A story published in the New York Times over Labor Day weekend prompted quite the furor this week, as pundits across the political spectrum gasped at the notion that public support to families raising children should not be reserved for those who put their children in commercial day care. Trump Officials Draft Plan to Pay At-Home Parents, Using Funds for Working Ones. Times reporter Coral Davenport reported: “The new rule being drafted would allow married couples with one stay-at-home parent in certain income brackets to collect a subsidy, according to the people, who spoke on the condition of anonymity to describe the plan before it is finalized.”
Davenport characterizes the policy change as one that “would effectively create a government incentive for parents to stay home with their children,” which is “effectively” true only in the sense that it would negate the overwhelming incentive that current policy creates to use paid child care. The policy would offer a family nothing for having a stay-at-home parent that it could not also receive without one, so it creates no “incentive” in that respect. Rather, it would end the policy of telling parents they can receive the subsidy only if they make the latter choice.
Critics were also quick to complain that the policy change would take funding away from one set of parents and give it to another, but that dynamic is also misstated. Davenport warns at one point, “the move could end up redirecting money away from working parents and their child care providers, causing some to raise their rates or even close, critics said, potentially worsening what many experts say is a child care crisis in the country.” But then she provides this example:
Krystal Gastineau, the owner of Cribs 2 Crayons, a child-care center in Aurora, Colo., said that about half the children she cares for receive the subsidies, which are paid directly to Ms. Gastineau’s business via direct deposit. “If they could, I think parents would choose to take the money and stay home,” she said. “That would take away a major source of income.”
That quote speaks volumes. “I think parents would choose to take the money and stay home.” In other words, the day care center operates on federal funds provided to serve parents who would prefer a different arrangement. Altering the policy would allow parents (married, with one working) to make the choice they prefer. So who is incentivizing what on whose behalf here?
The Japanese soldiers of the Old Right, unaware they are still fighting a war that ended 30 years ago, came charging out of their caves with some genuinely bizarre arguments.
Jonah Goldberg: “Any evidence it works? Got some studies? Data? Examples of any kind? Or are you just going along because it sounds good or polls well or keeps you in good graces with Vance and Heritage Foundation and (wink wink) Heritage Americans and small donors? Maybe you just like expanding entitlements so long as you think it’ll benefit your coalition? Prove you have anything like republican virtue or intellectual seriousness.”
It’s not clear what Goldberg means when he asks if this “works.” Like, does making families with a stay-at-home parent eligible to receive support “work” in making those families eligible for that support? Unclear what data is needed. Is reallocating funds without increasing spending really a form of “expanding entitlements”? Is Jonah Goldberg someone who comes to mind when you think about “republican virtue” and “intellectual seriousness”?
Dana Loesch: “No. Incentivizing government dependency isn’t ‘great’ for families. Dependency is one of the tools the left has used for the past 100 years to destroy the family. This proposal will also include illegal aliens, as currently law determines status by the child not the adults so anchor babies are eligible for this fund, which isn’t ‘great’ for American families…”
Does providing support only to households that earn income “incentivize government dependency”? Does offering the expansion only to married couples “destroy the family”? Should conservatives leave untouched any program that serves illegal aliens, lest improving the program incidentally improve services for illegal aliens as well? (And does this argument apply to public education, highways, and the police?)
EPPC’s Patrick Brown offered the far more thoughtful critique that “the broadening of eligibility comes with real trade-offs … a conservative estimate is that the population of eligible children might double after the new rules. As a result, the odds of being a CCDBG-eligible child who actually received the assistance would go from 1 in 7 to 1 in 14.”
But the problem with this objection is two-fold. First, as noted by Ms. Gastineau above, in many cases we could be talking about the same households still benefiting from a subsidy but now having more options in how to arrange their lives. Second, even insofar as there is a direct tradeoff, that tradeoff already exists. Those families with a stay-at-home parent are there, and the policy choice is to give 0% of the subsidy to them. Is 0% for households with a stay-at-home parent and 100% for households where all parents work the correct split? You could make that argument, but it would be difficult, and Patrick doesn’t try.
Especially seeing as the Trump administration proposal would merely give states the option to open eligibility (where, presumably, those states believe that doing so would benefit their populations), the starting assumption should be that greater flexibility and the option of a refined allocation would produce a net benefit. “No reallocating existing funds, you can only add new ones” is the standard left-of-center approach to the safety net, neither conservative nor wise. (Patrick responds to the response here, in his always-excellent Family Matters newsletter.)
Most worthy of critique, on the other hand, is President Trump’s promise to give everyone $5,000 if Republicans win the midterms. Without spending too much time on it: (1) terrible way to run a campaign, (2) we cannot afford it, (3) it’s inflationary, (4) only mail universal checks as stimulus in a crisis.
The better idea would be a deficit reduction plan that both raises taxes and cuts spending. Encouragingly, that continues to gain traction with Republicans. As Social Security fund runs dry, some Republicans say it’s time to raise taxes (Washington Post). Congressman Tom Cole (R-OK), chairman of the House Appropriations Committee, says: “We’ve got too many people who say, ‘Well, we have to stay within the current income level or stay at the current tax rate.’ I’m willing to look at the tax rate. I am willing to raise the amount of income through tax.”
YOUR ONE WEEKEND READ on this 25th anniversary of 9/11 is The Man Who Refused to Sit on the Sidelines, from The Atlantic. “The FDNY lost 343 men on September 11; 65 of their sons and daughters now serve in the department.”
If you’ve never read Esquire’s story on The Falling Man, that would be very much worth your time as well.
BLUE-COLLAR BOOM
The Wall Street Journal reports, Americans Without College Degrees Are Having One of the Best Job Markets in Years. “Unemployment among younger workers who didn’t go to college has rarely been lower in recent decades. It is the opposite story for college grads.” Important to note, though, that this is still relative to these cohorts’ own experience in the past. In absolute terms, college grads still have a lower unemployment rate.
But something is clearly happening to the college degree. The Financial Times: The University Degree Is Losing Its Lustre. Both the Journal and FT point the finger at technology and economic trends, and surely those play a role, but it’s also worth bearing in mind the extent to which universities are doing this to themselves, both with lousy programs that produce graduates lacking both hard and soft skills, and with overproduction of graduates in the first place that floods the market with low-value diplomas. In a recent Commonplace piece, Perverse Incentives Handed Higher Ed to AI, Dalton Haydel explores this further.
ARTIFICIAL INTELLIGENCE
What is the economic effect of A.I. going to be? Anthropic has released a really nice modeling tool that lets you put in your own assumptions about likely labor-market effects. It’s simplistic in all sorts of ways, but does well what a model is supposed to do, which is test your intuitions about reasonable assumptions, how they relate to each other, and how they would affect outcomes.
Here’s my own run through it:
By 2030, AI will be capable of doing 85 out of 100 knowledge-work tasks. (We did it! “AGI”!)
Out of every 100 instances of a task AI can do by 2030, AI will be doing 50.
For those 50 tasks, some of them will be fully automated, meaning a human is not involved at all.
Tasks where AI is involved will get done twice as fast as today.
When someone is displaced entirely from their occupation, it will take them six months on average to find a new job.
Results! GDP up 14%. Unemployment rate just below 5%. Wages up for all types of workers, by 11% on average. Labor share of income at 58% (similar to today).
Frankly, those are some pretty aggressive assumptions and some pretty pleasant outcomes, at least economically speaking. Try it for yourself.
When is AGI not AGI? When it’s OpenAI talking about AGI! Pitchman Sam Altman has always played a shell game with his definition, but I especially enjoyed this comment from OpenAI president Greg Brockman promoting the new Astra model. “Everyone has a different definition of AGI . . . it’s a grey, fuzzy thing. But I think when we look back people will think it’s about this time and about this model.” We don’t know what AGI is, but this is it. OK, then.
Anyway, per Brockman, it’s now more of a “spiritual concept.”
And in Dallas, at the Republican Convention: AI Loses Debate (Semafor). Ben Smith has a great writeup of the faceoff between Joe Lonsdale and Joe Allen, which he reports the latter Joe won convincingly. Apparently Lonsdale was surprised that arguments like “we have Kitty Hawk, we have 747s, we built the railroads” didn’t land, nor did comparing AI complaints to “Black Lives Matter hysteria” or saying they’re “psyops from China.” As Allen put it, data centers are “a constant humming reminder of a future they don’t believe in.”
Speaking of which, read my New York Times essay on why Americans don’t believe in the AI future! Big Tech Fooled America Once. The Second Time’s Not Going So Well.
IN MORE PROMISING CORNERS OF AMERICAN INDUSTRY
Japan, U.S. advance $550 billion investment pact with AI, chips in focus (Investing.com): “Japan is making progress on a $550 billion investment initiative with the United States, with artificial intelligence and semiconductor projects expected to play a central role in the next phase of the agreement, Bloomberg reported on Friday.” And, South Korea Nears Agreement on Billions in U.S. Investments, a Win for Trump (Wall Street Journal): “The deal, potentially worth more than $100 billion, envisions South Korea financing the construction of up to eight nuclear power plants and a natural-gas project, according to people familiar with the matter.”
The Department of Energy announces a new critical minerals investment. Ex-Im Bank announces a new manufacturing investment for advanced satellite communications systems. And, USA Rare Earth breaks ground on its South Carolina facility—the first new rare earth magnet factory in America in 40 years.
While Ron Paul himself would probably not be excited by such aggressive industrial policy, allow us to say: It’s Happening.
But wait, don’t be fooled so easily by all of the great data coming out of the industry, the increases in output and now employment, the investments coming online. Richard Stern, working always at Advancing American Freedom, has some bad news: “the tariffs have limited what could have been a far larger manufacturing surge” and “threats of more government involvement in industry are holding back growth and delaying investments.”
What’s worse, “this bounce in manufacturing output is largely explained by a rise in industrial capacity utilization rather than by an expansion in manufacturing capacity.” Instead of instantly making new factories appear, the economy appears to be boosting production in existing factories while working to bring new ones online. Suspicious.
Fortunately, while fundamentalists confused by a world not aligning with their dogma might attempt to reverse engineer an incoherent story that validates their one truth, we have analysts like Richard and organizations like AAF doing the hard work of explaining how the novel set of policies designed to boost manufacturing have nothing to do with the boost in manufacturing, while the set of policies pursued for decades as manufacturing collapsed are responsible for the progress.
MEANWHILE, IN CHINA NEWS
A broad-based coalition of unions and industry groups have just written to Senate leaders John Thune and Chuck Schumer in support of the Connected Vehicle Security Act that would exclude Chinese vehicles from the U.S. market. This is important legislation with growing bipartisan support that the Trump administration should get behind as well. Transportation Secretary Sean Duffy has just written to Ford, blasting its continued pursuit of partnerships with Chinese companies, but, like, you don’t have to use the Article II angry-letter power. The Constitution afford our nation stronger tools.
Polestar, seen last week complaining about its poor treatment by U.S. regulators, “cut its full-year delivery forecast, hurt by Washington’s crackdown on Chinese-linked vehicles that forced it out of the United States.” One correction, though. Reuters describes Polestar as a “Swedish company, which is majority-owned by China’s Geely Holding.” If you’re majority owned by a Chinese company, sorry, you’re not Swedish any more.
Good story in the New York Times on dynamics in Latin America, where Peru Shows the Limits of Washington’s Anti-China Push. It does seem a bit incongruous, though, to report “Senior administration officials have warned, while offering no evidence, that Chinese-financed projects threaten Peru’s sovereignty and, in the case of the port, could give Beijing a military foothold” and then “today, Chinese companies control Lima’s electricity distribution system and play a role in transportation, banking and telecommunications.” What evidence are we looking for here?
Georgetown’s Peter Harrell highlights a potential decision by Malaysia to use Huawei chips in a major “sovereign data initiative,” an early test of provisions in bilateral trade agreements secured by the Trump administration that would seem to preclude such moves. Decisions like these, and the U.S. choice to respond or not, will determine whether we can successfully establish a “China or the U.S., pick one” framework for potential trading partners.
And per the Brookings Institution’s Kyle Chan, looking at the upcoming Trump-Xi summit, “sounds like Board of Trade / Investment talks are stalled—by Washington.” That’s something we’ve been pushing on since the spring, and would be good news indeed.
(For an appallingly weak counterpoint, see the new Foreign Affairs essay by former Biden adviser Brian Deese: The Case for Letting China In. The case, apparently, is that China has things we need, and if we structure our investment deals right we can get it to hand leadership back to us. Good plan.)
Maybe Mr. Deese would prefer to be in…
EUROPE
Oh, Europe. Still can’t decide what to do. Now, EU faces 300,000 factory job cuts as China ‘colonises’ supply chains, industry warns (The Guardian). In a Brookings symposium on the issue, Ryan Hass, director of the Institution’s China Center, hits the nail on the head:
The current EU-China trade trajectory serves China’s interests. Beijing will use carrots and sticks to sustain its open access to the EU common market, which is the only major market in the world with high purchasing power that remains open to China’s surging exports. China may pay lip service to European concerns, but it will not offer any concessions or meaningful voluntary restraints on its exports. If there is going to be any rebalancing of EU-China trade relations, Europe will need to instigate it.
Whether justified or not, China’s confidence in its capacity to sustain the current trade trajectory is borne of three factors. First, Beijing judges Europe’s leaders as politically weak, divided on China, and lacking a mandate to launch a trade war against China amidst an actual war in Ukraine and a widening transatlantic rift with U.S. President Donald Trump. Second, Beijing is confident it can build an image of its market as a key driver of future demand for European products, and thus a key opportunity that European industrial giants cannot afford to squander. And third, China is confident it has punitive tools at its disposal to prevail in any trade war with Europe, should it become necessary to use them.
On its current trajectory, China’s surging export wave will decimate key European sectors, including autos, chemicals, green energy, machinery, and industrial tools. This, in turn, will alter Europe’s political center of gravity. The only question is whether Europe will be compelled to push back now or later on China’s unfair trade practices, including China’s suppressed domestic demand, its subsidies, and its undervalued currency.
AND FINALLY, IN H-1B NEWS
The Department of Labor is investigating Cognizant. This has received extraordinarily little coverage, but Newsweek has a good rundown. Republicans on the Senate Judiciary Committee are pleased. One wonders what a large-scale investigation into the visa practices of a major Indian outsourcer might turn up, and how that might be applicable to the sector more broadly. Stay tuned.
In less helpful reform, IFP’s Connor O’Brien highlights a move by DHS that’s likely to backfire. The proposed policy change would force temporary visa holders to leave the United States immediately if they lose the job attached to the visa (whereas currently they have 60 days to find a new job). At first glance, this seems like a “tough on immigration” approach. But the reality is that employers already have far too much control over workers using these kinds of visas… that’s partly why employers love them! Essentially giving employers the power to deport a worker they’re unhappy with will only invite further abuse in the program. The answer is fewer temporary visas, not more exploitative relationships.
YOUR BAD TWEET OF THE WEEK
This week we salute the Tax Foundation’s Erica York for pushing back against the subversive narrative that the labor share of income is falling with better data showing that… the labor share of income is falling. Good catch.
There were indeed a couple of years in the late-1940s when labor share was lower than today, so… well, I guess that’s the question. So what? If the Old Right put half the effort into thinking about and addressing economic problems that it puts into trying to argue they just don’t exist, maybe it would be in better shape.
Enjoy the weekend!