public policy

Solving the student debt problem

PNRJ education, inequality, market failure, politics, public policy, science and academia , , , , , , , ,

Aug 24 JDN 2460912

A lot of people speak about student debt as a “crisis”, which makes it sound like the problem is urgent and will have severe consequences if we don’t soon intervene. I don’t think that’s right. While it’s miserable to be unable to pay your student loans, student loans don’t seem to be driving people to bankruptcy or homelessness the way that medical bills do.

Instead I think what we have here is a long-term problem, something that’s been building for a long time and will slowly but surely continue getting worse if we don’t change course. (I guess you can still call it a “crisis” if you want; climate change is also like this, and arguably a crisis.)

But there is a problem here: Student loan balances are rising much faster than other kinds of debt, and the burden falls the worst on Black women and students who went to for-profit schools. A big part of the problem seems to be predatory schools that charge high prices and make big promises but offer poor results.

Making all this worse is the fact that some of the most important income-based repayment plans were overturned by a federal court, forcing everyone who was on them into forebearance. Income-based repayment was a big reason why student loans actually weren’t as bad a burden as their high loan balances might suggest; unlike a personal loan or a mortgage, if you didn’t have enough income to repay your student loans at the full amount, you could get on a plan that would let you make smaller payments, and if you paid on that plan for long enough—even if it didn’t add up to the full balance—your loans would be forgiven.

Now the forebearance is ending for a lot of borrowers, and so they are going into default; and most of that loan forgiveness has been ruled illegal. (Supposedly this is because Congress didn’t approve it. I’ll believe that was the reason when the courts overrule Trump’s tariffs, which clearly have just as thin a legal justification and will cause far more harm to us and the rest of the world.)

In theory, student loans don’t really seem like a bad idea.

College is expensive, because it requires highly-trained professors, who demand high salaries. (The tuition money also goes other places, of course….)

College is valuable, because it provides you with knowledge and skills that can improve your life and also increase your long-term earnings. It’s a big difference: Median salary for someone with a college degree is about $60k, while median salary for someone with only a high school diploma is about $34k.

Most people don’t have enough liquidity to pay for college.

So, we provide loans, so that people can pay for college, and then when they make more money after graduating, they can pay the loans back.

That’s the theory, anyway.

The problem is that average or even median salaries obscure a lot of variation. Some college graduates become doctors, lawyers, or stockbrokers and make huge salaries. Others can’t find jobs at all. In the absence of income-based repayment plans, all students have to pay back their loans in full, regardless of their actual income after graduation.

There is inherent risk in trying to build a career. Our loan system—especially with the recent changes—puts most of this risk on the student. We treat it as their fault they can’t get a good job, and then punish them with loans they can’t afford to repay.

In fact, right now the job market is pretty badfor recent graduates—while usually unemployment for recent college grads is lower than that of the general population, since about 2018 it has actually been higher. (It’s no longer sky-high like it was during COVID; 4.8% is not bad in the scheme of things.)

Actually the job market may even be worse than it looks, because new hires are actually the lowest rate they’ve been since 2020. Our relatively low unemployment currently seems to reflect a lack of layoffs, not a healthy churn of people entering and leaving jobs. People seem to be locked into their jobs, and if they do leave them, finding another is quite difficult.

What I think we need is a system that makes the government take on more of the risk, instead of the students.

There are lots of ways to do this. Actually, the income-based repayment systems we used to have weren’t too bad.

But there is actually a way to do it without student loans at all. College could be free, paid for by taxes.


Now, I know what you’re thinking: Isn’t this unfair to people who didn’t go to college? Why should they have to pay?

Who said they were paying?

There could simply be a portion of the income tax that you only pay if you have a bachelor’s degree. Then you would only pay this tax if you both graduated from college and make a lot of money.

I don’t think this would create a strong incentive not to get a bachelor’s degree; the benefits of doing so remain quite large, even if your taxes were a bit higher as a result.

It might create incentives to major in subjects that aren’t as closely linked to higher earnings—liberal arts instead of engineering, medicine, law, or business. But this I see as fundamentally a public good: The world needs people with liberal arts education. If the market fails to provide for them, the government should step in.

This plan is not as progressive as Elizabeth Warren’s proposal to use wealth taxes to fund free college; but it might be more politically feasible. The argument that people who didn’t go to college shouldn’t have to pay for people who did actually seems reasonable to me; but this system would ensure that in fact they don’t.

The transfer of wealth here would be from people who went to college and make a lot of money to people who went to college and don’t make a lot of money. It would be the government bearing some of the financial risk of taking on a career in an uncertain world.

On foxes and hedgehogs, part I

PNRJ cognitive science, core principles, ethics, experimental economics, mathematical models, politics, public policy, statistics , , , , , , , , , , ,

Aug 3 JDN 2460891

Today I finally got around to reading Expert Political Judgment by Philip E. Tetlock, more or less in a single sitting because I’ve been sick the last week with some pretty tight limits on what activities I can do. (It’s mostly been reading, watching TV, or playing video games that don’t require intense focus.)

It’s really an excellent book, and I now both understand why it came so highly recommended to me, and now pass on that recommendation to you: Read it.

The central thesis of the book really boils down to three propositions:

  1. Human beings, even experts, are very bad at predicting political outcomes.
  2. Some people, who use an open-minded strategy (called “foxes”), perform substantially better than other people, who use a more dogmatic strategy (called “hedgehogs”).
  3. When rewarding predictors with money, power, fame, prestige, and status, human beings systematically favor (over)confident “hedgehogs” over (correctly) humble “foxes”.

I decided I didn’t want to make this post about current events, but I think you’ll probably agree with me when I say:

That explains a lot.

How did Tetlock determine this?

Well, he studies the issue several different ways, but the core experiment that drives his account is actually a rather simple one:

  1. He gathered a large group of subject-matter experts: Economists, political scientists, historians, and area-studies professors.
  2. He came up with a large set of questions about politics, economics, and similar topics, which could all be formulated as a set of probabilities: “How likely is this to get better/get worse/stay the same?” (For example, this was in the 1980s, so he asked about the fate of the Soviet Union: “By 1990, will they become democratic, remain as they are, or collapse and fragment?”)
  3. Each respondent answered a subset of the questions, some about their own particular field, some about another, more distant field; they assigned probabilities on an 11-point scale, from 0% to 100% in increments of 10%.
  4. A few years later, he compared the predictions to the actual results, scoring them using a Brier score, which penalizes you for assigning high probability to things that didn’t happen or low probability to things that did happen.
  5. He compared the resulting scores between people with different backgrounds, on different topics, with different thinking styles, and a variety of other variables. He also benchmarked them using some automated algorithms like “always say 33%” and “always give ‘stay the same’ 100%”.

I’ll show you the key results of that analysis momentarily, but to help it make more sense to you, let me elaborate a bit more on the “foxes” and “hedgehogs”. The notion is was first popularized by Isaiah Berlin in an essay called, simply, The Hedgehog and the Fox.

“The fox knows many things, but the hedgehog knows one very big thing.”

That is, someone who reasons as a “fox” combines ideas from many different sources and perspective, and tries to weigh them all together into some sort of synthesis that then yields a final answer. This process is messy and complicated, and rarely yields high confidence about anything.

Whereas, someone who reasons as a “hedgehog” has a comprehensive theory of the world, an ideology, that provides clear answers to almost any possible question, with the surely minor, insubstantial flaw that those answers are not particularly likely to be correct.

He also considered “hedge-foxes” (people who are mostly fox but also a little bit hedgehog) and “fox-hogs” (people who are mostly hedgehog but also a little bit fox).

Tetlock has decomposed the scores into two components: calibration and discrimination. (Both very overloaded words, but they are standard in the literature.)

Calibration is how well your stated probabilities matched up with the actual probabilities; that is, if you predicted 10% probability on 20 different events, you have very good calibration if precisely 2 of those events occurred, and very poor calibration if 18 of those events occurred.

Discrimination more or less describes how useful your predictions are, what information they contain above and beyond the simple base rate. If you just assign equal probability to all events, you probably will have reasonably good calibration, but you’ll have zero discrimination; whereas if you somehow managed to assign 100% to everything that happened and 0% to everything that didn’t, your discrimination would be perfect (and we would have to find out how you cheated, or else declare you clairvoyant).

For both measures, higher is better. The ideal for each is 100%, but it’s virtually impossible to get 100% discrimination and actually not that hard to get 100% calibration if you just use the base rates for everything.


There is a bit of a tradeoff between these two: It’s not too hard to get reasonably good calibration if you just never go out on a limb, but then your predictions aren’t as useful; we could have mostly just guessed them from the base rates.

On the graph, you’ll see downward-sloping lines that are meant to represent this tradeoff: Two prediction methods that would yield the same overall score but different levels of calibration and discrimination will be on the same line. In a sense, two points on the same line are equally good methods that prioritize usefulness over accuracy differently.

All right, let’s see the graph at last:

The pattern is quite clear: The more foxy you are, the better you do, and the more hedgehoggy you are, the worse you do.

I’d also like to point out the other two regions here: “Mindless competition” and “Formal models”.

The former includes really simple algorithms like “always return 33%” or “always give ‘stay the same’ 100%”. These perform shockingly well. The most sophisticated of these, “case-specific extrapolation” (35 and 36 on the graph, which basically assumes that each country will continue doing what it’s been doing) actually performs as well if not better than even the foxes.

And what’s that at the upper-right corner, absolutely dominating the graph? That’s “Formal models”. This describes basically taking all the variables you can find and shoving them into a gigantic logit model, and then outputting the result. It’s computationally intensive and requires a lot of data (hence why he didn’t feel like it deserved to be called “mindless”), but it’s really not very complicated, and it’s the best prediction method, in every way, by far.

This has made me feel quite vindicated about a weird nerd thing I do: When I have a big decision to make (especially a financial decision), I create a spreadsheet and assemble a linear utility model to determine which choice will maximize my utility, under different parameterizations based on my past experiences. Whichever result seems to win the most robustly, I choose. This is fundamentally similar to the “formal models” prediction method, where the thing I’m trying to predict is my own happiness. (It’s a bit less formal, actually, since I don’t have detailed happiness data to feed into the regression.) And it has worked for me, astonishingly well. It definitely beats going by my own gut. I highly recommend it.

What does this mean?

Well first of all, it means humans suck at predicting things. At least for this data set, even our experts don’t perform substantially better than mindless models like “always assume the base rate”.

Nor do experts perform much better in their own fields than in other fields; they do all perform better than undergrads or random people (who somehow perform worse than the “mindless” models)

But Tetlock also investigates further, trying to better understand this “fox/hedgehog” distinction and why it yields different performance. He really bends over backwards to try to redeem the hedgehogs, in the following ways:

  1. He allows them to make post-hoc corrections to their scores, based on “value adjustments” (assigning higher probability to events that would be really important) and “difficulty adjustments” (assigning higher scores to questions where the three outcomes were close to equally probable) and “fuzzy sets” (giving some leeway on things that almost happened or things that might still happen later).
  2. He demonstrates a different, related experiment, in which certain manipulations can cause foxes to perform a lot worse than they normally would, and even yield really crazy results like probabilities that add up to 200%.
  3. He has a whole chapter that is a Socratic dialogue (seriously!) between four voices: A “hardline neopositivist”, a “moderate neopositivist”, a “reasonable relativist”, and an “unrelenting relativist”; and all but the “hardline neopositivist” agree that there is some legitimate place for the sort of post hoc corrections that the hedgehogs make to keep themselves from looking so bad.

This post is already getting a bit long, so that will conclude part I. Stay tuned for part II, next week!

Wage-matching and the collusion under our noses

PNRJ critique of neoclassical economics, inequality, public policy , , , , , , , , ,

Jul 20 JDN 2460877

It was a minor epiphany for me when I learned, over the course of studying economics, that price-matching policies, while they seem like they benefit consumers, actually are a brilliant strategy for maintaining tacit collusion.

Consider a (Bertrand) market, with some small number n of firms in it.

Each firm announces a price, and then customers buy from whichever firm charges the lowest price. Firms can produce as much as they need to in order to meet this demand. (This makes the most sense for a service industry rather than as literal manufactured goods.)

In Nash equilibrium, all firms will charge the same price, because anyone who charged more would sell nothing. But what will that price be?

In the absence of price-matching, it will be just above the marginal cost of the service. Otherwise, it would be advantageous to undercut all the other firms by charging slightly less, and you could still make a profit. So the equilibrium price is basically the same as it would be in a perfectly-competitive market.

But now consider what happens if the firms can announce a price-matching policy.

If you were already planning on buying from firm 1 at price P1, and firm 2 announces that you can buy from them at some lower price P2, then you still have no reason to switch to firm 2, because you can still get price P2 from firm 1 as long as you show them the ad from the other firm. Under the very reasonable assumption that switching firms carries some cost (if nothing else, the effort of driving to a different store), people won’t switch—which means that any undercut strategy will fail.

Now, firms don’t need to set such low prices! They can set a much higher price, confident that if any other firm tries to undercut them, it won’t actually work—and thus, no one will try to undercut them. The new Nash equilibrium is now for the firms to charge the monopoly price.

In the real world, it’s a bit more complicated than that; for various reasons they may not actually be able to sustain collusion at the monopoly price. But there is considerable evidence that price-matching schemes do allow firms to charge a higher price than they would in perfect competition. (Though the literature is not completely unanimous; there are a few who argue that price-matching doesn’t actually facilitate collusion—but they are a distinct minority.)

Thus, a policy that on its face seems like it’s helping consumers by giving them lower prices actually ends up hurting them by giving them higher prices.

Now I want to turn things around and consider the labor market.

What would price-matching look like in the labor market?

It would mean that whenever you are offered a higher wage at a different firm, you can point this out to the firm you are currently working at, and they will offer you a raise to that new wage, to keep you from leaving.

That sounds like a thing that happens a lot.

Indeed, pretty much the best way to get a raise, almost anywhere you may happen to work, is to show your employer that you have a better offer elsewhere. It’s not the only way to get a raise, and it doesn’t always work—but it’s by far the most reliable way, because it usually works.

This for me was another minor epiphany:

The entire labor market is full of tacit collusion.

The very fact that firms can afford to give you a raise when you have an offer elsewhere basically proves that they weren’t previously paying you all that you were worth. If they had actually been paying you your value of marginal product as they should in a competitive labor market, then when you showed them a better offer, they would say: “Sorry, I can’t afford to pay you any more; good luck in your new job!”

This is not a monopoly price but a monopsonyprice (or at least something closer to it); people are being systematically underpaid so that their employers can make higher profits.

And since the phenomenon of wage-matching is so ubiquitous, it looks like this is happening just about everywhere.

This simple model doesn’t tell us how much higher wages would be in perfect competition. It could be a small difference, or a large one. (It likely varies by industry, in fact.) But the simple fact that nearly every employer engages in wage-matching implies that nearly every employer is in fact colluding on the labor market.

This also helps explain another phenomenon that has sometimes puzzled economists: Why doesn’t raising the minimum wage increase unemployment? Well, it absolutely wouldn’t, if all the firms paying minimum wage are colluding in the labor market! And we already knew that most labor markets were shockingly concentrated.

What should be done about this?

Now there we have a thornier problem.

I actually think we could implement a law against price-matching on product and service markets relatively easily, since these are generally applied to advertised prices.

But a law against wage-matching would be quite tricky indeed. Wages are generally not advertised—a problem unto itself—and we certainly don’t want to ban raises in general.

Maybe what we should actually do is something like this: Offer a cash bonus (refundable tax credit?) to anyone who changes jobs in order to get a higher wage. Make this bonus large enough to offset the costs of switching jobs—which are clearly substantial. Then, the “undercut” (“overcut”?) strategy will become more effective; employers will have an easier time poaching workers from each other, and a harder time sustaining collusive wages.

Businesses would of course hate this policy, and lobby heavily against it. This is precisely the reaction we should expect if they are relying upon collusion to sustain their profits.

Quantifying stereotypes

PNRJ cognitive science, core principles, ethics, heuristics and biases, politics, public policy, tribal paradigm , , , , , , , , , , , , ,

Jul 6 JDN 2460863

There are a lot of stereotypes in the world, from the relatively innocuous (“teenagers are rebellious”) to the extremely harmful (“Black people are criminals”).

Most stereotypes are not true.

But most stereotypes are not exactly false, either.

Here’s a list of forty stereotypes, all but one of which I got from this list of stereotypes:

(Can you guess which one? I’ll give you a hint: It’s a group I belong to and a stereotype I’ve experienced firsthand.)

  1. “Children are always noisy and misbehaving.”
  2. “Kids can’t understand complex concepts.”
  3. “Children are tech-savvy.”
  4. “Teenagers are always rebellious.”
  5. “Teenagers are addicted to social media.”
  6. “Adolescents are irresponsible and careless.”
  7. “Adults are always busy and stressed.”
  8. “Adults are responsible.”
  9. “Adults are not adept at using modern technologies.”
  10. “Elderly individuals are always grumpy.”
  11. “Old people can’t learn new skills, especially related to technology.”
  12. “The elderly are always frail and dependent on others.”
  13. “Women are emotionally more expressive and sensitive than men.”
  14. “Females are not as good at math or science as males.”
  15. “Women are nurturing, caring, and focused on family and home.”
  16. “Females are not as assertive or competitive as men.”
  17. “Men do not cry or express emotions openly.”
  18. “Males are inherently better at physical activities and sports.”
  19. “Men are strong, independent, and the primary breadwinners.”
  20. “Males are not as good at multitasking as females.”
  21. “African Americans are good at sports.”
  22. “African Americans are inherently aggressive or violent.”
  23. “Black individuals have a natural talent for music and dance.”
  24. “Asians are highly intelligent, especially in math and science.”
  25. “Asian individuals are inherently submissive or docile.”
  26. “Asians know martial arts.”
  27. “Latinos are uneducated.”
  28. “Hispanic individuals are undocumented immigrants.”
  29. “Latinos are inherently passionate and hot-tempered.”
  30. “Middle Easterners are terrorists.”
  31. “Middle Eastern women are oppressed.”
  32. “Middle Eastern individuals are inherently violent or aggressive.”
  33. “White people are privileged and unacquainted with hardship.”
  34. “White people are racist.”
  35. “White individuals lack rhythm in music or dance.”
  36. “Gay men are excessively flamboyant.”
  37. “Gay men have lisps.”
  38. “Lesbians are masculine.”
  39. “Bisexuals are promiscuous.”
  40. “Trans people get gender-reassignment surgery.”

If you view the above 40 statements as absolute statements about everyone in the category (the first-order operator “for all”), they are obviously false; there are clear counter-examples to every single one. If you view them as merely saying that there are examples of each (the first-order operator “there exists”), they are obviously true, but also utterly trivial, as you could just as easily find examples from other groups.

But I think there’s a third way to read them, which may be more what most people actually have in mind. Indeed, it kinda seems uncharitable not to read them this third way.

That way is:

“This is more true of the group I’m talking about than it is true of other groups.”

And that is not only a claim that can be true, it is a claim that can be quantified.

Recall my new favorite effect size measure, because it’s so simple and intuitive; I’m not much for the official name probability of superiority (especially in this context!), so I’m gonna call it the more down-to-earth chance of being higher.

It is exactly what it sounds like: If you compare a quantity X between group A and group B, what is the chance that the person in group A has a higher value of X?

Let’s start at the top: If you take one randomly-selected child, and one randomly-selected adult, what is the chance that the child is one who is more prone to being noisy and misbehaving?

Probably pretty high.

Or let’s take number 13: If you take one randomly-selected woman and one randomly-selected man, what is the chance that the woman is the more emotionally expressive one?

Definitely more than half.

Or how about number 27: If you take one randomly-selected Latino and one randomly-selected non-Latino (especially if you choose a White or Asian person), what is the chance that the Latino is the less-educated one?

That one I can do fairly precisely: Since 95% of White Americans have completed high school but only 75% of Latino Americans have, while 28% of Whites have a bachelor’s degree and only 21% of Latinos do, the probability of the White person being at least as educated as the Latino person is about 82%.

I don’t know the exact figures for all of these, and I didn’t want to spend all day researching 40 different stereotypes, but I am quite prepared to believe that at least all of the following exhibit a chance of being higher that is over 50%:

1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 13, 15, 16, 17, 18, 19, 21, 24, 26, 27, 28, 29, 30, 31, 33, 34, 36, 37, 38, 40.

You may have noticed that that’s… most of them. I had to shrink the font a little to fit them all on one line.

I think 30 is an important one to mention, because while terrorists are a tiny proportion of the Middle Eastern population, they are in fact a much larger proportion of that population than they are of most other populations, and it doesn’t take that many terrorists to make a place dangerous. The Middle East is objectively a more dangerous place for terrorism than most other places, and only India and sub-Saharan Africa close (and both of which are also largely driven by Islamist terrorism). So while it’s bigoted to assume that any given Muslim or Middle Easterner is a terrorist, it is an objective fact that a disproportionate share of terrorists are Middle Eastern Muslims. Part of what I’m trying to do here is get people to more clearly distinguish between those two concepts, because one is true and the other is very, very false.

40 also deserves particular note, because the chance of being higher is almost certainly very close to 100%. While most trans people don’t get gender-reassignment surgery, virtually all people who get gender-reassignment surgery are trans.

Then again, you could see this as a limitation of the measure, since we might expect a 100% score to mean “it’s true of everyone in the group”, when here it simply means “if we ask people whether they have had gender-reassignment surgery, the trans people sometimes say yes and the cis people always say no.”


We could talk about a weak or strict chance of being higher: The weak chance is the chance of being greater than or equal to (which is the normal measure), while the strict chance is the chance of being strictly greater. In this case, the weak chance is nearly 100%, while the strict chance is hard to estimate but probably about 33% based on surveys.

This doesn’t mean that all stereotypes have some validity.

There are some stereotypes here, including a few pretty harmful ones, for which I’m not sure how the statistics would actually shake out:
10, 14, 22, 23, 25, 32, 35, 39

But I think we should be honestly prepared for the possibility that maybe there is some statistical validity to some of these stereotypes too, and instead of simply dismissing the stereotypes as false—or even bigoted—we should instead be trying to determine how true they are, and also look at why they might have some truth to them.

My proposal is to use the chance of being higher as a measure of the truth of a stereotype.

A stereotype is completely true if it has a chance of being higher of 100%.

It is completely false if it has a chance of being higher of 50%.

And it is completely backwards if it has a chance of being higher of 0%.

There is a unique affine transformation that does this: 2X-1.

100% maps to 100%, 50% maps to 0%, and 0% maps to -100%.

With discrete outcomes, the difference between weak and strong chance of being higher becomes very important. With a discrete outcome, you can have a 100% weak chance but a 1% strong chance, and honestly I’m really not sure whether we should say that stereotype is true or not.

For example, for the claim “trans men get bottom surgery”, the figures would be 100% and 6% respectively. The vast majority of trans men don’t get bottom surgery—but cis men almost never do. (Unless I count penis enlargement surgery? Then the numbers might be closer than you’d think, at least in the US where the vast majority of such surgery is performed.)

And for the claim “Middle Eastern Muslims are terrorists”, well, given two random people of whatever ethnicity or religion, they’re almost certainly not terrorists—but if it one of them is, it’s probably the Middle Eastern Muslim. It may be better in this case to talk about the conditional chance of being higher: If you have two random people, you know that one is a terrorist and one isn’t, and one is a Middle Eastern Muslim and one isn’t, how likely is it that the Middle Eastern Muslim is the terrorist? Probably about 80%. Definitely more than 50%, but also not 100%. So that’s the sense in which the stereotype has some validity. It’s still the case that 99.999% of Middle Eastern Muslims aren’t terrorists, and so it remains bigoted to treat every Middle Eastern Muslim you meet like a terrorist.

We could also work harder to more clearly distinguish between “Middle Easterners are terrorists” and “terrorists are Middle Easterners”; the former is really not true (99.999% are not), but the latter kinda is (the plurality of the world’s terrorists are in the Middle East).

Alternatively, for discrete traits we could just report all four probabilities, which would be something like this: 99.999% of Middle Eastern Muslims are not terrorists, and 0.001% are; 99.9998% of other Americans are not terrorists, and 0.0002% are. Compared to Muslim terrorists in the US, White terrorists actually are responsible for more attacks and a similar number of deaths, but largely because there just are a lot more White people in America.

These issues mainly arise when a trait is discrete. When the trait is itself quantitative (like rebelliousness, or math test scores), this is less of a problem, and the weak and strong chances of being higher are generally more or less the same.


So instead of asking whether a stereotype is true, we could ask: How true is it?

Using measures like this, we will find that some stereotypes probably have quite high truth levels, like 1 and 4; but others, if they are true at all, must have quite low truth levels, like 14; if there’s a difference, it’s a small difference!

The lower a stereotype’s truth level, the less useful it is; indeed, by this measure, it directly predicts how accurate you’d be at guessing someone’s score on the trait if you knew only the group they belong to. If you couldn’t really predict, then why are you using the stereotype? Get rid of it.

Moreover, some stereotypes are clearly more harmful than others.

Even if it is statistically valid to say that Black people are more likely to commit crimes in the US than White people (it is), the kind of person who goes around saying “Black people are criminals” is (1) smearing all Black people with the behavior of a minority of them, and (2) likely to be racist in other ways. So we have good reason to be suspect of people who say such things, even if there may be a statistical kernel of truth to their claims.

But we might still want to be a little more charitable, a little more forgiving, when people express stereotypes. They may make what sounds like a blanket absolute “for all” statement, but actually intend something much milder—something that might actually be true. They might not clearly grasp the distinction between “Middle Easterners are terrorists” and “terrorists are Middle Easterners”, and instead of denouncing them as a bigot immediately, you could try taking the time to listen to what they are saying and carefully explain what’s wrong with it.

Failing to be charitable like this—as we so often do—often feels to people like we are dismissing their lived experience. All the terrorists they can think of were Middle Eastern! All of the folks they know with a lisp turned out to be gay! Lived experience is ultimately anecdotal, but it still has a powerful effect on how people think (too powerful—see also availability heuristic), and it’s really not surprising that people would feel we are treating them unjustly if we immediately accuse them of bigotry simply for stating things that, based on their own experience, seem to be true.

I think there’s another harm here as well, which is that we damage our own credibility. If I believe that something is true and you tell me that I’m a bad person for believing it, that doesn’t make me not believe it—it makes me not trust you. You’ve presented yourself as the sort of person who wants to cover up the truth when it doesn’t fit your narrative. If you wanted to actually convince me that my belief is wrong, you could present evidence that might do that. (To be fair, this doesn’t always work; but sometimes it does!) But if you just jump straight to attacking my character, I don’t want to talk to you anymore.

The CBO report on Trump’s terrible new budget

PNRJ current events, politics, public policy , , , , , , , ,

Jun 8 JDN 2460835

And now back to our regularly scheduled programming. We’re back to talking about economics, which in our current environment pretty much always means bad news. The budget the House passed is pretty much the same terrible one Trump proposed.

The Congressional Budget Office (CBO), one of those bureaucratic agencies that most people barely even realize exists, but is actually extremely useful, spectacularly competent, and indeed one of the most important and efficient agencies in the world, has released its official report on the Trump budget that recently passed the House. (Other such agencies include the Bureau of Labor Statistics and the Bureau of Economic Analysis. US economic statistics are among the best in the world—some refer to them as the “gold standard”, but I refuse to insult them in that way.)

The whole thing is pretty long, but you can get a lot of the highlights from the summary tables.

The tables are broken down by the House committee responsible for choosing them; here are the effects on the federal budget deficit the CBO predicts for the next 5 and 10 years. For these numbers, positive means more deficit (bad), negative means less deficit (good).

Commitee5 years10 years
Agriculture-88,304-238,238
Armed Services124,602143,992
Education and Workforce-253,295-349,142
Energy and Commerce-247,074-995,062
Financial Services-373-5,155
Homeland Security27,87467,147
Judiciary26,9896,910
Natural Resources-4,789-20,158
Oversight and Government Reform-17,449-50,951
Transportation and Infrastructure-361-36,551
Ways and Means2,199,4033,767,402

These are in units of millions of dollars.

Almost all the revenue comes from the Ways and Means committee, because that’s the committee that sets tax rates. (If you hate your taxes, don’t hate the IRS; hate the Ways and Means Committee.) So for all the other departments, we can basically take the effect on the deficit as how much spending was changing.

If this budget makes it through the Senate, Trump will almost certainly sign it into law. If that happens:

We’ll be cutting $238 billion from Agriculture Committee programs: And most of where those cuts come from are programs that provide food for poor people.

We’ll be adding $144 billion to the military budget, and a further $67 billion to “homeland security” (which here mostly means CBP and ICE). Honestly, I was expecting more, so I’m vaguely relieved.

We’ll be cutting $349 billion from Education and Workforce programs; this is mostly coming from the student loan system, so we can expect much more brutal repayment requirements for people with student loans.

We’ll be cutting almost $1 trillion from Energy and Commerce programs; this is mainly driven by massive cuts to Medicare and Medicaid (why are they handled by this committee? I don’t know).
The bill itself doesn’t clearly specify, so the CBO issued another report offering some scenarios for how these budget cuts could be achieved. Every single scenario results in millions of people losing coverage, and the one that saves the most money would result in 5.5 million people losing some coverage and 2.4 million becoming completely uninsured.

The $20 billion from Natural Resources mostly involves rolling back environmental regulations, cutting renewable energy subsidies, and making it easier to lease federal lands for oil and gas drilling. All of these are bad, and none of them are surprising; but their effect on the budget is pretty small.

The Oversight and Government Reform portion is reducing the budget deficit by $51 billion mainly by forcing federal employees to contribute a larger share of their pensions—which is to say, basically cutting federal salaries across the board. While this has a small effect on the budget, it will impose substantial harm on the federal workforce (which has already been gutted by DOGE).

The Transportation and Infrastructure changes involve expansions of the Coast Guard (why are they not in Armed Services again?) along with across-the-board cuts of anything resembling support for sustainability or renewable energy; but the main way they actually decrease the deficit is by increasing the cost of registering cars. I think they’re trying to look like they are saving money by cutting “wasteful” (read: left-wing) programs, but in fact they mainly just made it more expensive to own a car—which, quite frankly, is probably a good thing from an environmental perspective.

Then, last but certainly not least, we come to the staggering $3.7 trillion increase in our 10-year deficit from the Ways and Means committee. What is this change that is more than 3 times as expensive as all the savings from the other departments combined?

Cutting taxes on rich people.

They are throwing some bones to the rest of the population, such as removing the taxes on tips and overtime (temporarily), and making a bunch of other changes to the tax code in terms of deductions and credits and such (because that’s what we needed, a more complicated tax code!); but the majority of the decrease in revenue comes from cutting income taxes, especially at the very highest brackets.

The University of Pennsylvania estimates that the poorest 40% of the population will actually see their after-tax incomes decrease as a result of the bill. Those in the 40% to 80% percentiles will see very little change. Only those in the richest 20% will see meaningful increases in income, and those will be highest for the top 5% and above.

The 95-99% percentile will see the greatest proportional gain, 3.5% of their income.

But the top 0.1% will see by far the greatest absolute gain, each gaining an average of $385,000 per year. Every one of these people already has an annual income of at least $4 million.

The median price of a house in the United States is $416,000.

That is, we are basically handing a free house to every millionaire in America—every year for the next 10 years.

That is why we’re adding $3.7 trillion to the national debt. So that the top 0.1% can have free houses.

Without these tax cuts, the new budget would actually reduce the deficit—which is really something we ought to be doing, because we’re running a deficit of $1.8 trillion per year and we’re not even in a recession. But because Republicans love nothing more than cutting taxes on the rich—indeed, sometimes it seems it is literally the only thing they care about—we’re going to make the deficit even bigger instead.

I can hope this won’t make it through the Senate, but I’m not holding my breath.

Patriotism for dark times

PNRJ core principles, current events, ethics, inequality, politics, public policy , , , , , , , , , , , , , , , , , , , , , , , ,

May 18 JDN 2460814

These are dark times indeed. ICE is now arresting people without warrants, uniforms or badges and detaining them in camps without lawyers or trials. That is, we now have secret police who are putting people in concentration camps. Don’t mince words here; these are not “arrests” or “deportations”, because those actions would require warrants and due process of law.

Fascism has arrived in America, and, just as predicted, it is indeed wrapped in the flag.

I don’t really have anything to say to console you about this. It’s absolutely horrific, and the endless parade of ever more insane acts and violations of civil rights under Trump’s regime has been seriously detrimental to my own mental health and that of nearly everyone I know.

But there is something I do want to say:

I believe the United States of America is worth saving.

I don’t think we need to burn it all down and start with something new. I think we actually had something pretty good here, and once Trump is finally gone and we manage to fix some of the tremendous damage he has done, I believe that we can put better safeguards in place to stop something like this from happening again.

Of course there are many, many ways that the United States could be made better—even before Trump took the reins and started wrecking everything. But when we consider what we might have had instead, the United States turns out looking a lot better than most of the alternatives.

Is the United States especially evil?

Every nation in the world has darkness in its history. The United States is assuredly no exception: Genocide against Native Americans, slavery, Jim Crow, and the Japanese internment to name a few. (I could easily name many more, but I think you get the point.) This country is certainly responsible for a great deal of evil.

But unlike a lot of people on the left, I don’t think the United States is uniquely or especially evil. In fact, I think we have quite compelling reasons to think that the United States overall has been especially good, and could be again.

How can I say such a thing about a country that has massacred natives, enslaved millions, and launched a staggering number of coups?

Well, here’s the thing:

Every country’s history is like that.

Some are better or worse than others, but it’s basically impossible to find a nation on Earth that hasn’t massacred, enslaved, or conquered another group—and often all three. I guess maybe some of the very youngest countries might count, those that were founded by overthrowing colonial rule within living memory. But certainly those regions and cultures all had similarly dark pasts.

So what actually makes the United States different?

What is distinctive about the United States, relative to other countries? It’s large, it’s wealthy, it’s powerful; that is certainly all true. But other nations and empires have been like that—Rome once was, and China has gained and lost such status multiple times throughout its long history.

Is it especially corrupt? No, its corruption ratings are on a par with other First World countries.

Is it especially unequal? Compared to the rest of the First World, certainly; but by world standards, not really. (The world is a very unequal place.)

But there are two things about the United States that really do seem unique.

The first is how the United States was founded.

Some countries just sort of organically emerged. They were originally tribes that lived in that area since time immemorial, and nobody really knows when they came about; they just sort of happened.

Most countries were created by conquering or overthrowing some other country. Usually one king wanted some territory that was held by another king, so he gathered an army and took over that territory and said it was his now. Or someone who wasn’t a king really wanted to become one, so he killed the current king and took his place on the throne.

And indeed, for most of history, most nations have been some variant of authoritarianism. Monarchy was probably the most common, but there were also various kinds of oligarchy, and sometimes military dictatorship. Even Athens, the oldest recorded “democracy”, was really an oligarchy of Greek male property owners. (Granted, the US also started out pretty much the same way.)

I’m glossing over a huge amount of variation and history here, of course. But what I really want to get at is just how special the founding of the United States was.

The United States of America was the first country on Earth to be designed.

Up until that point, countries just sort of emerged, or they governed however their kings wanted, or they sort of evolved over time as different interest groups jockeyed for control of the oligarchy.

But the Constitution of the United States was something fundamentally new. A bunch of very smart, well-read, well-educated people (okay, mostly White male property owners, with a few exceptions) gathered together to ask the bold question: “What is the best way to run a country?”

And they discussed and argued and debated over this, sometimes finding agreement, other times reaching awkward compromises that no one was really satisfied with. But when the dust finally settled, they had a blueprint for a better kind of nation. And then they built it.

This was a turning point in human history.

Since then, hundreds of constitutions have been written, and most nations on Earth have one of some sort (and many have gone through several). We now think of writing a constitution as what you do to make a country. But before the United States, it wasn’t! A king just took charge and did whatever he wanted! There were no rules; there was no document telling him what he could and couldn’t do.

Most countries for most of history really only had one rule:

L’Etat, c’est moi.

Yes, there was some precedent for a constitution, even going all the way back to the Magna Carta; but that wasn’t created when England was founded, it was foisted upon the king after England had already been around for centuries. And it was honestly still pretty limited in how it restricted the king.

Now, it turns out that the Founding Fathers made a lot of mistakes in designing the Constitution; but I think this is quite forgivable, for two reasons:

  1. They were doing this for the first time. Nobody had ever written a constitution before! Nobody had governed a democracy (even of the White male property-owner oligarchy sort) in centuries!
  2. They knew they would make mistakes—and they included in the Constitution itself a mechanism for amending it to correct those mistakes.

And amend it we have, 27 times so far, most importantly the Bill of Rights and the Fifteenth and Nineteenth Amendments, which together finally created true universal suffrage—a real democracy. And even in 1920 when the Nineteenth Amendment was passed, this was an extremely rare thing. Many countries had followed the example of the United States by now, but only a handful of them granted voting rights to women.

The United States really was a role model for modern democracy. It showed the world that a nation governed by its own people could be prosperous and powerful.

The second is how the United States expanded its influence.

Many have characterized the United States as an empire, because its influence is so strongly felt around the world. It is undeniably a hegemon, at least.

The US military is the world’s most powerful, accounting for by far the highest spending (more than the next 9 countries combined!) and 20 of the world’s 51 aircraft carriers (China has 5—and they’re much smaller). (The US military is arguably not the largest since China has more soldiers and more ships. But US soldiers are much better trained and equipped, and the US Navy has far greater tonnage.) Most of the world’s currency exchange is done in dollars. Nearly all the world’s air traffic control is done in English. The English-language Internet is by far the largest, forming nearly the majority of all pages by itself. Basically every computer in the world either runs as its operating system Windows, Mac, or Linux—all of which were created in the United States. And since the US attained its hegemony after World War 2, the world has enjoyed a long period of relative peace not seen in centuries, sometimes referred to as the Pax Americana. These all sound like characteristics of an empire.

Yet if it is an empire, the United States is a very unusual one.

Most empires are formed by conquest: Rome created an empire by conquering most of Europe and North Africa. Britain created an empire by colonizing and conquering natives all around the globe.

Yet aside from the Native Americans (which, I admit, is a big thing to discount) and a few other exceptions, the United States engaged in remarkably little conquest. Its influence is felt as surely across the globe as Britain’s was at the height of the British Empire, yet where under Britain all those countries were considered holdings of the Crown (until they all revolted), under the Pax Americana they all have their own autonomous governments, most of them democracies (albeit most of them significantly flawed—including the US itself, these days).

That is, the United States does not primarily spread its influence by conquering other nations. It primarily spreads its influence through diplomacy and trade. Its primary methods are peaceful and mutually-beneficial. And the world has become tremendously wealthier, more peaceful, and all around better off because of this.

Yes, there are some nuances here: The US certainly has engaged in a large number of coups intended to decide what sort of government other countries would have, especially in Latin America. Some of these coups were in favor of democratic governments, which might be justifiable; but many were in favor of authoritarian governments that were simply more capitalist, which is awful. (Then again, while the US was instrumental in supporting authoritarian capitalist regimes in Chile and South Korea, those two countries did ultimately turn into prosperous democracies—especially South Korea.)

So it still remains true that the United States is guilty of many horrible crimes; I’m not disputing that. What I’m saying is that if any other nation had been in its place, things would most like have been worse. This is even true of Britain or France, which are close allies of the US and quite similar; both of these countries, when they had a chance at empire, took it by brutal force. Even Norway once had an empire built by conquest—though I’ll admit, that was a very long time ago.

I admit, it’s depressing that this is what a good nation looks like.

I think part of the reason why so many on the left imagine the United States to be uniquely evil is that they want to think that somewhere out there is a country that’s better than this, a country that doesn’t have staggering amounts of blood on its hands.

But no, this is pretty much as good as it gets. While there are a few countries with a legitimate claim to being better (mostly #ScandinaviaIsBetter), the vast majority of nations on Earth are not better than the United States; they are worse.

Humans have a long history of doing terrible things to other humans. Some say it’s in our nature. Others believe that it is the fault of culture or institutions. Likely both are true to some extent. But if you look closely into the history of just about anywhere on Earth, you will find violence and horror there.

What you won’t always find is a nation that marks a turning point toward global democracy, or a nation that establishes its global hegemony through peaceful and mutually-beneficial means. Those nations are few and far between, and indeed are best exemplified by the United States of America.

Trump has proposed an even worse budget

PNRJ current events, politics, public policy , , , , , , , , ,

May 11 JDN 2460807

I didn’t really intend for my blog this year to be taken over by talk about Trump. But all the damage that Trump is doing to America and the world is clearly the most important thing going on in economics right now, and it’s honestly just hard for me to think about anything else.

Trump has proposed a budget. (Read at your own risk; what’s on the White House website is more screed than budget proposal. And it’s pretty clearly written by Trump himself, perhaps with some editing.)

It will come as no surprise to all of you that it is a terrible budget, even worse than what the Republicans recently passed.

First of all, Trump is cutting discretionary spending by $163 billion. This is a huge cut—it removes almost one-fourth of all non-military discretionary spending. Trump naturally claims that he’s just reducing waste, shutting down DEI programs (for the right wing this is considered a good thing), what Trump calls “Green New Scam funding” (read: anything remotely related to environmental sustainability or climate change), and what Trump claims are “large swaths of the Federal Government weaponized against the American people” (read: any other departments Trump doesn’t like, whether or not he actually understands what they are for).

And lest you think that these draconian cuts are being done for fiscal responsibility in the face of an utterly massive federal deficit, Trump also proposes to increase military spending by 13%; multiplying that by our current $850 billion budget means he’s adding $110 billion to the military; and he also says he wants to add a further $119 billion in the mandatory budget. This means he’s cutting $163 billion from non-military spending and adding $239 billion in military spending—which will actually increase the deficit.

Trump is ending programs like the Cybersecurity and Infrastructure Security Agency (sure, let’s just let Chinese hackers in! Why not? It’s not like there’s anything important on those Pentagon servers!) and Fair Housing (amid a historic housing crisis), as well as slashing the EPA (because who needs clean air and water anyway?).

Unsurprisingly, he’s also ending anything that resembles DEI, which includes both some really good necessary programs, and also some stuff that is genuinely ineffective or even counterproductive. Most people who work at firms that have DEI programs think that the programs do more good than harm, but there are big partisan differences, so cutting DEI will play well with the Republican base. But I for one do not want to play the word game where we say out loud every time “diversity, equity, and inclusion”, because there is a big difference between the fundamentally laudable goals of diversity, equity and inclusion, and the actual quite mixed results from DEI programs as they have been implemented. It’s awful that Trump is cutting DEI with a chainsaw, but we really should have been cutting it with a scalpel for awhile now.

Trump is also throwing money at the border, increasing the budgets of CBP (whatever) and ICE (very, very bad!). This is probably the worst thing about the budget, though it also isn’t a big surprise. Part of the increased ICE spending is “50,000 detention beds”, which since ICE lately has been arresting and detaining people without warrants or trials and courts have specifically ruled that they are violating due process, I believe we can fairly say constitutes a concentration camp. If and when they start actually giving everyone—everyone, dammit—due process, then you can call it a detention center.

Trump is eliminating USAID and folding what’s left of it into DFC; but these institutions had quite different goals. USAID had two goals: Advance America’s interests, and make the world a better place. And while it did have significant flaws, overall it did quite a good job of achieving both of those goals—and indeed, publicly making the world a better place can advance America’s interests. DFC’s goal is to promote economic development by financing investments that otherwise could not be financed. That can also promote America’s interests and make the world a better place, but it excludes many of the vital roles that USAID has played in providing humanitarian aid and disaster relief as well as promoting democracy and advancing environmental sustainability. (And when I say “promoting democracy”, I don’t mean the way the CIA does it, by orchestrating coups; I mean things like helping Ukraine remove its dependency on Russia.) There is more to life than money—but I don’t think Trump really understands that.

Trump is canceling a bunch of subsidies to renewable energy, but honestly I’m not too worried about that; the technology has matured so much that renewable energy is actually the cheapest form of energy for most purposes. (And it kinda makes sense: The sun and wind are already there.) Removing the subsidies will make it harder to compete with oil (because oil is still heavily subsidized); but I still think renewables can win. Basically the past subsidies have done their job, and it’s probably okay to remove them.

There’s a really weird proposal involving food, which I think I will just quote in its entirety:

The Budget also supports the creation of MAHA food boxes, that would be filled with commodities sourced from domestic farmers and given directly to American households.

This sounds… kinda… Maoist? Definitely some kind of communist. Why are we circumventing the highly-functional capitalist market for food with massive in-kind transfers? (Despite scaremongering, groceries in the US are still pretty affordable by world standards.) And how are we going to do that, logistically? (Produce does need to be kept fresh, after all.) Does Trump think that markets have trouble providing food in this country? Does he not understand that SNAP exists, and already prioritizes healthier food?(Or does he plan to get rid of it?) Does he think that the reason most Americans don’t eat a very good diet (which is objectively true) is that they aren’t able to get fresh produce? (And not, say, subsidies for factory-farmed meat and high-fructose corn syrup, or mass marketing campaigns by corporations that make junk food?) I’m not so much against this program as I am really baffled by it. It seems like it’s trying to solve the wrong problem by the wrong means. (I’m guessing RFK Jr. had a hand in this, and I recently learned that he doesn’t believe in germ theory. He is a god-tier crank. Like, his views on vaccines and autism were bad enough, but this? Seriously, you put this guy in charge of public health!?)

There are some things in the budget that aren’t terrible, but they’re mostly pretty small.

One actually good thing about Trump’s new budget is the expansion of VA services. I don’t really have any objection to that. It’s a fairly small portion of the budget, and veterans deserve better than they’ve been getting.

Trump says he won’t be cutting Social Security (so perhaps we dodged a bullet on that one). Of course, if he actually cared in the least about the budget deficit, that’s probably what he would cut, because it’s such a huge proportion of our spending—about one-fifth of all federal spending.

I’m not sure what to think about the changes Trump is making to education funding. He’s shutting down the Department of Education, but it seems like most of what it does (including offering grants and handling student loans) is just going to be folded into other agencies. It doesn’t actually seem like there have been substantial cuts in their services, just… a weird and unnecessary reorganization. My guess is that after Trump had already publicly committed to “end the Department of Education”, some staffer quietly explained to him what the Department of Education actually does and why it is necessary; since he’d already committed to shutting it down, he didn’t want to pivot on that, so instead he shut it down in name only while preserving most of what it actually does in other agencies.

Trump is also investing heavily in charter schools, which… meh. Some charter schools are really good, some are really bad. There isn’t a clear pattern of them being better or worse than public schools. Overall, the preponderance of evidence suggests that the average charter school is worse than the average public school, but there’s a lot of variation in both, so the odds that any particular charter school is better than any particular public school are still quite high. (I recently learned about this measure of effect size, probability of superiority, and it’s now my new favorite measure of effect size. Eat your heart out, Cohen’s d!)

Trump is also diverting funding to apprenticeships; he’s introducing a new “Make America Skilled Again” (ugh) grant that States would be required to spend at least 10% on apprenticeship. I’m pretty okay with this in general. 10% is not a lot, and we totally could use more apprenticeship programs in fields like welding and pipefitting.

Another good thing Trump is doing is increasing funding for NASA; he’s clearly doing it out of a sense of national pride and hatred of China, but hey, at least he’s doing it. We might actually be able to pull off a human Mars mission (several years from now, mind you!) if this higher funding continues.

Trump is also redirecting DEA spending to Mexico, Central America, South America, and China; since most fentanyl in the US is made in Latin America from Chinese ingredients, this actually makes sense. I still don’t think that criminalization is the best solution to drug abuse, but fentanyl is genuinely very dangerous stuff, so we should definitely be doing something to reduce its usage.

Finally, and somewhat anticlimactically, Trump is creating some kind of new federal fire service that’s supposedly going to improve our response to wildfires. Given that we already have FEMA, a significant improvement seems unlikely. But hey, it’s worth a try!

These small good things should not distract us from the massive damage that this budget would cause if implemented.

It was not necessary to shift $160 billion from non-military to military spending in order to increase funding for NASA and the VA. It was not necessary to cut hundreds of programs and eliminate USAID—the agency which did what may literally be the very best things our government has ever done. DEI programs had their flaws, but it was wrong to eliminate all of them, instead of finding out which ones are effective and which ones are not.

And while it’s a tiny portion of the budget, the cuts to the EPA will kill people. Most likely thousands of Americans will die from the increased air and water pollution. It will be hard to pinpoint exactly who: Would that kid with asthma have died anyway if the air were cleaner? Was that fatal infection from polluted water, or something else? But the statistics will tell us that there were thousands of unnecessary deaths. (Unless of course Trump falsifies the statistics—which he very well might, since he routinely calls our world-class economic data “fake” when it makes him look bad.)

The large federal budget deficit will be in no way reduced by this budget; in fact it will be slightly increased. If we were in a recession, I’d be okay with this kind of deficit; it was actually a good thing that we ran a huge deficit in 2020. But we aren’t yet—and when one does inevitably hit (given the tariffs, I think sooner rather than later), we won’t have the slack in our budget to do the necessary Keynesian stimulus.

I don’t see any mention of what’s going to happen to Medicare and Medicaid; given that these two programs together constitute roughly one fourth of the federal budget—and nearly twice the military budget—this is a very conspicuous absence. It’s possible that Trump’s leaving them alone because he knows how popular they are, but this once again reveals the emptiness of Republican deficit hawkishness: If you really wanted to reduce the deficit by cutting spending, you’d do it by cutting the military, Social Security, Medicare, and Medicaid. Those four things together comprise the majority of the federal budget. Yet it seems that Trump’s budget cuts none of them.

Mind you, I don’t actually want to cut Social Security, Medicare, or Medicaid; so I’m relieved that Trump isn’t doing that. I’m pretty okay with cutting the military, but I’ll admit I’m less enthused about that since the start of the Ukraine War (I think some moderate cuts are still in order, but we should still have a very big military budget to protect ourselves and our allies). But these are the only budget cuts that could realistically reduce the deficit.

What I actually want to happen is higher taxes on rich people. That’s how I want the budget to be balanced. And Trump very obviously will not do that. Indeed he’s almost certainly going to cut them, making our deficit even larger.

So we’re building a concentration camp, the Chinese are going to hack the Pentagon, we’re going to buy more tanks we don’t need, we won’t be able to properly respond to the next recession, and thousands of people will die from air and water pollution. But at least we got more NASA funding!

The Republicans passed a terrible budget

PNRJ current events, inequality, politics, public policy , , , , , , , , ,

May 4 JDN 2460800

On April 10, the US House of Representatives passed a truly terrible budget bill. It passed on an almost entirely partisan vote—214 Democrats against, 216 Republicans for, 2 Republicans against. So I think it’s quite fair to say that the Republicans passed this budget—not a single Democrat voted for it, and only 2 Republicans voted against it.

So what’s so bad about it?

Well, first of all, in order to avoid showing just how much it will balloon the national debt, the new budget operates on different accounting rules than normal, using what’s called “current policy baseline” instead of the standard method of assuming that policies will end after 10 years.

In addition to retaining $3.8 trillion in tax cuts that were supposed to expire, this budget will cut taxes by $1.5 trillion over 10 years, with the vast majority of those cuts going to the top 1%—thus the real increase in the deficit is a staggering $5.3 trillion over 10 years. This is absolutely not what we need, given that unemployment is actually pretty good right now and we still have a deficit of $1.8 trillion per year. (Yes, really.) That kind of deficit is good in response to a severe recession—I was all in favor of it during COVID, and it worked. But when the economy is good, you’re supposed to balance the budget, and they haven’t.

The richest 1% stand to gain about 4% more income from these tax cuts (which adds up to about $240 billion per year), while the combination of tax cuts and spending cuts would most likely reduce the income of 40% of the population.

They aren’t even cutting spending to offset these tax cuts. This budget only includes a paltry $4 billion in spending cuts—less than 0.1% of the budget. (I mean, sure, $4 billion is a lot of money for a person; but for a whole country as rich and large as ours? It’s a rounding error.) And then it includes $521 billion in spending increases, over 100 times as much.

They are talking about making more cuts, but they’ve been cagey as to where, probably because the only plausible ways to save this much money are the military, Medicaid, Medicare, or Social Security. Obviously Republicans will never cut the military, but the other three programs are also enormously popular, even in deep-red states. It would be not only very harmful to millions of people to cut these programs—it would also be harmful to the Republicans’ re-election chances. They could also get some savings by cutting income security programs like SNAP and TANF, which would probably be less unpopular—but it would also cause enormous suffering.

This new budget is estimated to add some $6.9 trillion to the national debt over 10 years—and even more after that, if the policies actually continue.

I am not exactly a “deficit hawk”; I don’t think the budget should always be balanced. But this is not the time to be increasing the deficit. When times are good, we should balance the budget, so that when we have to go into debt during bad times, we can afford to do so.

And bad times are probably on the horizon, since Trump’s tariff policy is already such a disaster. So are we going to borrow even more then? While bond yields are rising? We’re going to end up spending most of our budget on debt payments! And all this injection of money into the system won’t be good for inflation either (and on top of the tariffs!).

The only sensible thing to do right now is raise taxes on the rich. We need that revenue. We can’t just keep going deeper into debt. And the rich are the ones who would be least harmed by raising taxes—indeed, if you focused the hikes on billionaires, they would barely feel anything at all.

But the Republicans don’t care about what’s in the interest of ordinary Americans. They only care about the interests of the rich. And that’s why they passed this budget.

I can’t not talk about tariffs right now

PNRJ current events, market failure, politics, public policy , , , , , , , , , ,

Apr 13 JDN 2460779

On the one hand, I’m sure every economics blog on the Internet is already talking about this, including Paul Krugman who knows the subject way better than I ever will (and literally won a Nobel Prize for his work on it). And I have other things I’d rather be writing about, like the Index of Necessary Expenditure. But on the other hand, when something this big happens in economics, it just feels like there’s really no alternative: I have to talk about tariffs right now.

What is a tariff, anyway?

This feels like a really basic question, but it also seems like a lot of people don’t really understand tariffs, or didn’t when they voted for Trump.

A tariff, quite simply, is an import tax. It’s a tax that you impose on imported goods (either a particular kind, or from a particular country, or just across the board). On paper, it is generally paid by the company importing the goods, but as I wrote about in my sequence on tax incidence, that doesn’t matter. What matters is how prices change in response to the tax, and this means that in real terms, prices will go up.

In fact, in some sense that’s the goal of a protectionist tariff, because you’re trying to fix the fact that local producers can’t compete on the global market. So you compensate by making international firms pay higher taxes, so that the local producers can charge higher prices and still compete. So anyone who is saying that tariffs won’t raise prices is either ignorant or lying: Raising prices is what tariffs do.

Why are people so surprised?

The thing that surprises me about all this, (a bit ironically) is how surprised people seem to be. Trump ran his whole campaign promising two things: Deport all the immigrants, and massive tariffs on all trade. Most of his messaging was bizarre and incoherent, but on those two topics he was very consistent. So why in the world are people—including stock traders, who are supposedly savvy on these things—so utterly shocked that he has actually done precisely what he promised he would do?

What did people think Trump meant when he said these things? Did they assume he was bluffing? Did they think cooler heads in his administration would prevail (if so, whose?)?

But I will admit that even I am surprised at just how big the tariffs are. I knew they would be big, but I did not expect them to be this big.

How big?

Well, take a look at this graph:

The average tariff rate on US imports will now be higher than it was at the peak in 1930 with the Smoot-Hawley Act. Moreover, Smoot-Hawley was passed during a time when protectionist tariffs were already in place, while Trump’s tariffs come at a time when tariffs had previously been near zero—so the change is dramatically more sudden.

This is worse than Smoot-Hawley.

For the uninitiated, Smoot-Hawley was a disaster. Several countries retaliated with their own tariffs, and the resulting trade war clearly exacerbated the Great Depression, not only in the US but around the world. World trade dropped by an astonishing 66% over the next few years. It’s still debated as to how much of the depression was caused by the tariffs; most economists believe that the gold standard was the bigger culprit. But it definitely made it worse.

Politically, the aftermath cost the Republicans (including Smoot and Hawley themselves) several seats in Congress. (I guess maybe the silver lining here is we can hope this will do the same?)

And I would now like to remind you that these tariffs are bigger than Smoot-Hawley’s and were implemented more suddenly.

Unlike in 1930, we are not currently in a depression—though nor is our economy as hunky-dory as a lot of pundits seem to think, once we consider things like the Index of Necessary Expenditure. But stock markets do seem to be crashing, and if trade drops as much as it did in the 1930s—and why wouldn’t it?—we may very well end up in another depression.

And it’s not as if we didn’t warn you all. Economists across the political spectrum have been speaking out against Trump’s tariffs from the beginning, and nobody listened to us.

So basically the mood of all economists right now is:

Extrapolating the INE

PNRJ critique of neoclassical economics, current events, inequality, public policy , , , , , , , , , , ,

Apr 6 JDN 2460772

I was only able to find sufficient data to calculate the Index of Necessary Expenditure back to 1990. But I found a fairly consistent pattern that the INE grew at a rate about 20% faster than the CPI over that period, so I decided to take a look at what longer-term income growth looks like if we extrapolate that pattern back further in time.

The result is this graph:

Using the CPI, real per-capita GDP in the US (in 2024 dollars) has grown from $25,760 in 1950 to $85,779 today—increasing by a factor of 3.33. Even accounting for increased inequality and the fact that more families have two income earners, that’s still a substantial increase.

But using the extrapolated INE, real per-capita GDP has only grown from $43,622 in 1950 to $85,779 today—increasing by only a factor of 1.97. This is a much smaller increase, especially when we adjusted for increased inequality and increased employment for women.

Even without the extrapolation, it’s still clear that real INE-adjusted incomes have were basically stagnant in the 2000s, increased rather slowly in the 2020s, and then actually dropped in 2022 after a bunch of government assistance ended. What looked, under the CPI, like steadily increasing real income was actually more like treading water.

Should we trust this extrapolation? It’s a pretty simplistic approach, I admit. But I think it is plausible when we consider this graph of the ratio between median income and median housing price:

This ratio was around 6 in the 1950s, then began to fall until in the 1970s it stabilized around 4. It began to slowly creep back up, but then absolutely skyrocketed in the 2000s before the 2008 crash. Now it has been rising again, and is now above 7, the highest it has been since the Second World War. (Does this mean we’re due for another crash? I’d bet as much.)

What does this mean? It means that a typical family used to be able to afford a typical house with only four years of their total income—and now would require seven. In that sense, homes are now 75% more expensive today than they were in the 1970s.

Similar arguments can be made for the rising costs of education and healthcare; while many prices have not grown much (gasoline) or even fallen (jewelry and technology), these necessities have continued to grow more and more expensive, not simply in nominal terms, but even compared to the median income.

This is further evidence that our standard measures of “inflation” and “real income” are fundamentally inadequate. They simply aren’t accurately reflecting the real cost of living for most American families. Even in many times when it seemed “inflation” was low and “real income” was growing, in fact it was growing harder and harder to afford vital necessities such as housing, education, and healthcare.

This economic malaise may have been what contributed to the widespread low opinion of Biden’s economy. While the official figures looked good, people’s lives weren’t actually getting better.

Yet this is still no excuse for those who voted for Trump; even the policies he proudly announced he would do—like tariffs and deportations—have clearly made these problems worse, and this was not only foreseeable but actually foreseen by the vast majority of the world’s economists. Then there are all the things he didn’t even say he would do but is now doing, like cozying up to Putin, alienating our closest allies, and discussing “methods” for achieving an unconstitutional third term.

Indeed, it honestly feels quite futile to even reflect upon what was wrong with our economy even when things seemed to be running smoothly, because now things are rapidly getting worse, and showing no sign of getting better in any way any time soon.