Printing Press : Democracy :: Social Media : What?

And more from this week...

I don’t have that much to say about your one thing to read this week, except that it’s a phenomenal essay and the one thing you should read: The King and the Swarm, by Mary Harrington at First Things.

In a world overflowing with shallow commitments to “Defend Democracy” on one hand and even shallower declarations that “Democracy Has Failed” on the other, Harrington presents a fully theorized case that our politics and system of government relies not just on the parchment layer of a written constitution and bill of rights, not just on the supporting foundation of institutions and traditions, but ultimately on habits of mind and ways of understanding the world determined by our technological era.

The printing press gave rise to mass literacy gave rise to logical thinking and individualism and the enlightenment gave rise to functional democracy in this narrative. We should not be surprised that the digital era, with its social media and memes and video clips, is changing how we process information individually and collectively and, as a result, the way we govern ourselves.

Go read the whole thing.

I don’t find satisfying the conclusion that perhaps we’ll just need a king again. Many options exist besides late-20th-century-American-democracy and monarchy, indeed a range existed before the enlightenment, and we’ve also perhaps learned a thing or two since the Dark Ages. But as an explanation for why things seem to be going off the rails, and a direction for inquiry about how we might get back on track, it’s a very challenging and worthwhile analysis.

CHANNEL 4 EXPERTS, ASSEMBLE

An interesting fight broke out in the wake of Tuesday’s entry regarding Something Rotten at the Federal Reserve. In response to a comment by the Wall Street Journal’s Greg Ip that “tariff inflation is starting to show,” I noted on Twitter that:

“Tariff inflation” is an oxymoron. Raising a price via an explicit policy choice is not inflation, and resulting relative price changes in the economy are not a cognizable subject of monetary policy. A Fed holding rates higher in response is politicizing its role.

Tribal allegiances being what they are these days (see “The King and the Swarm,” above!), someone blew the Defenders-of-Expertise conch to summon a pile-on against such unqualified insubordination, and the usual suspects assembled faster than Ron Burgundy and his team in a San Diego alley.

Friend of the ‘stack Cliff Asness said, “Explaining why something causes inflation, intentional or not, isn’t an oxymoron. But saying ‘cognizable’ definitely makes you sound like you are oversensitive about being called a moron. It was very impressive. But, assuming all possible inflation from tariffs is only ‘relative prices’ and dismissing it is, in fact, moronic. A populist hack cosplaying an economist for a gig is also moronic. Just saying.”

Effective taker of polling averages Nate Silver said, “Inflation is a term for a broad increase in the price level. There's no magic exemption because you intentionally pursued a dumbass set of politics. Many episodes of inflation are caused by dumbass policy choices of one form or another.”

And so on. And on.

Except, well, they are wrong. I’d already cited a number of people in the initial post acknowledging that tariff-induced price increases are not inflation. To their credit, some also jumped in this time around. I particularly appreciated this commentary by the Cato Institute’s Scott Lincicome at The Dispatch:

Put another way, global tariffs will increase the price level but not its rate of change (aka “inflation”)—at least not in the longer term. Thus, most economists expect the CPI or PCE to tick up this year because of Trump’s tariffs, but only temporarily. (In general, the widely held view among various professional economists is that we’ll see a gradual, 1-ish percentage point increase in the CPI and PCE figures, peaking later this year and early next but mostly subsiding after 2026.) Those higher prices still mean pain for American consumers, of course, but the increase wouldn’t technically be “inflation” as economists understand and define it. And any CPI uplift we do see in the coming year or so will pale in comparison with the recent post-pandemic inflation we’ve lived through, because imported goods are still relatively small shares of Americans’ total spending.

So, from a theoretical perspective, discussions of tariffs emphasizing their effect on the overall CPI number and “inflation” are mostly missing the boat. It’s an issue, especially given all the uncertainty right now, but it’s not the issue—and few serious economists have said otherwise. (Far more of them, in fact, have said just the opposite.)

Those speaking accurately about the inflation question generally went to great lengths to emphasize that they still think tariffs are bad for all sorts of other reasons, to which I say: fair enough! Whether tariffs are inflationary or not is by no means central to the question of whether they are wise policy, and we can all agree to both (a) speak clearly about what they do, and (b) debate robustly whether that’s good or not.

Where the inflation does matter is for the Federal Reserve’s posture. A number of people were confused by what seemed like hair-splitting: who cares whether tariff-induced price increases are inflationary? The problem is the price increase! Well, no. You are of course welcome to object to the price increase. But what you are not welcome to do, particularly if you are Fed chair Jerome Powell, is respond by holding interest rates higher than you otherwise think they should be.

WHAT ELSE SHOULD YOU BE READING?

Remarks at the Reindustrialize Summit in Detroit | U.S. Trade Representative Jamieson Greer

The second Reindustrialize Summit has been a huge success, bringing together many of the policymakers, investor, and innovators at the forefront of rebuilding the American manufacturing sector. Ambassador Greer’s keynote provides an especially compelling chapter-and-verse synthesis of the case that American Compass has built over the last five years for why this work is so important.

How Big Does a Child Allowance Have to Be? | Lyman Stone, X

An interesting thought experiment, in response to the claims that aggressive family policy can’t reverse falling birth rates. In fact, most research suggests financial support for parents does lead to more babies, but you have to spend a lot to get much of an uptick. OK, but… so? Stone estimates that a country like Taiwan would need to provide $10K-$15K per child per year to bring fertility back above replacement rate, which of course is far more spending than anyone has contemplated. But it’s nothing compared to what Social Security spends per retiree. It’s even much less than what the United States spends per K-12 student per year. What is the right amount to spend to prevent your civilization from collapsing?

Elite Colleges Have Found a New Virtue for Applicants to Fake | Alex Bronzini-Vender, New York Times

Schools are now trying to figure out which prospective students can engage in civilized debate by incorporating essay prompts and performative Zoom discussions into their application process. I’m not offended so much by the absurdity of the approach as by the category error. Every 17-year-old is capable of engaging in civilized debate if placed in an environment where that is the clearly established and non-negotiable expectation. And most will melt down into triggered puddles of grievance if placed in an environment where that is what’s rewarded. A fundamental obligation of higher education as an institution in our society is to provide exactly that formation, a task at which it has failed miserably. What a pathetic abdication for universities to pretend instead that they are neutral venues suffering with the “wrong” students and just need somehow to find a better set of teenagers.

The Cities Where College Grads Are Actually Landing Jobs | Ray A. Smith and Haley Zimmerman, Wall Street Journal

Interesting methodology indicating that second-tier metropolitan areas like Birmingham, Baltimore, and Milwaukee now provide the most attractive labor markets for young college graduates. The prevailing narrative holds that the unaffordability of places like New York and San Francisco must be remedied through policies that more rapidly concentrate talent in places like New York and San Francisco. But what if the hydraulic pressure to distribute growth and opportunity more broadly is precisely how the market should work?

• Bonus link, from John Burn-Murdoch at the Financial Times: Rising graduate joblessness is mainly affecting men. Will that last?

TARIFF CORNER

A fascinating comment on Thursday from Mike Bird, Wall Street editor for The Economist:

I now think in a few years, certainly after the next presidential election, cross-party elite opinion will have gravitated towards a soft consensus that the Trump tariffs, while slapdash and sometimes misdirected, were net good and trade barriers should have been higher earlier.

“…the Trump tariffs, while slapdash and sometimes misdirected, were net good and trade barriers should have been higher earlier.” That’s exactly what you’ve been reading here at Understanding America for the past six months.

Bird clarified that “me believing this is the likely political outcome does not mean I think it's a good outcome. I think it will be a bad outcome.” But as Foreign Affairs executive editor Justin Vogt pointed out, that doesn’t make much sense. Why would cross-party elite opinion gravitate toward a consensus favoring something that they had opposed vociferously if it in fact has negative outcomes? Some sort of false consciousness of the bourgeois?

More likely, my sense is that we hit something of an inflection point this week, as the disconnect between economists’ predictions and economic data became too wide to bridge. The Producer Price Index came in lower than all 50 forecasts in the Bloomberg survey. When Vice President Vance commented in response that “it’s almost like the economics profession doesn’t fully understand tariffs,” friend of the ‘stack Justin Wolfers sniped, “The PPI explicitly excludes imports. It’s almost like tariff boosters don't fully understand economics.” But, um, surely the 50 forecasters knew what was in PPI before they all got it wrong? On Friday, the University of Michigan reported rising consumer sentiment, improving economic conditions, and declining inflation expectations.

Some other variations on the theme:

Trump Says 200% Pharma Tariffs Are Coming. Wall Street Shrugs. | David Wainer, Wall Street Journal

“The 200% figure lit up cable news chyrons, but investors focused instead on the grace period Trump floated. … That might give them time to build entirely new U.S. manufacturing facilities, which typically takes around four years. … The industry has announced major investments in U.S. manufacturing. Some of that may be political posturing, but much of it reflects a real shift. Companies increasingly see no choice but to bring production back, at least for drugs sold to American patients. … By the end of Trump’s term, the U.S. pharmaceutical supply chain could look very different, with a greater share of innovative drug production happening on American soil.”

Forget TACO. Trump Is Winning His Trade War. | Greg Ip, Wall Street Journal

“In June alone, Treasury collected $27 billion in customs revenue, up $20 billion from a year earlier, a pace that would imply $240 billion more a year. … [Trump] never relinquished his 10% “baseline” tariff on almost all imports. When he first floated such a tariff on the campaign trail, it seemed like a worst-case scenario. Today, many trading partners now see that as a best-case scenario. … Today, he leads the world’s largest economy with the largest military. Everyone else needs the U.S. more than vice versa…”

Donald Trump Reaps $50bn Tariff Haul as World ‘Chickens Out’ | Peter Foster et al, Financial Times

“America’s trading partners have largely failed to retaliate against Donald Trump’s sweeping tariffs, allowing a president taunted for “always chickening out” to raise nearly $50bn in extra customs revenues at little cost. … The cost of Trump’s tariffs are also not falling solely on American consumers, supply chain experts say, as international brands look to spread the impact of cost increases around the globe to minimise the impact on the US market. … Economists said the US’s dominant position as the world’s largest consumer market, coupled with Trump’s threats to redouble tariffs on states that defy him, meant that for most countries the decision to “chicken out” was not cowardice, but economic common sense.”

THE GREAT FAIL ON CHINA

Going less well are efforts at the necessary and inevitable decoupling of the American and Chinese economies.

In official Washington, the Trump administration’s failure to establish and communicate a clear long-term strategy on China—domestically, to China, or to other trade partners—is becoming a genuine crisis, and the problem appears to be in the Oval Office.

Trump Softens Tone on China to Secure Xi Summit, Trade Deal | Jenny Leonard and Mackenzie Hawkins, Bloomberg

“Trump is now focused on cutting purchase deals with Beijing — similar to one he forged during his first term — and celebrating quick wins instead of addressing root causes of the trade imbalances. … In meetings with his staff, Trump is often the least hawkish voice in the room.”

In academia, meanwhile, the experts are making the case for a closer embrace of China, up to and including joint ventures between Chinese and American automakers in the U.S. market.

A New Cold War with China Won’t Help the US | Stephen Wertheim, Financial Times

“On cars and more, Washington should welcome Chinese firms’ investment in the US by forming joint ventures with US manufacturers, from which everyone would profit.”

We Warned About the First China Shock. The Next One Will Be Worse. | David Autor and Gordon Hanson, New York Times

“We should encourage China to build battery and auto plants in the United States, just as China enticed leading U.S. companies to set up shop there over the past three decades.”

The fundamental error here is an assumption of symmetry: China luring Tesla to Shanghai spurred a Chinese EV industry that is now crushing Tesla, so the United States luring BYD to Detroit can spur an American EV industry that then crushes BYD.

But, see, Tesla was a multinational corporation that had no problem selling out the United States for short-term profit (despite the massive public investment crucial to its success). Tesla went into a country whose authoritarian government controlled and manipulated market access to give foreign firms no chance at long-term profitability while ensuring their technology gets transferred to aggressively subsidized competitors.

If BYD comes to the United States, it will arrive as an agent of the Chinese Communist Party, with no interest in short-term profit and no long-term goal beyond dominating the American auto industry. It will encounter an American market that is open and filled with companies happy to maximize their short-term profit at the expense of the long-term American interest. One suspects this might work out differently!

As we first explained in A Hard Break from China, and will continue explaining at every opportunity, the fundamental incompatibility of the American and Chinese economic and political systems makes conventional free-market analysis unwise. Treating these markets and societies as mirror images of each other is a recipe for disaster.

Which brings us to the private sector, which is falling over itself to make this point in the loudest and most embarrassing way possible.

Nvidia CEO Lavishes Praise on China in Beijing, Drawing Rock-Star Reception | Peter Landers, Wall Street Journal

A Little-Known Microsoft Program Could Expose the Defense Department to Chinese Hackers | Renee Dudley, ProPublica

These things only happen in one direction. It will continue happening until U.S. law puts an end to it.

AND AT COMMONPLACE

Making Illegal Employers Pay by Declan Leary. Immigration enforcement has to hold businesses who illegally undercut American workers accountable.

Are Teen Summer Jobs Obsolete? by Helen Andrews. Summer employment for teenagers is a tradition worth preserving.

On the American Compass Podcast, Council on Foreign Relations senior fellow Brad Setser joins me to discuss China Shock 2.0. We dig into the causes and implications of China’s new wave of industrial overcapacity, the threats to American industry, and the interaction with ongoing trade conflicts.

Enjoy the weekend!