Sigh, Chaos Continues (2)

To the extent that the Trump administration has identifiable economic policies, they seem to align with what I expected. They are targeting what they see as enemies, but face the reality that the vast majority of the budget is spent on popular programmes. Tariffs are caught in an in-between state: Trump wants to use the threat of tariffs to extract concessions, and he also wants to replace the income tax with tariffs. Although China has been hit with a tariff increase already, the rest of the world are waiting for the next burst of inspiration from the White House.

(This article is brief courtesy of having yet another burst of consulting work.)

Destroying State Capacity is Cheap

The bulk of the chaos in the news revolves around mass firing of Federal employees in a fairly arbitrary fashion. This is having the Administration’s desired effect of crippling state capacity, both at present, and in the future. However, this will only have a token effect on the budget, while posing unknown risks. For example, firing 300 people who manage the risks associated with nuclear weapons will not change the budget outlook much, while we suddenly need to start asking questions about nuclear safety. (News link from CNN.)

The problem for the administration is that it will need to go after larger programmes that are extremely popular to match their desired tax cuts. The Republicans have a few duelling budget proposals, and getting one of them passed will remain a challenge.

Eggs, Pandemics, Etc.

There are few growing disease-based problems in the United States, and we will need to see what the outcome of the bold strategy of firing the people who manage and study outbreaks will be. So far, the main visible problem is egg shortages, but if cattle outbreaks spread, this will affect more protein sources.

On the bright side for food supply, the predicted mass deportations are not really happening — the capacity to make the deportations is not really there. Rather than remove the labourers from Republican-owned firms, a few high-profile aerial deportations are being done to make the MAGA base happy.

The floated idea of discontinuing vaccination programmes would store up trouble for the future, but doing so will run into the reality that vaccinations are popular.

Global Crisis

We have swung from worrying about tariffs this week to worrying about the United States invading Canada and/or Trump carving up Ukraine in concert with Putin.

Although the power political situation looks bleak, it may just force Western Europe and Canada to break out of their complacency. Although the Russians are vicious and have very considerable ability to produce ammunition, their Soviet equipment stockpiles are depleted along with their experienced troops. The main question is whether Europe can step up and keep Ukraine in the fight in the near term.

In the longer term, it seems likely that Europeans and Canadians will need to step up their defence spending, while avoiding buying anything more complex than 155 mm ammunition from the Americans.

Although the next main event will be any American-Russian pact, it is a near-certainty that we will be back to Tariff Week content shortly thereafter. Although the narrower steel/aluminum tariffs might get through, across-the-board tariff implementation will always be conditional on whether the Dow Jones index falls in value on the date of announcement.

Concluding Remarks

Until wider tariff implementation hits, most of the macroeconomic damage being inflicted by the Trump administration will not show up for some time. Medical and scientific research typically has long-term payoffs, and so the partial destruction of research universities in the United States would just have a multiplier effect from lost wages. Even the demise of NATO would just cause defence spending to rise in the medium term, and the short-term effects would mainly fall upon Ukraine.

Although Elon Musk appears to believe that he has found the secret cheat code to win at politics — impoundment — politics continues even under authoritarian regimes. In a private company, you can fire people and they effectively disappear as a management concern. This is not the case in national government, as political groupings remain in place. Budgets are an expression of priorities that are negotiated between political groupings, and if those negotiations are ignored, the loyalty of internal groups cannot be taken for granted. For example, the viability of red state governments’ low taxes will be in question as the firehouse of Federal transfers are cut off.

The problem the modern right wing faces is that it is led by people who made the mistake of believing the nonsense that they tell voters before elections. Although campaigning against “waste, fraud, and abuse in the welfare state” polls well, it has not really been a plausible course of action since the 1990s. The neoliberal attack on government crushed out the fluff, the programmes that survived did so because of Darwinian selection. Although one can find silly research grants given to humanities professors, there is a good reason why nobody can compile lists of such grants that amount to more than pocket change for the U.S. Federal Government. To the extent that one can find fraud and abuse, one would need to look at things like purchases of armoured Cybertrucks, but that purchase is funnily enough not a target of “DOGE.”