Category: Current Affairs

How should government disclosure be done?

That is my recent Bloomberg column on this all-important topic.  Here is one part:

The risk is that Trump would hoard the most sensitive information and disclose selectively, to manipulate the news cycle or to distract attention from other events. It also could give him more political weapons to use against what he calls the “deep state.” The president himself is hardly a model of transparency, whether the questions concern his tax returns, his medical exams or the possession of classified documents after leaving office.

But again, the issue is governmental disclosure, and so far, Trump’s record is 0 for 1. Before assuming office, he suggested that the US military knew more than it was letting on about the drones that had been sighted above New Jersey and other Northeastern states. Then, after Trump took office, his press secretary said only that they were “authorized” by the government “for research and various other reasons.” There has been no subsequent attempt to clarify matters. Personally, I am more confused than I was a month ago.

Perhaps there are good national security reasons for this silence. The point is that it is foolish to expect full and open disclosure from the president, no matter what his executive order says or what he has earlier promised.

One way to improve the process would be to appoint some independent auditors on a bipartisan basis, perhaps selected from Congress. Ex post, those auditors could judge whether disclosure, with transparent explanations, had actually occurred. They could grade the degree of disclosure, but they would not have the power to prevent it. Otherwise, there is a risk that — to choose an example not quite at random — evidence favoring the “two gunmen” hypothesis for JFK’s assassination is released, but conflicting evidence for the “lone gunman” hypothesis is suppressed. The auditors would issue a report saying whether disclosure was unbalanced or unfair.

And this:

Another problem with the task force is that it is authorized for only six months. Bureaucracies are by nature slow-moving, and can be even more so when they wish to be. A six-month deadline creates incentives to wait things out. Trump could threaten to extend the mandate, and perhaps he will. But then the disclosure campaign would turn out to be just a bargaining chip, rather than a genuine attempt to bring the truth to light.

Definitely recommended.

Ukrainian bond data correction

In the previous post, I cited data showing that Ukrainian bond prices had fallen over the last few months.  But it seems that data source was faulty, and the value of Ukrainian bonds has been rising, including recently.  You can find some sources here.  Apologies for the error!

I thank JoshB. for drawing this to my attention.  He writes in the comments on that previous post: “Ukrainian local debt is not widely traded but according to bloomberg data it has done nothing but rally over the last four months. The UKRGB 19.7 8/25 that the linked website claims to be quoting is trading 99.13 dollar price, up from 90 in the fall. The USD external bonds are much more widely traded and they have definitely rallied over the past few months – it has been a popular hedge fund trade. The UKRAIN 1.75 2/29 for example are now $73 up from $61 pre election. The thesis has been that the Ukraine external debt stock is small relative to reconstruction needs and the country will desire market access so it makes sense to favorably restructure the external bond holders. I’m skeptical personally, but the premise of the original post that Ukraine debt is going down in price is wrong.”

Steel Tariffs in Two Pictures

Recall Principle 2 of Three Simple Principles of Trade Policy, Businesses are Consumers Too. Case in point, steel. Justin Wolfers summarizes an analysis of Trump’s 2018 steel tariffs:

Image

Going back further we have a good analysis from Lydia Cox of the Bush steel tariffs. Even though the tariffs were temporary, they led to a rearrangement of supply chains which led to long-lasting declines in exports and employment in steel using industries.

Place Effects on Fertility Decision: Evidence from Mover Design

This paper investigates the causal impact of place-based factors on fertility decision using mover design and data from the Panel Study of Income Dynamics (1968-2019). We find that moving to a state with a 1 percentage point higher birth rate increases the probability of childbirth by 0.9 percentage points, with cumulative effects reaching 3.8 percentage points three years post-move. The response demonstrates concentration among first births and exhibits systematic variation across demographic characteristics—with particularly pronounced effects observed among white women who are married, younger, and have higher income levels. Our variance decomposition shows the contribution of place effects to fertility variance increased from 4.7 percent to 26.0 percent before and after the Great Recession, with geographical variation in contraceptive access and healthcare infrastructure showing the strongest correlations with these place effects. This research emphasizes the importance of considering contextual factors in fertility research and policy interventions.

That is from a new paper by Hantao Wu and Man Zhu.  Via the excellent Kevin Lewis.

The danger of Trump disobeying court orders

Ilya Somin covers this question over at Volokh Conspiracy.  I receive many queries about this, some of them panicky and anguished.  I haven’t covered it, mostly because I don’t feel I have enough insights into the relevant matters of constitutional law, or for that matter what is going on inside the administration (for instance, how should one interpret those Vance tweets?)

I can tell you what I would find useful.  If you are especially pessimistic on this front, which are the securities prices that would indicate an actual constitutional problem?  Particular equities?  Interest rates?  The value of the dollar?  Measures of volatility?  Something else?  Don’t restrict yourself to the absolute level of share prices, surely there are favored and disfavored companies and sectors, right?

I am allergic to the view that “fascism could come and market prices would not even budge.”  In fact, I think it is extremely skeptical and subversive of democracy, or shall I better say a constitutional republic.  I think fascism, or a constitutional collapse, would be a terrible outcome in a variety of very practical ways, in addition to its moral failings.  At the very least it would matter for many particular enterprises.

In a variety of other contexts, such as tariffs, market prices have been super-sensitive to the actions of the Trump administration.  So people, on this question, which exactly are the measurable, market price indicators?  After all, you don’t want to be like those doomster AI skeptics who think no one can trade on the (supposed) truth.

In the comments section, I am not interested in your blah blah blah opinion full of adjectives.  Just tell me which prices please.  I do see this issue as constituting a real risk, if perhaps a sometimes exaggerated one.  So I will follow those market prices with great interest.  I just need to know what they are.

Addendum: In an excellent Substack today Matt Yglesias notes: “Republicans, meanwhile, are making very little forward progress on their legislative agenda.”

China fact of the day

Marriages in China plunged by a fifth to the lowest level on record last year, a setback to efforts by the government to reverse a demographic crisis threatening the world’s second-biggest economy.

The number of marriage registrations fell to 6.1 million, according to statistics released by China’s Ministry of Civil Affairs on Saturday, after a post-pandemic increase to nearly 7.7 million in 2023. The tally for last year marks the fewest marriages since public records began in 1986 and is less than half the peak reached in 2013.

Here is more from Bloomberg News.

What should I ask Jennifer Pahlka?

Yes, I will be doing a Conversation with her.  From Wikipedia:

Jennifer Pahlka (born December 27, 1969) is an American businesswoman and political advisor. She is the founder and former executive director of Code for America. She served as U.S. Deputy Chief Technology Officer from June 2013 to June 2014 and helped found the United States Digital Service. Previously she had worked at CMP Media with various roles in the computer game industry. She was the co-chair and general manager of the Web 2.0 conferences. In June 2023, she released the book Recoding America: Why Government Is Failing in the Digital Age and How We Can Do Better.

Recently she has been working on the Niskanen Institute state capacity project.  So what should I ask her?

The exhaustion of rents

A computer expert who has battled for a decade to recover a £600m bitcoin fortune he believes is buried in a council dump in south Wales is considering buying the site so he can hunt for the missing fortune.

James Howells lost a high court case last month to force Newport city council to allow him to search the tip to retrieve a hard drive he says contains the bitcoins.

The council has since announced plans to close and cap the site, which would almost certainly spell the end of any lingering hopes of reaching the bitcoins. The authority has secured planning permission for a solar farm on part of the land.

Here is the full story, via Michael Rosenwald.  It is of course amazing that the local authority owning the dump has no interest in recovering the money for itself.

Dwarkesh’s Question

One question I had for you while we were talking about the intelligence stuff was, as a scientist yourself, what do you make of the fact that these things have basically the entire corpus of human knowledge memorized and they haven’t been able to make a single new connection that has led to a discovery? Whereas if even a moderately intelligent person had this much stuff memorized, they would notice — Oh, this thing causes this symptom. This other thing also causes this symptom. There’s a medical cure right here.

Shouldn’t we be expecting that kind of stuff?

It’s a very good question. In 2023, I quipped, “I think they have, we just haven’t asked them.” Maybe, but less clear today. Dwarkesh reports that there have been no good answers.

USPS as a failed sovereign wealth fund

The U.S. government has a direct stake in natural resource wealth, collecting royalties from the extraction of minerals on federal land. In a good year, these royalties (which are dispersed to states) total around $20 billion, although the historic annual average is closer to $10 billion.

These figures pale in comparison to what is arguably America’s largest commercial endeavor: the U.S. Postal Service (USPS). The USPS relies on its vast network of land, buildings, trucks, and processing machines to generate about $80 billion in revenue per year. The obvious problem is that, unlike with Norway and Saudi Arabia’s black gold, the USPS can’t turn a profit on its large asset holdings. The agency lost $9.5 billion on net in FY 2024, and has burned through $100 billion over the past fifteen years…

To sum up: the U.S. isn’t Norway nor Saudi Arabia. Our largest asset-rich enterprise is really bad at making money and channeling investments to productive uses. And, it is for lack of trying; the USPS can do a far better job generating a return on assets such as property.

Here is the full Substack by Ross Marchand.

“Can America Win the AI War with China?”

A long video chat, with Geoffrey Cain, who is more hawkish than I am.  Bari Weiss moderates.  One argument I make is that America may prefer if China does well with AI, because the non-status quo effects of AI may disrupt their system more than ours.  I also argue that for all the AI rival with China (which to be sure is real), much of the future may consist of status quo powers America and China working together to put down smaller-scale AI troublemakers around the rest of the world.  Interesting throughout.

Three Simple Principles of Trade Policy

Are we in a trade war today? Who knows? Doesn’t really matter. It’s always a good time to review important principles. A good source is Doug Irwin’s Three Simple Principles of Trade Policy published in 1996. Below I have updated occasionally with more recent data.

Principle 1: A Tax on Imports is a Tax on Exports

Exports are necessary to generate the earnings to pay for imports, or exports are the goods a country must give up in order to acquire imports….if foreign countries are blocked in their ability to sell their goods in the United States, for example, they will be unable to earn the dollars they need to purchase U.S. goods.

…The equivalence of export and import taxes is not an obvious proposition, and it is often counterintuitive to most people. Imagine taking a poll of average Americans and asking the following question: “Should the United States impose import tariffs on foreign textiles to prevent low-wage countries
from harming thousands of American textile workers?” Some fraction, perhaps even a sizeable one, of the respondents would surely answer affirmatively. If asked to explain their position, they would probably reply that import tariffs would create jobs for Americans at the expense of foreign workers and thereby reduce domestic unemployment.

Suppose you then asked those same people the following question: “Should the United States tax the exportation of Boeing aircraft, wheat and corn, computers and computer software, and other domestically produced goods?” I suspect the answer would be a resounding and unanimous “No!” After all, it would be explained, export taxes would destroy jobs and harm important industries. And yet the Lerner symmetry theorem says that the two policies are equivalent in their economic effects.

Exports and imports rise and fall together. It is surely obvious that if you want more imports you must export more (barring a bit of borrowing see below). The same thing is true in other countries. As a result, it is also true that when you import more you export more.

Principle 2: Businesses are Consumers Too

Business firms are, in fact, bigger consumers of imported products than are U.S. households.

As of 2024, more than 64% of imports are intermediate products. See here for the data.

By viewing imports not as final consumer goods but as inputs to U.S. production, policy makers can more clearly recognize that the issue is not so much one of “saving” jobs but of “trading off’ jobs between sectors. This brings home forcefully the most important lesson in all of economics-there is no such thing as a free lunch. Every action involves a trade-off of some sort. Higher domestic steel prices help employment in the steel industry but harm employment in steel-using industries. Higher domestic semiconductor prices help employment in the semiconductor industry but harm employment in semiconductor using industries. As john Stuart Mill wrote in 1848 in the context of import protection, “The alternative is not between employing our own country-people and foreigners, but between employing one class or another of our own country-people.”

Principle 3: Trade Imbalances Reflect Capital Flows

There is a fundamental equation of international finance that relates this net borrowing and lending activity to the current account. The equation is:

Exports – Imports = Savings – Investment

The powerful implication of this equation is that if a country wishes to reduce its trade deficit, the gap between its domestic investment and its domestic savings must be reduced.

A country’s trade balance is related to international capital flows–not with open or closed markets, unfair trade practices, or national competitiveness. If a country wants to solve the “problem” of its trade deficit, it must reverse the international flow of capital into its country. In many cases net foreign borrowing can be reversed by reducing the government fiscal deficit. [emphasis added, AT]

Doug concludes:

These three simple principles of trade policy…[have] stood the test of time, they come as close to truths as anything economists have to offer in any area of policy controversy. Yet they are routinely denied, explicitly or implicitly, in trade policy debates in the United States and elsewhere. I do not imagine that a greater appreciation of these principles would invariably bring about more liberal trade policies; I offer them, rather, in the more modest hope that they might lead to sounder debates in which the real consequences of government policies are confronted more seriously than at present.

Hat tip: Erica York.

Deep Research considers the costs and benefits of US AID

You can read it here, summary sentence:

Based on the analysis above, the net assessment leans toward the conclusion that USAID’s benefits outweigh its costs on the whole, though with important qualifiers by sector and context.

Here is a useful Michael Kremer (with co-authors) paper.  Here are some CRS links.  Here is a Samo analysis.  AID is a major contributor to the Gavi vaccine program, which is of high value.  The gains from AID-supported PEPFAR are very high also.

To be clear, I consider this kind of thing to be scandalous.  And I strongly suspect that some of the other outrage anecdotes are true, though they are hard to confirm, or not.  How about funds to the BBC?  While the “Elonsphere” on Twitter is very much exaggerating the horror anecdotes and the bad news, I do see classic signs of “intermediaries capture” for the agency, a common problem amongst not-for-profit institutions.

The Samo piece is excellent.  For one thing he notes: “The agency primarily uses a funding model which pays by hours worked, thus incentivizing long-duration projects.”  And the very smart Samantha Power, appointed by Biden to run AID, “…is in favor of disrupting the contractor ecosystem.”  Samo also discusses all the restrictions that require American contractors to be involved.

Here is a study on how to reform AID, I have not yet read it.

Ken Opalo, in a very useful and excellent post, writes:

For example, in 2017 about 60% of USAID’s funds went to just 25 American organizations.  Only 11% of U.S. aid goes directly to foreign organizations. The rest gets management via U.S. entities or multilateral organizations. This doesn’t mean that the 89% of aid gets skimmed off, just that an inefficiently significant share of the 89% gets gobbled up by overhead costs. In addition, this arrangement denies beneficiaries a chance at policy autonomy.

According to the very smart, non-lunatic Charlie Robertson:

My data suggests US AID flows in 2024 were equivalent to: 93% of Somalia’s government revenues, 61% in Sudan, just over 50% in South Sudan and Yemen

While I do not take cutting off those flows lightly, that seems unsustainable and also wrong to me as a matter of USG policy.  Those do not seem like viable enterprises to me.

There are various reports of AID spending billions to help overthrow Assad.  I cannot easily assess this matter, either whether the outcomes was good or whether AID mattered, but perhaps (assuming it was effective) such actions should be taken by a different agency or institution?

While US AID appears to pass a cost-benefit test, it does seem ripe for reform.  Based on what I have read and heard, I would focus all the more on public health programs, and forget about “trade promotion,” “democracy promotion,” and more.  I would get rid of virtually all of the consultants, and make direct transfers to worthy African and Ukraine programs, thus lowering overhead.  If such worthy programs exist, why not give them money directly?  Are they so hard to find?  And if so, how trustworthy are these intermediaries really?  What are they intermediating to?

So a housecleaning is needed here, but the important sources of value still should be supported.

Trumpian policy as cultural policy

The Trump administration has issued a blizzard of Executive Orders, and set many other potential changes in the works.  They might rename Dulles Airport (can you guess to what?).  A bill has been introduced to add you-know-who to Mount Rushmore.  There is DOGE, and the ongoing attempt to reshape federal employment.

At the same time, many people have been asking me why Trump chose Canada and Mexico to threaten with tariffs — are they not our neighbors, major trading partners, and closest allies?

I have a theory that tries to explain all these and other facts, though many other factors matter too.  I think of Trumpian policy, first and foremost, as elevating cultural policy above all else.

Imagine you hold a vision where the (partial) decline of America largely is about culture.  After all, we have more people and more natural resources than ever before.  Our top achievements remain impressive.  But is the overall culture of the people in such great shape?  The culture of government and public service?  Interest in our religious organizations?  The quality of local government in many states?  You don’t have to be a diehard Trumper to have some serious reservations on such questions.

We also see countries, such as China, that have screwed-up policies but have grown a lot, in large part because of a pro-business, pro-learning, pro-work culture.  Latin America, in contrast, did lots of policy reforms but still is somewhat stagnant.

OK, so how might you fix the culture of America?  You want to tell everyone that America comes first.  That America should be more masculine and less soft.  That we need to build.  That we should “own the libs.”  I could go on with more examples and details, but this part of it you already get.

So imagine you started a political revolution and asked the simple question “does this policy change reinforce or overturn our basic cultural messages?”  Every time the policy or policy debate pushes culture in what you think is the right direction, just do it.  Do it in the view that the cultural factors will, over some time horizon, surpass everything else in import.

Simply pass or announce or promise such policies.  Do not worry about any other constraints.

You don’t even have to do them!

They don’t even all have to be legal!  (Illegal might provoke more discussion.)

They don’t all have to persist!

You create a debate over the issues knowing that, because of polarization, at least one-third of the American public is going to take your side, sometimes much more than that.  These are your investments in changing the culture.  And do it with as many issues as possible, as quickly as possible (reread Ezra on this).  Think of it as akin to the early Jordan Peterson cranking out all those videos.  Flood the zone.  That is how you have an impact in an internet-intensive, attention-at-a-premium world.

You will not win all of these cultural debates, but you will control the ideological agenda (I hesitate to call it an “intellectual” agenda, but it is).  Your opponents will be dispirited and disorganized, and yes that does describe the Democrats today.  Then just keep on going.  In the long run, you may end up “owning” far more of the culture than you suspected was possible.

Yes policy will be a mess, but as they say “man kann nicht alles haben.”  The culture is worth a lot, both for its own sake and as a predictor of the future course of policy.

Now let’s turn to some details.

In the first week, Trump makes a huge point of striking down DEI and affirmative action (in some of its forms) as the very beginnings of his administration.  The WSJ described it as the centerpiece of his program.  Take origins seriously!

Early on, we also see so many efforts to make statements about the culture wars.  Trans issues, for instance trans out of the military.  No more “Black History Month” for the Department of Defense.  There are more of these than I can keep track of, use Perplexity if you must.

It is no accident that these are priorities.  And keep in mind the main point is not to eliminate Black History Month, though I do not doubt that is a favored policy.  The main point is to get people talking about how you are eliminating Black History Month.  Just as I am covering the topic right now.

How is that war against US AID going?  Will it be abolished?  Cut off from the Treasury payments system?  Simply rolled up into the State Department?  Presidential “impoundment” invoked?  I do not know.  Perhaps nobody knows, not yet.  The point however is to delegitimatize what US AID stands for, which the Trumpers perceive as “other countries first” and a certain kind of altruism, and a certain kind of NGO left-leaning mindset and lifestyle.

The core message is simply “we do not consider this legitimate.”  Have that be the topic of discussion for months, and do not worry about converting each and every debate into an immediate tangible victory.

What about those ridiculous nominations, starting with RFK, Jr.?  As a result of the nomination, people start questioning whether the medical and public health establishments are legitimate after all.  And once such a question starts being debated, the answer simply cannot come out fully positive, whatever the details of your worldview may be.  People end up in a more negative mental position, and of course then some negative contagion reinforces this further.

JFK and UAP dislcosure?  The point is to get people questioning the previous regime, why they kept secrets from us, what really was going on with many other issues, and so on.  It will work.  The good news, if you can call it that, is that we can expect some of the juicier secrets to be made public.

I think by now you can see how the various attempts to restructure federal employment fit into this picture.  And Trump’s “war against universities” has barely begun, but stay tuned.  Don’t even get me going on “Gaza real estate,” the very latest.

Finally, let’s return to those tariffs (non-tariffs?) on Canada and Mexico.  We already know Trump believes in tariffs, and yes that is a big factor, but why choose those countries in particular?  Well, first it is a symbol of strength and Trump’s apparent ability to ignore and contradict mainstream opinion.  But also those are two countries most Americans have heard of.  If Trump announced high tariffs on say Burundi, most people would have no idea what it means.  They would not know how to debate it, and they would not know if America was debasing itself or thumbing its nose at somebody, or whatever.

Canada and Mexico gets the cultural point across.  Canada, all the more so, and thus the Canadian tariffs might be harder to truly reverse.  At least to many Yankee outsiders, Canada comes across as exactly the kind of “wuss” country we need to distance ourselves from.

To be clear, this hypothesis does not not not require any kind of cohesive elite planning the whole strategy (though there are elites planning significant parts of what Trump is doing).  It suffices to have a) conflicting interest groups, b) competition for Trump’s attention, and c) Trump believing cultural issues are super-important, as he seems to.  There then results a spontaneous order, in which the visible strategy looks just like someone intended exactly this as a concrete plan.

In a future post I may consider the pluses and minuses of this kind of political/cultural strategy.