Midweek Links 03/05/2025
I lined up these links for transmission before perusing the commentary on last night's SOTU. Praiseworthy items on that topic will be sent Saturday.
------------------------------------------------------------
1) Readers of Walter Isaacson's biography of Elon Musk walk away with an understanding of Musk's extreme "duality." On one hand, the entrepreneurial and engineering genius who has made pioneering contributions to EVs, batteries, robotics, space exploration, solar energy, satellite communication, and AI. But, on the other, a mentally erratic, conspiracy-prone megalomaniac. The latter side has come to the fore since his purchase of Twitter and is now on full display with the DOGE escapade. Richard Hanania has a view on why billionaires can easily go insane.
Are Musk and DOGE just creating an even more dangerous version of the "deep state?" Eric Boehm argues that, "A smaller government with a more powerful set of unaccountable executive officials is unlikely to be much of a win for liberty."
https://reason.com/2025/03/04/doge-goes-deep-state/
Is Social Security effectively a Ponzi scheme, as Musk has claimed? It's not a new question. Alex Tabarrok reposted this comment from 2011.
https://marginalrevolution.com/marginalrevolution/2025/03/is-social-security-a-ponzi-scheme-2.html
Bryan Caplan is not surprised that Federal workers infrequently quit their jobs. Overall compensation, especially when job security is taken into account, is very high.
2) According to the Atlanta Fed's US real GDP nowcast (a real-time growth tracker using the most current data), the economic decline resulting from the uncertainty surrounding trade policy may already be underway.
Catherine Rampell discusses the three ways Trump's economic policies are damaging America's economic future: Undermining soft power, harming the environment for business investment, and setting back leading-edge scientific research. If this is typical of the type of material the WAPO will be featuring in its opinion pages, then Bezos's redo will turn out well.
In "Trump's Blockade of America," Joseph Politano details the "massive economic costs" that are likely to result from Trump's tariffs, especially as target countries retaliate. As just one example, he notes that "The auto sector is also key, as America is the world’s largest vehicle importer and much of North American trade is thus related to car production. The US does roughly $100B in cross-border automotive trade with Canada and another $150B with Mexico—tariffs will undermine US manufacturing, considering how intertwined trade is within the continent. Indeed, they would instead benefit the subset of European, Korean, or Japanese carmakers who do almost all manufacturing work abroad and simply ship the final product to the US."
What's coming next in the parade of very bad policies emerging from Trump 2.0? Mickey Levy and Michael Bordo are concerned that Trump may move to challenge the independence of the Federal Reserve and politicize monetary policy.
https://www.hoover.org/research/tariffs-and-threats-will-fed-be-next
Of course, not all bad ideas are the property of "Right-wing" populists. Over on the "Left," complaints about technology-industry "billionaires" resound. Bryan Caplan explains that history shows they are unwarranted.
3) Yascha Mounk recognizes that Trump intends to overthrow the existing international order and replace it with something more to his liking. But the contours of that "something" remain murky. Is it to be a purely transactional, deal-driven structure, an alliance of authoritarian leaders, or an isolated U.S.? In any case, one thing that is clear is that he and his advisors view the world in zero-sum terms.
If the split between the U.S. and its erstwhile European allies does become permanent, then Europe will have to up its game on economic unity, dynamic innovativeness, and military preparedness. A necessary start will involve support for Ukraine and any other potential targets of Russian revanchism (Moldova, the Baltics).
4) Two of my favorite economists, in slightly different ways, lay out cogent explanations for why concern about trade deficits is misguided and not a valid justification for tariffs. Both explain that a large part of the problem derives from a misunderstanding of the nature of foreign investments, leading to bad accounting practices in the classification of cross-border flows of money and financial assets. First up is Scott Sumner, emphasizing that every foreign transaction has two sides.
Followed by Don Boudreaux, clarifying that increases in foreign holdings of US financial assets are really exports, with foreigners purchasing the services provided by a stable currency and law-abiding financial infrastructure. When exports and imports are properly measured, the so-called "trade deficit" not-so-magically disappears.
https://thedailyeconomy.org/article/foreign-dollar-holdings-are-really-us-exports/
5) While everybody's eyes are locked on DOGE and its part-real, part-illusory show of government budget-cutting, Congress is playing a dangerous game with America's fiscal future, misleading the country on what are really "tax cuts" and building in huge future deficits.
https://www.cato.org/blog/all-eyes-doge-congress-plays-budget-games-americas-fiscal-future