Disney Villains, Immigration Data, a Taylor-Travis Symposium, Sovereign Wealth Funds

And more from this week…

That’s right folks, Understanding America is back to Friday. Turns out you prefer your end-of-week roundup at the end of the week. Fair.

In more exciting news, I’m delighted to welcome a co-author to U/A: American Compass policy advisor Daniel Kishi. Daniel, tell us about yourself.

Daniel says: It’s great to be here; long-time reader, first-time writer. I joined American Compass in January; previously, I worked in the U.S. Senate for about half-a-dozen years, most recently as a senior policy advisor to Senator Josh Hawley. I look forward to trying my best to help you understand America.

An awful lot of what gets highlighted in U/A gets flagged to the Compass team by Daniel in the first place, so we figured it makes more sense for you all to just hear it straight from him. You should also be following him on X, @DanielMKishi. Going forward, you’ll get a short commentary from one of us, duly signed, at the top of the newsletter each week, and then the rest will be written jointly. This week…

Oren says: Your one thing to read this week is Disney and the Decline of America’s Middle Class, by Daniel Currell at the New York Times. It’s the Times’ treatment of the problem I wrote about in one of last year’s most popular U/A columns, “Our Mickey Mouse Economy,” complete with high-end photojournalism, multiple first-person narratives, quotes from experts, and so on.

Who wrote it best? That’s for you to decide.

What the Times does an especially nice job highlighting is the way that the Disney experience reflects the economy-wide shift in corporate strategy toward serving the affluent rather than the middle because technology facilitates the segmentation and because that’s where the profit is now. Writes Currell:

The economics of appealing to the middle class aren’t what they used to be. The market, and increasingly the culture, is dominated by the affluent. And technology is enabling companies to see these previously invisible class divides and act on them.

Based on what we earn, we see different ads, stand in different lines, eat different food, stay in different hotels, watch the parade from different sections, and on and on. What’s profitable today is not unification. It’s segmentation.

The result is a world in which, even if objective measures of household income appear to suggest everyone is better off than before, the quality of experience in the middle continues to degrade:

One of the economic puzzles of the last five years has been the persistence of serious consumer negativity at a time when nearly everyone has a job, median household incomes are historically high, and we are spending more than we did before the pandemic. Yet all but the most affluent are seemingly not happy with the economy or their own place in it.

We all judge our well-being against something, typically our past and our peers. Through either of those lenses, the Disney parks — and many similar institutions of American culture — may offer a piece of the puzzle. Compared with the past, a Disney trip is more expensive, to be sure — but perhaps more important, it feels much more expensive, because at every turn one is being invited to “level up” and spend more.

This is one of the great problems of economic inequality (see also the Wall Street Journal and Axios on the problem of an economy dependent on rich people). Market fundamentalism would have you believe that, so long as your absolute consumption level is higher than before, your life is better. Human experience teaches that people left behind by an economy and culture that operates for the benefit of someone else will rightly feel quite differently.

FROM THE IMMIGRATION FILES

Oren had a helpful piece in Commonplace yesterday on Coming Down from the Open-Border Sugar High. Encouraging border chaos and waving millions of people into the country leads to rising GDP and employment growth figures, unsurprisingly, even if it does nothing to strengthen underlying economic fundamentals or improve outcomes for Americans. Securing the border and beginning to remove illegal immigrants, conversely, creates serious headwinds for topline GDP and employment growth numbers, again unrelated to underlying economic fundamentals. The latest research from Pew Research and the American Enterprise Institute suggests this is exactly what’s happening, with the entire variation in the rate of employment growth explained by the swing from an unprecedented influx of immigrants to an unprecedented outflow. “Cleaning up the mess may not look good in the data,” he concludes, “but it looks good to the typical citizen.”

Just Because It’s Legal, Doesn’t Mean You Should Do It. The Wall Street Journal has a must-read on the disaster of legal immigration in the UK, where “the Tories, despite repeatedly promising lower overall immigration levels, soon lost control of the system they designed, triggering the biggest influx of legal migration the country has ever seen.” Legal immigration exploded to roughly five times the rate in the United States, and the experience “raises questions about the extent to which immigration is an unalloyed economic benefit, even for countries with aging populations that often need workers. Many of the workers who arrived came with dependents and are working in low-wage jobs—far from the engineers and doctors envisaged under the scheme.”

Of course we’re for legal, high-skilled immigration may sound like the obviously responsible position in the abstract, but “after fierce lobbying, the result was a relatively liberal migration system. Employers no longer had to try to hire workers from Britain before recruiting from abroad. To acquire a skilled-worker visa, foreign workers weren’t required to have a college degree, they just had to be offered a job with a minimum salary of £25,600, which at the time was 23% below the full-time U.K. median salary. There were also carve-outs…”

The charts and examples in the story are bonkers. Read the whole thing.

LABOR DAY

On Illegal Immigration and Worker Power… The American Prospect has the story of the Teamsters local in Chicago that’s on strike against a company called Mauser Packaging Solutions. As part of contract negotiations, they’re demanding better pay, safer working conditions, guaranteed breaks, affordable health care, and for the company “to agree to invoke private property rights to turn away federal immigration authorities unless those authorities present a signed judicial warrant.”

On one hand, protecting illegal workers is an odd priority for a labor union. On the other hand, unscrupulous employers do exploit immigration enforcement as a tool to suppress union organizing by threatening to report illegal immigrants to intimidate pro-union employees. Likewise, during contract negotiations, they may use workers’ immigration status as leverage—delaying talks, selectively re-verifying documents, or subtly threatening enforcement to weaken labor’s bargaining power. (Illegal immigrants, so long as they are in the bargaining unit, can vote in union certification elections, and be union members with full member rights; they are “employees” under the NLRA.)

The way to solve the problem, of course, is mandatory E-Verify with sufficiently strong civil and criminal penalties for employers. Employers can’t threaten to exploit immigration enforcement if such enforcement is the default with which they comply anyway. The end of access to easily exploitable labor would be a boon for the worker power that unions exist in part to advance, too. One would think, then, that mandatory E-Verify would be a top priority for the labor movement. Funny, that.

Right-Wing Labor Unions Would Help. Writing in The Spectator, Robert King laments that in Britain, “Time and again, unions have sided with ideology over the very people they claim to represent.” He continues:

No longer a shield for workers against institutional or corporate power, they serve as enforcers of conformity to the prevailing dogma. Their loyalties, of course, remain firmly chained to Labour – a party that abandoned the working class years ago but still parades its 11 affiliated unions like trophies.

…

For years, Labour has backed mass immigration, which has flooded the labour market, driven down wages, and steadily eroded the bargaining power of the very workers the party claims to defend. So where does that leave the British worker who believes in fair wages – but also in borders, tradition, and the right to dissent?

Some might scoff at the idea. Is trade unionism not inherently left-wing? That is a fiction the left would love you to believe, but the essence of unionism is not socialism – it is solidarity. And national solidarity does not belong to the left. If anything, the right has a moral duty to reclaim it.

ON THE HOMEFRONT

For Your Weekend Reads: Hannah Nation in Comment on “The Weight of Motherhood”:

When I was young, I went through life and the world seeking terrifying heights—the steep ascent of youthful rapture, heady moments of being near the sun. I could draw on all my power and leap with unfurled wings to great heights of ambition, creation, and will. Whether it was moving halfway around the world, pouring myself into writing projects, or winning recognition in my work, the only real boundary to my pursuits was myself. Vitality coursed through my being as my inner self looked down on the world.

And then I had children.

Taylor and Travis’s Family Policy Symposium. Is a marriage (and baby) boom forthcoming?

Tim Carney says Yes.

Brad Wilcox says Yes.

Patrick Brown says No.

FINANCE AND INDUSTRY

Sovereign Wealth Fund? On The American Compass Podcast this week, Oren talks with American Affairs editor Julius Krein about his Commonplace essay, on sovereign wealth funds, how the United States might implement one, and what this all has to do with the government taking an equity stake in Intel. Also read Julius’s contribution on the topic in the Techno-Industrial Policy Playbook, a project American Compass co-published back in May.

Equity Stakes in Defense Companies? Talking to Maria Bartiromo on Fox Business on Wednesday, Treasury Secretary Scott Bessent said:

I don't know if we need to take stakes in defense companies. We’ll see whether the defense companies are fulfilling their mission in terms of providing adequate and timely deliveries for the U.S. military as opposed to an overemphasis on the shareholders. You know, what we saw with Boeing, think about what happened to Boeing, which was one of our great American companies, rather than spending money on R&D and new plane development, they did this massive share buyback. The CEO walked out with $250 million—a failed CEO. And it has crippled one of America's great companies for several years. So, we do have to think about, with all these companies, what is the mission?

Underinvestment by defense companies has been a problem going back to the 1990s, when the end of the Cold War brought rapid consolidation, cuts to R&D, and skyrocketing shareholder payouts. In their Commonplace feature on the issue last year, “Big Stick Economics,” Oren and American Compass policy advisor Mark DiPlacido explained:

The collapse in capital investment at the consolidated primes parallels a larger trend in the U.S. economy. In prior American Compass research (see The Corporate Erosion of Capitalism, March 2021), we analyzed the financial data of publicly traded firms going back to 1971 and classified each firm in each year based on its interaction with financial markets. Most could be classified as either a “Grower,” which taps financial markets for needed capital; a “Sustainer,” which uses its profits both to maintain or grow its capital base and to return capital back to shareholders and creditors; or an “Eroder,” which disgorges profits so rapidly, in lieu of investment, that it consumes its fixed capital faster than it makes new capital expenditures. From 1971 to 1985, Sustainers accounted for 82% of total market capitalization and Eroders for 6%. By 2000, these shares had shifted to 59% and 19%, respectively. In 2009, Eroder market capitalization surpassed Sustainer market capitalization for the first time. In 2017, Sustainers accounted for 40% of market capitalization and Eroders for 49%.

Focusing this analysis specifically on the defense primes produces a similar story, but on a distinct timeline. For the 20 years from 1974 to 1993, the primes collectively operated as a Sustainer in every single year. The individual firms were Sustainers in 69% of years and Eroders in 18%. After 1993’s “Last Supper,” that behavior flipped on its head. In both 1994 and 1995, all five primes were Eroders. For the next decade, the primes collectively operated as an Eroder every year. Over the 25 years from 1994 to 2018, the individual firms were Sustainers 33% of the time and Eroders 67% of the time. They returned $240 billion to shareholders through buybacks and dividends while making less than $90 billion in capital expenditures.

The Erosion Continues. Economy-wide, Bloomberg reports that “US companies are planning to buy back shares at a historic pace... Announced buybacks surpassed $1 trillion on Aug. 20, marking the shortest amount of time needed to reach that level.”

Awash in Capital. But while firms continue to return capital to financial markets at unprecedented rates, foreign investors also generate massive inflows of capital. That’s “investing in America” according to economists, but as the buybacks make clear, America has plenty of capital; what we need is productive deployment. Otherwise, it’s just the rest of the world “buying America out from under us,” as Commerce Secretary Howard Lutnick put it on CNBC. Where does all the capital go, if not to building things? Mostly, it finances the massive federal budget deficit, underscoring the need to get the nation’s fiscal standing under control if we want to have any hope of rebalancing our international accounts.

WHICH BRINGS US TO TARIFF CORNER…

Everyone’s favorite hangout!

Progress Towards “Fortress North America.” Why does the Trump administration keep targeting Mexico and Canada with tariffs? Because it cares about this, via Bloomberg:

The Mexican government plans to increase tariffs on China as part of its 2026 budget proposal next month, protecting the nation’s businesses from cheap imports and satisfying a longstanding demand of US President Donald Trump. The tariff hikes, expected for imports including cars, textiles and plastics, aim to shelter domestic manufacturers from subsidized Chinese competition, according to three people briefed on the matter, who asked not to be identified revealing details of the plans.

Will Canada follow suit? Back in February, Secretary Bessent remarked, “I think it would be a nice gesture if the Canadians did it also so in a way we could have fortress North America from the flood of Chinese imports that's coming out of the most unbalanced economy in the history of modern times.”

Farewell, De Minimis. Effective August 29, the de minimis loophole vanishes into a very small pile of dust on the ash heap of history. Executive Order. Fact Sheet. For more on the issue, see the New York Times op-ed from last week, “Trump Closed a Small Trade Loophole That Caused Big Problems.” But! Once again, President Trump is using emergency authority under IEEPA to make the change, leaving it subject to legal challenge. Once again, Congress can and should make this permanent.

For Your Weekend Reads: In China, the Word of the Day Is “Involution.” Michael Pettis has an excellent new paper on “involution,” which “has become one of the most important buzzwords in Chinese policymaking circles. It has come to describe a disruptive process of relentless competition and price cutting among Chinese businesses, and has been increasingly criticized by policymakers, from President Xi Jinping down, for leading to a zero-sum race to the bottom, marked by vicious price wars, large-scale losses, homogenous products, and improper business practices…”

For Your Dartboard: Jensen Huang now talking about just straight up selling Nvidia’s high-end Blackwell chips in China.

Biden national security official Chris McGuire and Oren had an op-ed in the Washington Post this week warning that “Trump’s reversal on AI chips is a historic blunder.” The administration, and firms like Nvidia, seem to be proceeding on “the theory under which U.S. firms spent a generation transferring their own technology into China, handing it global industrial dominance and helping to build up Chinese firms that proceeded to toss the foreign competitors out on their rears. … Charlie Brown exercised greater caution in his kicks at Lucy’s football.”

And in other questionable plans for managing the U.S.-China relationship, President Trump has indicated that he wants to give visas to 600,000 Chinese students, in part because it will help keep 15% of universities in business. This would be unwise, to say the least. Secretary Lutnick’s effort to explain the idea to Laura Ingraham goes… poorly:

Ingraham: Mr. Secretary, with all due respect, how is allowing 600,000 students from the communist country of China putting America first?

Lutnik: Well, the president’s point of view is that what would happen if you didn’t have those 600,000 students is that you’d empty them from the top, all the students would go up to better schools, and the bottom 15% of universities and colleges would go out of business in America. So his view is he’s taking a rational economic view, which is classic Donald Trump.

Ingraham: But why are you helping Harvard? That’s just helping Harvard and UCLA, and UCal Berkeley. Y’all helping those schools. Why? They’re like, you know, basically factories of anti-American propaganda, and now they’re getting a big influx of cash because of the Chinese students. I mean, I know President Trump has always been very pro-Chinese student, I just don’t understand it for the life of me. Those are 600,000 spots that American kids won’t get.

In fact, bringing in hundreds of thousands of Chinese students to keep the least effective universities afloat is not the “rational economic view.” As we highlighted last week, former chair of the House Select Committee on the Chinese Communist Party, Mike Gallagher, had an excellent op-ed in the Wall Street Journal on refusing student visas to CCP members and their children. This is a crucial element of a hard break from China, and a key point of leverage that the United States has over China’s elite.

ARTIFICIAL INTELLIGENCE

What’s Happening in the Entry-Level Job Market? Derek Thompson has a helpful write-up that summarizes the conflicting strains of evidence on whether artificial intelligence is reducing opportunities for younger workers. The latest finding, which he characterizes as giving an answer of “plausibly yes,” comes from a new Stanford paper using detailed payroll data. Thompson interviews the authors; or, for a succinct summary, take a look at their Twitter thread.

For Your Weekend Reads: Dean Ball, back from a stint at the White House Office of Science and Technology Policy, has an excellent essay on what is likely to be one of the first landmark legal cases on AI liability:

…there is a nontrivial chance that Raine’s rightfully horrified parents will seek to bring this case to a verdict. If that happens, a single case may result in precedent: sweeping new theories of liability being routinely applied to AI—a rarity for most online service providers, though one I have warned about repeatedly in previous writing. The liability shield in OpenAI’s terms of service, so common in software contracts, may well be blown apart by the stroke of a judge’s pen, with deeply uncertain implications for similar clauses in terms of service throughout the industry.

IN POLITICS

Democrats in Demographic Decline. Last week we looked at the sharp decline in voter registration for the Democratic Party. This week, it’s the coming Electoral College shift. As the New York Times explains, “the year is 2032. Studying the Electoral College map, a Democratic presidential candidate can no longer plan to sweep New Hampshire, Minnesota and the ‘blue wall’ battlegrounds of Michigan, Pennsylvania and Wisconsin and win the White House. A victory in the swing state of Nevada would not help, either… Across all of the possible scenarios in the nine states that would be considered battlegrounds in the 2032 election, Democrats would see about a third of their current winning Electoral College combinations disappear if population projections hold.”

Developing a Non-Credible Signal. Analysts typically emphasize the importance of developing a credible signal to make one a reliable partner. Aaron Renn makes the interesting observation that President Trump may be doing the opposite, intentionally undermining U.S. credibility as an international partner not only to unwind disadvantageous arrangements today, but also preclude future administrations from pursuing new ones.

Ordinarily, those running an institution should be seeking to steward its credibility and integrity. … Unlike, say, the generational ownership of the New York Times, Trump’s personal hold on presidential power is fleeting. This produces a different incentive structure.

In this scenario, maybe the most effective way for Trump to make his policy legacy enduring is to degrade the credibility of the United States as a partner. That way even if his opponents win in 2028, other countries will not go back to viewing the US as a trustworthy partner or ally to the same extent and in the same manner they did before.

I wrote about a similar dynamic back in May, in “Trade with Communists Should Be Uncertain,” noting that creating chaos and unpredictability in the trading relationship with China may be an end unto itself. Just as granting permanent normal trade relations to China provided the stability that investors needed to flood into that market, even with no change to established tariff rates, erasing that stability can drive investors away regardless of any legislative changes.

Yet another example is emerging in the administration’s efforts to undermine clean energy investments, e.g., “The Trump administration is halting wind projects that had been approved, financed and underway — while providing little to no justification.” Republican and Democratic administrations have promoted and discouraged various types of green projects for decades. But if people come to believe that even a nearly finished project can be cancelled at any time, they will be far less likely to start one regardless of who is in the White House.

AND FINALLY, IN YOUR DOSE OF DATA

An interesting chart from the Associated Press.

The Census Bureau reports that manufacturing orders remained strong, excluding the recent one-time bump in aircraft orders.

Q2 GDP was revised upward a bit.

And steel industry capacity has been expanding rapidly—now the question is: who will they sell to?

Enjoy the weekend!