founder of the United States Digital Service, she has witnessed firsthand how government struggles to adapt to the digital age, often trapped in rigid procedures and disconnected from the real-world impact of its policies. Disruption is clearly needed, she says—but can it be done in a way that avoids the chaos of DOGE?
Tyler and Jennifer discuss all this and more, including why Congress has become increasingly passive, how she’d go about reforming government programs, whether there should be less accountability in government, how AGI will change things, whether the US should have public-sector unions, what Singapore’s effectiveness reveals about the trade-offs of technocratic governance, how AI might fundamentally transform national sovereignty, what her experience in the gaming industry taught her about reimagining systems, which American states are the best-governed, the best fictional depictions of bureaucracy, how she’d improve New York City’s governance, her current work at the Niskanen Center, and more.
Excerpt:
COWEN: Does that mean we need something like DOGE? I’ve lived near DC for about 40 years of my life. I haven’t seen anyone succeed with regulatory reforms. You can abolish an agency, but to really reform the process hasn’t worked. Maybe the best iteration we can get is to break a bunch of things now. That will be painful, people will hate it, but you have a chance in the next administration to put some of them back together again.
Maybe it’s just in a large country, there’s no other way to do it. We have separation of powers. The first two years of DOGE will seem terrible, but 8, 12, 16 years from now, we’ll be glad we did it. Is that possible?
PAHLKA: I don’t know what’s going to happen. I do think this is the disruption that we’re getting, whether it’s the disruption we wanted. The question of whether it could have been done in a more orderly manner is a tough one. I just feel sad that we didn’t try.
COWEN: Are you sure we didn’t try?
PAHLKA: I don’t think we really tried.
COWEN: The second Bush presidency, people talked about this, what we need to do. Al Gore — some of that was good, in fact, reinventing government. We’ve been trying all along, but this is what trying looks like.
PAHLKA: Yes. I think reinventing government happened at a time when we were just at the beginning of this digital revolution. It was trying with a very 20th-century mindset. Fine, did well within that context, but we don’t need that again.
We need 21st century change. We need true digital transformation. We need something that’s not stuck in the industrial ways of thinking. I don’t think we tried that. I think the efforts have just been too respectful of old ways of working and the institutions. There was really not an appetite, I think, for what I would call responsible disruptive change. Would it have worked?
COWEN: Is there such a thing?
PAHLKA: I don’t know. [laughs]
COWEN: Say you’re approaching USAID, where I think the best programs are great. A lot of it they shouldn’t be doing. On net, it passes a cost-benefit test, but the agency internally never seemed willing to actually get rid of the bad stuff, all the contracting arrangements which made American Congress people happy because it was dollars sent to America, but way inflated overhead and fixed costs. Why isn’t it better just to blow that up — some of it is great — and then rebuild the great parts?
PAHLKA: It’s so hard to say. [laughs] I’ve had the same thought. In fact, before inauguration, I wrote about the Department of Defense. It’s the same thing. There’s a clear recognition by the people in the institution, as you saw with USAID, that this is not okay, that this is not working. It’s just strange to be in an institution that large where so many people agree that it’s not working, from the bottom to the top, and yet nobody can make really substantive change.
Of great interest, obviously.
AI on Tariffs
There is some evidence that the White House used AI to come up with a quick and dirty (and incorrect) formula to correlate tariff rates with trade deficits. I have no problem with using AI, I think they just didn’t go far enough. The White House should have asked the AI a question like this:
Suppose the US imposed tariffs on other countries in an effort to reduce bilateral trade deficits to zero using the formula for the tariff of (exports-imports)/imports. What do you estimate would be the consequences of such a policy?
Answer (O1 Pro):
A tariff schedule keyed to bilateral deficits—imposing a rate equal to (US exports − US imports) / US imports—would be extremely disruptive and unlikely to achieve its goal. Key points:
Immediate Impact on Prices and Supply Chains
If the US imports more than it exports from a given country, (exports − imports) is negative, making the tariff percentage negative unless the formula is modified (e.g., by absolute value). In practice, one would presumably set a positive tariff aimed at closing the bilateral gap.
Such high tariffs would sharply raise import prices for both consumers and firms reliant on foreign inputs. It would encourage attempts to switch suppliers but at the cost of disrupting supply chains and increasing production expenses.
Retaliation and Trade War Dynamics
Targeted countries would almost certainly retaliate with their own tariffs. Retaliation would damage US export sectors—especially agriculture and high-value manufacturing—and risk a broader trade war.
Countries with a US trade surplus would apply punitive measures that shift US business to alternative suppliers, undermining the very exports the policy is meant to foster.
Misalignment with Macroeconomic Fundamentals
Bilateral imbalances reflect global production patterns, comparative advantage, and macro factors like savings–investment imbalances and currency flows. A country that persistently imports more overall does so because it’s running a capital account surplus. Tariffs don’t fundamentally alter that global saving–investment arithmetic.
If the US still runs an overall current account deficit, restricting imports from some countries will simply shift deficits to others. Global supply chains will rearrange, but the total US deficit will be largely unchanged.
Violation of Trade Agreements
Such a policy almost certainly violates WTO rules, since it imposes discriminatory tariffs based on bilateral imbalances. The resulting litigation and sanctions would add more uncertainty.
Net Effect: Reduced Efficiency, Higher Costs
Economically, the net effect is negative. Costs rise for US consumers and US manufacturers reliant on imported inputs. Retaliatory measures reduce export opportunities. Overall trade volume shrinks. Growth slows, and no fundamental improvement in the US external balance occurs.
In summary, a bilateral “deficit-equalizing” tariff policy would create severe distortions, invite retaliation, and do little to fix the structural causes of US trade deficits. Empirical evidence and standard trade theory both suggest it would reduce economic efficiency and likely harm US producers and consumers alike.
Good answer.
Hat tip: SB.
A Blueprint for FDA Reform
The new FDA report from Joe Lonsdale and team is impressive. It has a lot of new material, is rich in specifics and bold in vision. Here are just a few of the recommendation which caught my eye:
From the prosaic: GMP is not necessary if you are not manufacturing:
In the U.S., anyone running a clinical trial must manufacture their product under full Good Manufacturing Practices (GMP) regardless of stage. This adds enormous cost (often $10M+) and more importantly, as much as a year’s delay to early-stage research. Beyond the cost and time, these requirements are outright irrational: for example, the FDA often requires three months of stability testing for a drug patients will receive after two weeks. Why do we care if it’s stable after we’ve already administered it? Or take AAV manufacturing—the FDA requires both a potency assay and an infectivity assay, even though potency necessarily reflects infectivity.
This change would not be unprecedented either. By contrast, countries like Australia and China permit Phase 1 trials with non-GMP drug with no evidence of increased patient harm.
The FDA carved out a limited exemption to this requirement in 2008, but its hands are tied by statute from taking further steps. Congress must act to fully exempt Phase 1 trials from statutory GMP. GMP has its place in commercial-scale production. But patients with six months to live shouldn’t be denied access to a potentially lifesaving therapy because it wasn’t made in a facility that meets commercial packaging standards.
Design data flows for AIs:
With modern AI and digital infrastructure, trials should be designed for machine-readable outputs that flow directly to FDA systems, allowing regulators to review data as it accumulates without breaking blinding. No more waiting nine months for report writing or twelve months for post-trial review. The FDA should create standard data formats (akin to GAAP in finance) and waive documentation requirements for data it already ingests. In parallel, the agency should partner with a top AI company to train an LLM on historical submissions, triaging reviewer workload so human attention is focused only where the model flags concern. The goal is simple: get to “yes” or “no” within weeks, not years.
Publish all results:
Clinical trials for drugs that are negative are frequently left unpublished. This is a problem because it slows progress and wastes resources. When negative results aren’t published, companies duplicate failed efforts, investors misallocate capital, and scientists miss opportunities to refine hypotheses. Publishing all trial outcomes — positive or negative—creates a shared base of knowledge that makes drug development faster, cheaper, and more rational. Silence benefits no one except underperforming sponsors; transparency accelerates innovation.
The FDA already has the authority to do so under section 801 of the FDAAA, but failed to adopt a more expansive rule in the past when it created clinicaltrials.gov. Every trial on clincaltrials.gov should have a publication associated with it that is accessible to the public, to benefit from the sacrifices inherent in a patient participating in a clinical trial.
To the visionary:
We need multiple competing approval frameworks within HHS and/or FDA. Agencies like the VA, Medicare, Medicaid, or the Indian Health Service should be empowered to greenlight therapies for their unique populations. Just as the DoD uses elite Special Operations teams to pioneer new capabilities, HHS should create high-agency “SWAT teams” that experiment with novel approval models, monitor outcomes in real time using consumer tech like wearables and remote diagnostics, and publish findings transparently. Let the best frameworks rise through internal competition—not by decree, but by results.
…Clinical trials like the RECOVERY trial and manufacturing efforts like Operation Warp Speed were what actually moved the needle during COVID. That’s what must be institutionalized. Similarly, we need to pay manufacturers to compete in rapidly scaling new facilities for drugs already in shortage today. This capacity can then be flexibly retooled during a crisis.
Right now, there’s zero incentive to rapidly build new drug or device manufacturing plants because FDA reviews move far too slowly. Yet, when crisis strikes, America must pivot instantly—scaling production to hundreds of millions of doses or thousands of devices within weeks, not months or years. To build this capability at home, the Administration and FDA should launch competitive programs that reward manufacturers for rapidly scaling flexible factories—similar to the competitive, market-driven strategies pioneered in defense by the DIU. Speed, flexibility, and scale should be the benchmarks for success, not bureaucratic checklists. While the drugs selected for these competitive efforts shouldn’t be hypothetical—focus on medicines facing shortages right now. This ensures every dollar invested delivers immediate value, eliminating waste and strengthening our readiness for future crises.
To prepare for the next emergency, we need to practice now. That means running fast, focused clinical trials on today’s pressing questions—like the use of GLP-1s in non-obese patients—not just to generate insight, but to build the infrastructure and muscle memory for speed.
Read the whole thing.
Hat tip: Carl Close.
A contagion of uncertainty
That is my latest piece for The Free Press, here is one excerpt:
It is not merely that the policies keep on changing. We are seeing that the policies didn’t have much of a rational basis to begin with. Exactly how were all those threatened tariff rates calculated to begin with? A debate is raging across the internet and social media, but it seems they did not have much of a logical basis. We even were ready to put a tariff rate of 10 percent on the Heard Island and McDonald Islands (where?), which are inhabited mostly by penguins.
Not a single step of this process has inspired confidence. A variety of people are trying to defend the Trump plans on social media, but with markets plummeting they have not been convincing. We saw a three-day market loss of about 13 percent, and no coherent government response.
Who in the Trump administration has presented any account of its policies to the public with any degree of knowledge, competence, or credible reassurance? What I have seen is Secretary of Commerce Howard Lutnick speaking about the new jobs Americans might have assembling iPhones, something which currently would most likely be done in a Chinese factory. Who is supposed to be thrilled by that vision of the American future? Or should we be reassured by the possibility that Lutnick did not mean that remark literally, but instead was speaking out of mere carelessness?
One lesson I am learning — yet again — is just how many people will defend a status quo backed by power…
Manufacturing and Trade
It has become popular in some circles to argue that trade—or, in the more “sophisticated” version, that the dollar’s reserve-currency status—undermines U.S. manufacturing. In reality, there is little support for this claim.
Let’s begin with some simple but often overlooked points.
- The US is a manufacturing powerhouse. We produce $2.5 trillion of value-added in manufacturing output, more than ever before in history.
- As a share of total employment, employment in manufacturing is on a long-term, slow, secular trend down. This is true not just in the United States but in most of the world and is primarily a reflection of automation allowing us to produce more with less. Even China has topped out on manufacturing employment.
- A substantial majority of US imports are for intermediate goods like capital goods, industrial supplies and raw materials that are used to produce other goods including manufacturing exports! Tariffs, therefore, often make it more costly to manufacture domestically.
- The US is a big country and we consume a lot of our own manufacturing output. We do export and import substantial amounts, but trade is not first order when it comes to manufacturing. Regardless of your tariff theories, to increase manufacturing output we need to increase US manufacturing productivity by improving infrastructure, reducing the cost of energy, improving education, reducing regulation and speeding permitting. You can’t build in America if you can’t build power plants, roads and seaports.
- The US is the highest income large country in the world. It’s hard to see how we have been ripped off by trade. China is much poorer than the United States.
- China produces more manufacturing output than the United States, most of which it consumes domestically. China has more than 4 times the population of the United States. Of course, they produce more! India will produce more than the United States in the future as well. Get used to it. You know what they say about people with big shoes? They have big feet. Countries with big populations. They produce a lot. More Americans would solve this “problem.”
- Most economists agree that there are some special cases for subsidizing and protecting a domestic industry, e.g. military production, vaccines.
The seven points cover most of the ground but more recently there has been an argument that the US dollar’s status as a reserve currency, which we used to call the “exorbitant privilege,” is now somehow a nefarious burden. This strikes me as largely an ex-post rationalization for misguided policies, but let’s examine the core claim: the US’s status as a reserve currency forces the US dollar to appreciate which makes our exports less competitive on world markets. Tariffs are supposed to (somehow?) depreciate the currency solving this problem. Every step is questionable. Note, for example, that tariffs tend to appreciate the dollar since the supply of dollars declines. Note also that if even if tariffs depreciated the currency, depreciating the currency doesn’t help to increase exports if you have cut imports (see Three Simple Principles of Trade Policy). I want to focus, however, on the first point does the US status as world reserve currency appreciate the dollar and hurt exports? This is mostly standard economics so its not entirely wrong but I think it misses key points even for most economists.
Countries hold dollars to facilitate world trade, and this benefits the United States. By “selling” dollars—which we can produce at minimal cost (albeit it does help that we spend on the military to keep the sea lanes open)—we acquire real goods and services in exchange, realizing an “exorbitant privilege.” Does that privilege impose a hidden cost on our manufacturing sector? Not really.
In the short run, increased global demand for dollars can push up the exchange rate, making exports more expensive. Yet this effect arises whatever the cause of the increased demand for dollars. If foreigners want to buy more US tractors this appreciates the dollar and makes it more expensive for foreigners to buy US computers. Is our tractor industry a nefarious burden on our computer industry? I don’t think so but more importantly, this is a short-run effect. Exchange rates adjust first, but other prices follow, with purchasing power parity (PPP) tendencies limiting any long-term overvaluation.
To see why, imagine a global single-currency world (e.g., a gold standard or a stablecoin pegged to the US dollar). In this scenario, increased demand for US assets would primarily lead to lower US interest rates or higher US asset prices, equilibrating the market without altering the relative price of US goods through the exchange rate mechanism. With freely floating exchange rates, the exchange rate moves first and the effect of the increased demand is moderated and spread widely but as other prices adjust the long-run equilibrium is the same as in a world with one currency. There’s no permanent “extra” appreciation that would systematically erode manufacturing competitiveness. Notice also that the moderating effect of floating exchange rates works in both directions so when there is deprecation the initial effect is spread more widely giving industries time to adjust as we move to the final equilibrium.
None of this to deny that some industries may feel short-run pressure from currency swings but these pressures are not different from all of the ordinary ups and down of market demand and supply, some of which, as I hove noted, floating exchange rates tend to moderate.
Ensuring a robust manufacturing sector depends on sound domestic policies, innovation, and workforce development, rather than trying to devalue the currency or curtail trade. Far from being a nefarious cost, the U.S. role as issuer of the world’s reserve currency confers significant financial and economic advantages that, in the long run, do not meaningfully erode the nation’s manufacturing base.
My 2022 piece on the New Right vs. classical liberalism
Worth a redux, here is one excerpt:
While I try my best to understand the New Right, I am far from being persuaded. One worry I have is about how it initially negative emphasis feeds upon itself. Successful societies are based on trust, including trust in leaders, and the New Right doesn’t offer resources for forming that trust or any kind of comparable substitute. As a nation-building project it seems like a dead end. If anything, it may hasten the Brazilianification of the United States rather than avoiding it, Brazil being a paradigmatic example of a low trust society and government.
I also do not see how the New Right stance avoids the risks from an extremely corrupt and self-seeking power elite. Let’s say the New Right description of the rottenness of elites were true – would we really solve that problem by electing more New Right-oriented individuals to government? Under a New Right worldview, there is all the more reason to be cynical about New Right leaders, no matter which ideological side they start on. If elites are so corrupt right now, the force corrupting elites are likely to be truly fundamental…
The New Right also seems bad at coalition building, most of all because it is so polarizing about the elites on the other side. Many of the most beneficial changes in American history have come about through broad coalitions, not just from one political side or the other. Libertarians such as William Lloyd Garrison played a key role an anti-slavery debates, but they would not have gotten very far without support from the more statist Republicans, including Abraham Lincoln. If you so demonize the elites that do not belong to your side, it is more likely we will end up in situations where all elites have to preside over a morally unacceptable status quo…
Perhaps most of all, it is dangerous when “how much can we trust elites?” becomes a major dividing line in society. We’ve already seen the unfairness and cascading negativism of cancel culture. To apply cancel culture to our own elites, as in essence the New Right is proposing to do, is not likely to lead to higher trust and better reputations for those in power, even for those who deserve decent reputations.
Recommended, do read or reread the whole thing.
Why Do Domestic Prices Rise With Tarriffs?
Many people think they understand why domestic prices rise with tariffs–domestic producers take advantage of reduced competition to jack up prices and increase their profits. The explanation seems cynical and sophisticated and its not entirely wrong but it misses deeper truths. Moreover, this “explanation” makes people think that an appropriate response to domestic firms raising prices is price controls and threats, which would make things worse. In fact, tariffs will increase domestic prices even in perfectly competitive industries. Let’s see why.
Suppose we tax imports of French and Italian wine. As a result, demand for California wine rises, and producers in Napa and Sonoma expand production to meet it. Here’s the key point: Expanding production without increasing costs is difficult, especially so for any big expansion in normal times.
To produce more, wine producers in Napa and Sonoma need more land. But the most productive, cost-effective land is already in use. Expansion forces producers onto less suitable land—land that’s either less productive for wine or more valuable for other purposes. Wine production competes with the production of olive oil, dairy and artisanal cheeses, heirloom vegetables, livestock, housing, tourism, and even geothermal energy (in Sonoma). Thus, as wine production expands, costs increases because opportunity costs increase. As wine production expands the price we pay is less production of other goods and services.
Thus, the fundamental reason domestic prices rise with tariffs is that expanding production must displace other high-value uses. The higher money cost reflects the opportunity cost—the value of the goods society forgoes, like olive oil and cheese, to produce more wine.
And the fundamental reason why trade is beneficial is that foreign producers are willing to send us wine in exchange for fewer resources than we would need to produce the wine ourselves. Put differently, we have two options: produce more wine domestically by diverting resources from olive oil and cheese, or produce more olive oil and cheese and trade some of it for foreign wine. The latter makes us wealthier when foreign producers have lower costs.
Tariffs reverse this logic. By pushing wine production back home, they force us to use more costly resources—to sacrifice more olive oil and cheese than necessary—to get the same wine. The result is a net loss of wealth.
Note that tariffs do not increase domestic production, they shift domestic production from one industry to another.
Here’s the diagram, taken from Modern Principles, using sugar as the example. Without the tariff, we could buy sugar at the world price of 9 cents per pound. The tariff pushes domestic production up to 20 billion pounds.
As the domestic sugar industry expands it pulls in resources from other industries. The value of those resources exceeds what we would have paid foreign producers. That excess cost is represented by the yellow area labeled wasted resources—the value of goods and services we gave up by redirecting resources to domestic sugar production instead of using them to produce other goods and services where we have a comparative advantage.
All of this, of course, is explained in Modern Principles, the best textbook for principles of economics. Needed now more than ever.
Russia facts of the day
Russia’s stock market has suffered its worst week in more than two years in response to U.S. President Donald Trump’s sweeping global tariffs and a drop in global oil prices.
The market capitalization of companies listed on the Moscow Exchange (MOEX) fell by 2 trillion rubles ($23.7 billion) over just two days, sliding from 55.04 trillion rubles ($651.8 billion) at Wednesday’s close to 53.02 trillion ($627.9 billion) by the end of trading Friday, according to exchange data.
The MOEX Russia Index, which tracks 43 of Russia’s largest publicly traded companies, lost 8.05% over the week — its worst performance since late September 2022, when markets were rattled by the Kremlin’s announcement of mass mobilization for the war in Ukraine.
At the end of trading on Friday, shares in some of the country’s largest firms had plunged: Sberbank fell by 5.2%, Gazprom 4.9%, VTB 6%, Rosneft 3.9% and Lukoil 4.6%. Mechel, the steel and coal giant, dropped more than 7%, while flagship airline Aeroflot slid 4.8% and gas producer Novatek fell 5.4%.
“A massive crisis is unfolding before our eyes,” said Yevgeny Kogan, an investment banker and professor at the Higher School of Economics in Moscow.
Here is the full story, via C. At least Trump does not seem to be a Russian agent…