2025-11-29 17:11:52
Every year or so, there’s a new crop of articles about how you need to make $350k a year to live in New York City, or $150k is lower middle class, or you need $300k to be middle class, or why people making $400k are barely scraping by. This article is always roundly ridiculed on social media, and a few days later someone writes a post going through the numbers and debunking the whole thing. And then everyone posts the famous tweet:
There’s just something very annoying about publications that cater to upper-class audiences trying to reassure those audiences that they’re actually struggling.
In a recent post on his Substack — followed by a shorter version in The Free Press — asset manager Mike Green made a similar claim, but got much more positive attention for it. Instead of claiming that a family that makes $400,000 is middle class, he claimed that a family making less than $140,000 is poor. This is from the Free Press version:
I realized that [the U.S. official poverty line]—created more than 60 years ago, with good intentions—was a lie…“The U.S. poverty line is calculated as three times the cost of a minimum food diet in 1963, adjusted for inflation.”…[W]hen you understand that number, you will understand the rage of Americans who have been told that their lives have been getting better when they are barely able to stay afloat…
[E]verything changed between 1963 and 2024. Housing costs exploded. Healthcare became the largest household expense for many families. Employer coverage shrank while deductibles grew. Childcare became a market, and that market became ruinously expensive. College went from affordable to crippling…A second income became mandatory…But a second income meant childcare became mandatory…two cars became mandatory…In 2024, food-at-home is no longer 33 percent of household spending. For most families, it’s 5 to 7 percent. Housing now consumes 35 to 45 percent. Healthcare takes 15 to 25 percent. Childcare, for families with young children, can eat 20 to 40 percent.
If you keep [the original] logic [of the poverty threshold]—if you maintain [the] principle that poverty could be defined by the inverse of food’s budget share—but update the food share to reflect today’s reality, the multiplier is no longer three.
It becomes 16. Which means…the threshold for a family of four—the official poverty line in 2024—wouldn’t be $31,200. If the crisis threshold—the floor below which families cannot function—is honestly updated to current spending patterns, it lands at close to $140,000.
And just to double-check this number, Green does a quick calculation of what a family of four would need in order to afford the necessities of modern life, and comes up with a similar number:
I wanted to see what would happen if I ignored the official stats and simply calculated the cost of existing. I built a basic needs budget for a family of four (two earners, two kids). No vacations, no Netflix, no luxury. Just the “participation tickets” required to hold a job and raise kids in 2024. Using conservative data for a family in New Jersey:
Childcare: $32,773
Housing: $23,267
Food: $14,717
Transportation: $14,828
Healthcare: $10,567
Other essentials: $21,857
Required net income: $118,009
Add federal, state, and FICA taxes of roughly $18,500, and you arrive at a required gross income of $136,500.
Wow! Two different methodologies, but the same conclusion: the cost of merely participating in the modern economy, for a family of four, is around $140,000. If your family makes less than that, you must be poor.
This post made the rounds like wildfire, and was generally well-received. It turns out that there’s a much bigger market for the idea that $140,000 is poor than there is for the idea that $400,000 is middle-class.
But despite its popularity, Green’s claim is wrong. Not just slightly wrong or technically wrong, but just totally off-base and out of touch with reality. In fact, it’s so wrong that I’m willing to call it “very silly”. I know Mike Green, and I count him as a friend, but we all write silly things once in a while,1 and when we do, we deserve to be called out on it.
Why is the $140,000 poverty line silly? Well, there are two main reasons. First, Mike actually just gets a lot of his numbers wrong when he makes his calculations. And second, the way Mike is defining “poverty” doesn’t make any sense.
I’ll go through both of those points, but first, let’s step back a second and talk about why the claim that $140,000 should immediately strike you as highly suspicious.
In economic policy debates, it’s important to be able to sniff out claims that aren’t going to hold up. I’m not saying that “extraordinary claims require extraordinary evidence”, as Carl Sagan said. I’m saying that when you see a claim that sounds way off, there often isn’t any good evidence for it at all.
If Mike is right, most Americans are poor people. The majority of American families make less than $140k a year. Median family income for a family of 4 in the United States is $125,700. That means that the majority of 4-person families make less than that. So if Mike Green is right, that means that more than half of American families are poor — or at least, more than half of 4-person families.
When Mike says “poor”, he means that people can’t afford what he calls a “participation ticket” — a basket of basic necessities. He names the things in that basket: rent, health insurance, transportation (including two cars), “other necessities”, and child care. If he’s right, then more than half of American families lack one or more of the basic necessities of life.
Is that true? Well, we can check these necessities one by one. Let’s start with food. For caloric consumption, we can’t really find a median (most people don’t count calories so you can’t do surveys), but we can find an average. And average calories per person has gone way up over time:
The distribution of how much food people eat probably isn’t very skewed (there isn’t one guy eating a billion calories…I hope!), so this means the typical American is eating a lot of food. In fact, of all the countries on the planet, only Irish people eat more calories than Americans. As for food insecurity, America has a lower share than practically any other country on Earth, including Scandinavia:
That’s severe food insecurity; about 10% of married-couple households report some level of food insecurity. So almost all American parents are putting food on the table for their families.
How about shelter? About 14% of American children have living situations with more than one person per room, which is how we define “overcrowded”.
We can also look at floor space. For 4-person households, total floor space per capita was 524 square feet in 2020 (it’s much higher for smaller households). In 1960, average floor space per person across all households was only 435 square feet for newly built homes. The average for 4-person families across all homes would have been a lot smaller than that, since it includes all the older homes from previous years that were much smaller.
So we’ve definitely seen a very big increase in how much space American families have to live in, over time. Also, for what it’s worth, Americans have more living space than people in almost any other country. In sum, most Americans are doing fine in terms of shelter and living space.
How about health insurance? Here we have some very good news: The total percent of uninsured Americans has fallen to only 8%.
And in fact, the news gets better! According to the CDC, only 5.1% of American children were uninsured as of 2023. So at this point, almost all Americans in 4-person families are going to have health insurance.
(Thanks, Obama!)
What about transportation? Here’s a chart I found for the number of vehicles for 4-person households in 2022:
According to this data, more than 80% of America’s 4-person households have 2 or more cars. Presumably some fraction of those households have single breadwinners, and thus — by Mike Green’s reckoning — don’t necessarily need two cars, while a few live in places with good public transit. So most Americans do have adequate transportation.
As for child care, I don’t have good numbers on how many Americans have it (since it comes in many forms). But as Mike says, child care is something you get so that you can have both parents go work; ultimately, it’s not something you need in and of itself in order to live a good life. So we can omit it from this list.
The basic point here is that:
Most Americans have plenty of food to eat
Most Americans have a comfortable amount of living space
Most Americans have health insurance
Most Americans have sufficient transportation
By itself, that doesn’t prove that most Americans have all of these things. It’s possible that each family has to choose one or two of these to give up, and that they make different choices. So maybe you take the 10% of 4-person families who are food insecure at some point, add the 8% who lack health insurance, then add the 16% who have less than two cars, and add the 14% who have overcrowded living situations, and you get…48%! So it’s possible half of Americans lack at least one of the basic necessities of life…right?
Well, no, because there’s going to be lots of overlap between those groups. A lot of the people who don’t have enough to eat are going to be the same people who have only one car, a family member without health insurance, and a cramped living space. In reality, you can’t just add those percentages up — the percent of Americans who lack even one of the basic necessities Mike Green lists is going to be a lot less than half. It’s probably going to be closer to the 25.5% of Americans who live in “relative poverty” (below 60% of median income). That’s higher than the official poverty rate, but not even close to Mike Green’s number.
In other words, the whole idea that more than half of Americans are poor doesn’t fit with anything we know about the lifestyles that typical Americans actually live. That’s why our intuition should be sounding the alarm like crazy when we read a line like “the real poverty line is $140,000”. We’re not talking about aliens from Mars here. Most of us either are middle class, or know people who are, and they don’t lack the basic necessities of life. They aren’t missing their “participation tickets”.
So how did Mike get this so wrong? It turns out there are two reasons. First, he used some bad numbers to make his calculations — so even on his own terms, the $140,000 number is bad. But also, the way he goes about calculating the price of a “participation ticket” in the American economy just doesn’t make sense.
2025-11-28 18:06:37
“This is Bach, and it rocks/ It’s a rock block of Bach/ That he learned in the school/ Called the school of hard knocks” — Tenacious D
Has culture stagnated, at least in the United States? There are a number of prominent writers who argue that it has. For example, Adam Mastroianni blames cultural stagnation on risk aversion resulting from longer lives and lower background risk:
Ted Gioia, meanwhile, blames risk-averse entertainment companies for monopolizing content with IP and using dopamine-hacking algorithms to monopolize consumers’ attention:
This being the 2020s, both writers bring plenty of data to support their arguments. I won’t recap it here, but basically, they look at various domains of cultural production like books, movies, music, TV, and games, and they show that:
Old media products (including sequels, remakes, and adaptations) have taken over from new products.
Popularity is now more concentrated among a small number of products.
I find that evidence to be fairly convincing. The counterargument, delivered by folks like Katherine Dee and Spencer Kornhaber, is that creative effort has shifted to new formats like memes, short-form videos, and podcasts. I think that’s definitely true, but I can’t help thinking that this explanation is insufficient. Regardless of what’s happening on TikTok, the fact that the cost of making movies has declined by so much should mean that there are more good new movies being made; instead, we’re just getting flooded with sequels and remakes. Something else is going on, and maybe Mastroianni and/or Gioia are on to something.
But anyway, there’s another thinker that I particularly like to read on cultural issues, and that’s David Marx. Marx, in my opinion, is a woefully underrated thinker on culture. His first book, Ametora — about the history of postwar Japanese men’s fashion — is an absolute classic. His second book, Status and Culture, is a much heavier and more complex tome that wrestles with the question of why people make art; it is also worth a read, although I think there are lots of things it overlooks.
Back in the spring of 2023, I met David in a park in Tokyo. We walked around, and he asked me what book I thought he should write next. I asked him to tell us where internet culture — and by extension, all of culture — should go from here. He replied that if he were going to write a book like that, he would first have to write a cultural history of the 21st century; if we’re going to know where we ought to go, we need to understand where we’ve been.
Blank Space: A Cultural History of the Twenty-First Century is that book.
Most of Blank Space is just a narration of all the important things that happened in American pop culture since the year 2000. You can read all about the New York hipster scene, the startling influence of Pharrell Williams and the Neptunes, the debauchery of Terry Richardson, the savvy self-marketing of Paris Hilton and Kim Kardashian, and so on. You can learn a bit about “poptimism” and 4chan memes. You can relive the excitement of the early Obama years and the disillusionment that followed the rise of Trump. And so on.
It’s the kind of retrospective that TIME magazine used to do, but higher-quality and book-length — a good book to have on your shelf.
In most authors’ hands, just as in old issues of TIME, this would come off as a jumbled laundry list — just one damn cultural factoid after another. But David Marx’s talent as a writer is such that he can make it feel like a coherent story. In his telling, 21st century culture has been all about the internet, and the overall effect of the internet has been a trend toward bland uniformity and crass commercialism.
In fact, Marx’s skill at narrative history sometimes gets in the way of his attempts at grand theorizing. He’s so good at distilling the look and sound of the 2000s decade — hip-hop inspired streetwear, Neptunes tracks, and so on — that he ends up bringing the decade to life in vivid color. This ends up making it very difficult to think of the 2000s as a forgettable and bland period.
Other times, Marx’s own personal tastes lead to gaps in the narrative. He doesn’t deal much with film as a medium, and ends up missing the fact that the 2000s were a golden decade for indie film. Culture is not entirely defined by music and fashion.
Marx also doesn’t deal much with the explosion of Japanese cultural imports to the U.S. in the 2000s and 2010s — which is ironic, since that was the topic of his first book. Even if you’re only telling the story of American culture, foreign imports are important, since they can crowd out domestic products — kids can go read manga instead of comic books, watch anime instead of American TV, and so on. Globalization isn’t the same as stagnation; even if the center of production moves offshore, something is still being produced and consumed.
These are nitpicks, but the book’s narrative methodology has a more serious weakness. The long tail interferes with any attempt to tell a coherent story of culture. If everyone listens to a few mainstream bands, you can name those bands and identify the sound of a decade; if everyone is listening to a tiny indie band that only they and 100 other people follow on Soundcloud, the task of describing the totality of those bands is hopeless.
Sometimes I feel that as a card-carrying Gen X hipster, Marx over-indexes on the Nirvana Moment — that day in early 1992 when a flannel-wearing post-punk band from Seattle dethroned Michael Jackson on the charts. That was a cool moment, to be sure, as is any time that an indie upstart forces its way into the mainstream. But we can’t expect that to be the norm. Of the early 2020s, and the inability of TikTok creators to get rich, Marx writes:
Grassroots cultural activity posed little threat to the celebrity aristocracy of movies, TV, and supermodels. Only the mainstream could satisfy the eternal need for a shared culture…At best the monoculture could undergo slight cosmetic changes: a rotating cast of “royal houses” in the pop aristocracy rather than a true revolution.
But it seems to me that this is how things usually go. The reason it was so impressive and noteworthy that Nirvana dethroned Michael Jackson in 1992 is that that kind of thing almost never happens. Usually, the mainstream stays mainstream, and indie stays indie, and you never get to see your indie heroes overturn the firmament. You just sit there enjoying them because they’re yours — your little piece of the long tail. Hipsters don’t have to be revolutionaries — you can just sit there being smug about how only you and your five friends know about the world’s greatest band, instead of fuming about how they never make it onto the Billboard Hot 100.
What of the evidence mustered by Mastroianni and Gioia, that popularity is becoming concentrated among a smaller and smaller set of cultural aristocrats? This doesn’t disprove the idea of the long tail. It may be that the distribution of taste is becoming more leptokurtotic — more concentrated at the center, but more widely distributed at the fringes:
In the worlds of online video, graphic novels, TV, and fashion, this is almost certainly what is happening. The best fashion styles in the world are not being shown on the runway at Paris Fashion Week; they are created by some 21-year-old Japanese fashion student who woke up in an odd mood. The best YouTube videos have only 10k or maybe 100k views, and the best TikTok videos probably have a lot less than that. And in my opinion, there are more awesome niche graphic novels being made now than ever before, even though each one has a relatively small audience. (Update: As a commenter pointed out, webcomics are another medium experiencing an explosion of creativity right now.)
As for television, in the 1990s everyone watched Seinfeld and Frasier and Friends, and a few people had heard of The State or Mad TV, but in the 2010s there was an explosion of mid-sized comedy shows that catered to more niche senses of humor — Party Down, Key & Peele, Kim’s Convenience, Letterkenny, Parks & Recreation, and so on.
But in some other domains, like books, traditional film, and music, this is almost certainly not what’s happening. Unlike with YouTube videos, I haven’t discovered a few cool indie films in the 2020s that no one else appreciates — I have discovered zero. The same goes for science fiction books (my genre of choice). That’s a strong indicator that there really just aren’t many out there; word of mouth is powerful, and lots of people share my general tastes, and word gets around. The same is true of musical artists, to a lesser degree; I discover a few awesome new ones here and there, but in general there were a lot more cool niche indie artists in earlier decades.1 If more existed, I would find them.
I’m thus playing a bit of devil’s advocate here. The stagnation that Marx, Mastroianni, and Gioia perceive is real, even if it’s not evenly distributed. The bland omnivorous taste that Marx complains about is a very real thing in the age of social media. Taylor Swift may be our modern Michael Jackson, but there’s no Nirvana to challenge her. Meanwhile, Dee and Kornhaber’s argument that memes are the true art of the modern age rings a bit hollow — I’ve seen more memes than I can count, and while a few of them are clever, almost none are brilliant, and the overwhelming majority are just boring political shouting.
So yes, Marx is right, even though he’s not completely right. The utter dominance of boring unoriginal pablum in music, film, and literature cries out for an explanation. Michael Jackson was the King of Pop, but his sound was still original. Indiana Jones was a blockbuster hit, but it was wildly creative and incredibly fun. What movie can we say that about today? Slowly, one cultural medium after another is having the life squeezed out of it by some nefarious force, even if others are still going strong.
What is that force? Unlike David, I’m highly skeptical of the idea that culture moves autonomously — I don’t think that as a society, we just suddenly decide to do things differently. Marx’s story works great as a narrative, but less well as a causal theory — you can’t just call on people to be less “poptimist” and expect any real results.
Mastroianni’s hypothesis about risk aversion is somewhat plausible — who wants to be a starving artist when you can design characters for Reddit and make six figures? But the gradual upward creep of risk aversion can’t explain why some cultural fields have flowered with creativity in recent decades. As for Gioia’s hypotheses about monopoly power and predatory algorithms, this might explain why the mainstream is more stagnant, but it can’t explain why there are so few great indie bands in the age of Soundcloud.
My own personal guess is that at least part of this force must be technological in nature. I wrote about this idea back in May:
I won’t reiterate my whole argument — this post is supposed to be a review of David Marx’s book, so I don’t want to make it all about my own ideas. But the basic thesis is that novel cultural production comes from novel technology — that when we invent the pickup mic, we predictably get several decades of electric guitar music, as people play around and discover what things are possible with electric guitars. But eventually, the space of cultural possibilities opened up by a new technology gets “mined out”, progress falters, and a canon gets canonized.
This idea explains why string orchestras are cover bands — the basic technology of violins and flutes and oboes was mostly perfected centuries ago, so classical music progresses only glacially. It can also potentially explain the unevenness of cultural creativity in recent decades. Obviously, short form video became great when camera phones became ubiquitous. Books, on the other hand, are only a little easier to write than before (thanks to word processors replacing typewriters), so it makes sense that creativity in literature might be flagging a bit.
This technological explanation is fairly pessimistic. It ties artistic output to technological progress, which we don’t really know how to accelerate. And worse, it implies that every burst of cultural creativity is inherently temporary.
But I doubt this is the only way that technology affects artistic output. In the chapter of Blank Space on how to restore cultural creativity, Marx calls for a more fragmented internet culture that allows subcultures to flourish before their innovations get harvested by the mainstream. Writers like Steven Viney2 and Yomi Adegoke have long complained that subcultural distinctiveness is impossible in the age of the internet. If artists can only make art while standing in the middle of the town square, you’re going to get more boring art.
I couldn’t agree more — and that’s why I think the ongoing fragmentation of the internet away from mass social media and into small private group chats is going to be healthy for cultural output.
Most of Marx’s other recommendations for restoring cultural innovation revolve around the idea of restoring taste, gatekeeping, and criticism to pop culture. While I can imagine that this might help, the idea is only vaguely sketched out in the final pages. Blank Space works well as a history, but doesn’t have much time for prescriptions. For that, we’ll have to wait for a future David Marx book — the one I requested back in the park in 2023.
I’m sure that when that one comes out, it will be great. In the meantime, Blank Space is a fun read, and you should buy it.
Perhaps this is because I’ve gotten older and my tastes have ossified. But if so, why do I feel like this is such a golden age for TV and graphic novels and short-form video? Why would being an old fogey only ossify one’s taste in music and film, but not in other media?
Viney’s contribution here is dripping with irony, since he wrote his article for Vice, a magazine whose whole reason for existence was to find obscure subcultures and use the internet to expose those subcultures to the mainstream.
2025-11-27 16:01:57
Five years ago, I made the (questionable) decision to launch my Substack over Thanksgiving weekend. So every Thanksgiving or thereabouts, I do a roundup of seven important themes from the past year, along with a few themes to watch for in the upcoming year. Here’s last year’s edition. The links below are all links to other posts I wrote over the past 12 months, so you can use this post as a reference for what I wrote about in 2025.
I’d also like to thank everyone for reading and supporting Noahpinion. A year ago this blog had 280,000 readers; now it has 414,000. I never expected my blog to get that big, and I’m incredibly grateful to all of you for helping to make that happen. Please remember to recommend Noahpinion to your friends, family, and coworkers! I also published a book this past year, though so far it’s only in Japanese; this upcoming year I’m going to write an English-language book about macroeconomics, so be on the lookout for that.
Anyway, here are the seven themes for 2025.
This was the year that Donald Trump, true to his campaign promises, upended 70 years of American economic policy. On April 2, which he dubbed “Liberation Day”, Trump announced truly enormous tariffs on almost all of the countries in the world. Many of these tariffs were eventually walked back, sometimes after “deals” in which other countries made various promises to the U.S. and/or to Trump and his family. Thankfully, none of the worst-case scenarios have yet reared their heads.
But some tariffs remained in place, and these tended to be tariffs on America’s allies rather than on China. And general uncertainty about future tariffs has exploded. This, along with worries about U.S. political unrest and national debt, has led to a depreciation of the dollar as some investors hedged their bets by moving money out of the country.
The tariffs haven’t yet tanked the economy or raised inflation, but they’re exerting a corrosive influence on the economy, pushing up prices, weighing on employment, and hurting the manufacturing sector. This was entirely predictable; economists have long understood that tariffs on intermediate goods hurt manufacturing by disrupting and shrinking supply chains. Trump’s team, unfortunately, makes it a point of pride not to listen to economists, instead choosing to invent a blizzard of dubious ad-hoc justifications for the President’s whims.
In fact, one reason Trump was able to get away with his tariff policies was that a great deal of B.S. and myth has grown up around trade and trade economics. Lots of people persist in thinking that trade deficits make countries poorer, because of the way GDP is broken down into components. But they do not. It is now widely accepted that globalization hollowed out the American middle class. It did not; in fact, nothing did. The whole case for Trump’s tariffs was based on misconceptions.
Which is a shame, because pure free trade is not the ideal policy. If America were smart about strategic trade, we could craft approaches that would enhance national security, protect infant industries, help American companies scale up, and discourage Chinese mercantilism. This would require America to trade freely with allies while putting tariffs on China, and to implement the kind of Biden-esque industrial policies that Trump had disdained. But at this point, no one in the halls of power seems to be thinking strategically, listening to experts, or worrying about details. And so the madness continues.
The biggest reason that the U.S. economy is still doing OK, despite the pressure from tariffs, is the AI boom. Data centers are being built out at a stupendous rate, exceeding the 1990s telecom boom and drawing comparisons to the railroad boom of the 1800s. A lot of people are worried that this construction bonanza is being financed by shady private credit deals that could hurt the macroeconomy if the AI sector goes bust.
That possibility has fueled a lot of debate over whether AI is as useful as its proponents believe. But this debate misses the key point that railroads and telecoms were ultimately even more useful than their proponents believed, and yet both still experienced busts along the way. If AI fulfills everyone’s wildest dreams, but slightly too slowly to pay back the data center loans, there could still be carnage in the financial markets.
An AI-driven financial bust could also happen if the AI industry turns out to be much more competitive than the traditional software industry. There are plenty of essential industries that make low profits — airlines, solar panels, and traditional agriculture come to mind. Traditional software depends a lot on human capital (engineers), but AI depends a lot on physical capital (compute), so it could end up being a lot more competitive of an industry.
In any case, it seems inevitable that our economy is going to make a giant macro bet on AI.
Meanwhile, a lot of people continue to worry that AI is going to take lots of people’s jobs. But nobody really knows whether that will happen, and the people who make strong claims about it are just being overconfident. So far, it looks as if industries more exposed to AI have been hiring fewer entry-level workers, but hiring more experienced workers. So it’s possible that AI is biasing the playing field toward people with more experience…or it’s possible companies just over-hired young workers back in 2021 and are now correcting. Only time will tell.
AI is only one of the big inventions remaking the world right now. The other big one is what Sam D’Amico and I call the Electric Tech Stack — batteries, electric motors, and power electronics. Together, these technologies have made it economical to use electric power instead of combustion in a large variety of applications — cars, appliances, certain industrial processes, and power generation itself — in addition to enabling lots of new robots, drones, and so on.
The problem is that America is falling way behind China in terms of mastering the Electric Tech Stack. Americans seem to have collectively decided that the Electric Tech Stack is all about climate change, and so it has become a culture-war football, with Republicans trying to cancel battery manufacturing. Very few Americans seem to understand that as battery-powered drones master the battlefield, whoever can build more batteries and motors will rule the skies. The Electric Tech Stack is about power, first and foremost.
(Of course, saving the world from climate change isn’t nothing. Right now it’s China that’s doing that, by flooding the developing world with cheap solar panels and batteries.)
Anyway, I’m pretty worried that Americans’ rejection of the Electric Tech Stack is a sign that they’re starting to fear the future itself. It’s possible to see anti-electric sentiment as of a piece with anti-AI fears, antivax craziness, and various other anti-tech outbursts. If so, it’s a very bad sign.
This year was really when China’s ascendance over the developed democracies became apparent. Trump’s battles with domestic opponents, isolationist instincts, and eagerness to start fights with allies have accelerated the rise of Chinese power, and helped to undo much of the damage China did to its own image through “wolf warrior diplomacy” during the Biden years. Meanwhile, China’s economy is now bigger than America’s by most reasonable measures, and it dominates the manufacturing technologies that would prove decisive in a protracted military confrontation.
It’s therefore safe to say that we’re now living in the Chinese Century. Demographic and macroeconomic factors will present headwinds for China, but won’t be able to knock the country off its perch.
But even at its glorious peak, China’s civilization may prove underwhelming in certain ways. It’s a scientific and technological leader, but it doesn’t yet seem to be driving breakthrough progress the way the U.S., Britain, Japan, and Germany did in their heydays (and which the U.S. still does). It’s cities are visually impressive, but sprawling messes on the ground.
Meanwhile, China is making some mistakes. In recent years it has unleashed the biggest industrial policy push in the history of the world, intent on replacing the real estate industry and filling the hole left by that industry’s collapse. But by paying a bunch of Chinese companies to compete each other’s profits to zero, China unleashed “involution” that is hurting corporate balance sheets and causing deflation. And thanks to that involution, China’s people are working hard but seeing relatively few benefits. As Dan Wang wrote in his popular book Breakneck, China’s leaders are a bit too focused on feats of technical and social engineering. and not focused enough on making their people happy.
And in the distance, Xi Jinping’s succession looms. The most powerful Chinese leader since Mao is 72, but he has not yet picked an heir apparent, and appears intent on ruling well into his dotage. Either a superannuated leader or a vicious succession battle could present major problems for China.
Trump has generally been a terrible President in his second term. The only thing still keeping him afloat — indeed, the only thing that allowed him to win in 2024 despite all he’s done and said — is the American public’s deep disdain for the Democratic Party. Some of that disdain is due to Democrats’ seeming weakness in confronting Trump. But a lot is due to general exasperation with the progressive movement, which has lost credibility on a wide number of fronts in recent years.
On one issue after another, progressive approaches have proven inadequate to America’s needs. Many progressive state and local governments have gone soft on crime, allowing a breakdown in public order that victimizes the most vulnerable and also makes it politically impossible to build dense transit-rich cities. Progressive procedural requirements have made building infrastructure, transit, housing, and green energy very difficult in America — thus hampering a lot of progressive causes. The progressive approach to education has emphasized “equity” instead of teaching kids how to do math.
Ideologically, progressives remain enamored of the disastrous idea of degrowth. They’ve ignored or dismissed the recent successes of free-market economics, instead blaming “corporate feudalism” for America’s problems without much evidence. Progressive online culture, once so dominant, has become downright ghoulish, cheering the murders of business executives and spending untold hours trying to “cancel” each other on Bluesky and in other deeply progressive spaces. Progressives have embraced “land acknowledgements” that might seem harmless, but which ultimately delegitimize the U.S. as a country. And so on.
Some progressives have begun to think of useful alternatives to the canon inherited from the 2010s. Derek Thompson and Ezra Klein published a blockbuster book called Abundance that proposed a new progressive agenda based on getting Americans more material stuff. Some progressives leapt to attack the new book, but their attacks fell short and looked petty. Hopefully the abundance movement will be able to steer progressivism out of its current dead end.
Besides embracing abundance, progressives also need to moderate on all the issues where their approaches have demonstrably failed — and to be honest with themselves and with their activist base about why they failed in the first place. The liberalism of Bill Clinton and Barack Obama, and the idea of liberal nationalism itself, represent a much better way forward for the Dems than an accelerating slide into radicalism. Fortunately, the recent No Kings protests displayed plenty of patriotism, suggesting that the tide may be turning on the left more generally.
This whole year was lived in the shadow of Donald Trump’s 2024 election victory. Trump’s first term turned out to be relatively benign, and even featured some important successes. There was always the possibility that his second term would be similar. Sadly, this was not what ended up happening.
As I predicted, Trump has spent much of the early days of his administration feuding with American institutions — the media, the Fed, the courts, the electoral system, and so on — and threatening his domestic enemies. As it became apparent that institutions weren’t resisting him as they had in his first term, Trump began to overreach, issuing a blizzard of executive orders that assumed far more executive power than U.S. Presidents have exercised in the past except in the middle of total war.
Eventually the Supreme Court emerged as the one institution in the country that Trump wasn’t willing to openly defy, producing an uneasy stalemate. But the U.S. now feels like a much more authoritarian country than it did a year ago. This sadly fits with the global trend toward strongman rule.
The assassination of Charlie Kirk by a leftist radical prompted Trump and his allies to issue dire threats against Democrats, and to threaten restrictions on freedom of speech. Some Trump officials even used the rhetoric of civil war for a few weeks after the assassination.
In foreign policy, Trump has abandoned the liberal nationalism that marked both Republican and Democratic administrations since World War 2, acting instead like a bully trying to extract tribute from weaker nations. Although he did manage to broker a successful cease-fire in Gaza, Trump’s abdication of America’s traditional stabilizing role in world affairs has pushed the world a bit closer to war.
But despite the ferocity of its rhetoric and its reckless assumption of power, the MAGA movement feels strangely weak. Contrary to the hopes of its adherents, Trumpism is not building any new communities, institutions, or organizations in America; instead it’s just a blast of mostly online rage. And Trump’s policies seem startlingly incompetent, from his rejection of vaccines to his infinite tax cuts that explode the national debt. The Tech Right, which was supposed to provide an injection of elite human capital into the MAGA movement, has instead withdrawn after the failure of DOGE. International actors are quietly laughing at America’s fumbling lack of competence.
And the biggest question — what happens to the right after Trump and his personalistic rule are gone — has yet to be resolved. The most likely scenario is that without Trump’s personal charisma to hold it together, MAGA will become more ideological, conceiving of itself as a crusade to save Western civilization from immigration and liberalism — in other words, a typical right-wing movement. Whether that sort of movement can succeed in America has yet to be seen.
Why is America being forced to choose between Trumpian gangsterism and dysfunctional progressivism? The fundamental reason is the age of sociopolitical unrest that began in the U.S. around 2014. That era of unrest is slowly fading at the grassroots level, as Americans tune politics out, but we’re still dealing with the institutional and political consequences.
Fundamentally, unrest was touched off by social media, which threw Americans all into the same room as each other, destroying our ability to spread out and tolerate our differences from afar. Curbing social media use among the youth and fragmenting the internet into more private, curated conversation spaces will help undo some of the damage. But the more fundamental crisis — the thing social media revealed — is a crisis of identity. As America diversifies, ethnic notions of nationhood are being strained, even as the internet fragments our cultural unity.
This identity conflict was most intense in 2014-2021, but it’s still roiling, especially online. Anti-Indian sentiment has risen on the right, and antisemitism has made a comeback on both the right and the left. Immigration, once cast as an economic issue, is now the main culture-war flashpoint, with both rightists and some progressives seeing it as a tool for reengineering the American populace. The Trump administration’s xenophobic policies are a reflection of that conflict.
And in the background of all of this is the end of the aftermath of World War 2. The liberal, tolerant values that emerged from the resolution of that conflict have weakened as the generation that fought for them has passed away.
Still, I am optimistic that America will eventually resolve its identity crisis. These things have happened in the past, and the nation always emerged stronger after a period of unrest and division. We just might pull it off again.
If 2025 was Trump’s blitzkrieg, 2026 will be a year of retrenchment. The administration’s falling popularity, as well as emerging divisions between various factions on the right, will act as a partial check on Trump’s program. So I predict a more static, less terrifying year in the world of politics and policy.
The Democrats, meanwhile, will be energized by Trump’s low poll numbers and by the likelihood of retaking the House of Representatives in next year’s election. That feeling of confidence will paper over some (but not all) of the bigger divisions and recriminations that followed Trump’s victory in 2024. But there will still be a constant ongoing debate between those who want to take the party in a more leftist direction — led by the charismatic Zohran Mamdani — and those who want to moderate in order to win.
Economically, the big looming question is whether there will be an AI crash. I personally doubt that 2026 is the year — the big AI “hyperscalers” are still funding too much of the data center build-out with their own considerable cash reserves, and borrowing still hasn’t hit the absurd levels that we usually associate with a major crash. The continuing boom will keep the economy mostly afloat, though we’ll keep seeing some signs of tariff-related deterioration as more tariffs go into effect.
If, as I expect, the AI boom continues for another year without a crash, it’ll convince a lot of people that a crash is never coming — which of course will induce more reckless borrowing, and set things up for an actual crash in the years to come.
The international situation is the biggest question mark by far. Will this be the year that China’s leaders finally decide to pull the trigger and invade Taiwan? If so, will Trump try to put up a fight or just let them have it? Will this be the year that Trump finally pulls the trigger on aid to Ukraine, and washes his hands of the conflict? What effect will that have on the war? Will Europe step into the gap? I don’t know the answer to any of these questions, but the danger of a further expansion of great-power war is certainly there.
All in all, Trump’s loss of momentum, the looming uncertainties of an AI crash, AI itself, and the volatile international situation mean that 2026 is likely to be a year where America finds itself at the whim of events beyond our control.
But whatever happens, I’ll be there to write about it and hopefully to explain what’s going on. Hang in there, and enjoy another year of Noahpinion.
2025-11-26 16:42:30
Two weeks ago, the world of education was rocked by a bombshell report from the University of California San Diego. It revealed that the number of UCSD students who lack basic reading and math skills has absolutely exploded since 2020. The percentage of students needing a remedial class on basic junior-high-school level math jumped from 0.5% to over 12%. Some were even unable to do basic elementary school math. More than a fifth of entering students now fail to meet basic writing requirements.
According to the report, pandemic learning loss is one reason there are so many incapable students showing up at UCSD, but most of the problem is due to falling admissions standards. The UC system eliminated standardized test requirements in 2020, and since then it has been admitting rising numbers of kids from bad schools that inflate grades by ridiculous amounts.
Lots of people have written very good articles about this report since then, so I’ll quote from a few of them. The Argument’s Kelsey Piper talks about how the problem isn’t that UCSD students haven’t completed the required K-12 math courses — it’s often that they did complete the courses but were given passing grades without actually learning math:
Only 39% of the students in the remedial class knew how to “round the number 374518 to the nearest hundred.”
Reviewing test results like these, you would expect transcripts full of Cs, Ds, or even failing grades. But alarmingly, these students’ transcripts…said they had taken advanced math courses and performed well.
“Of those who demonstrated math skills not meeting middle school levels,” the report found, 42% reported completing calculus or precalculus…The students were broadly receiving good grades, too: More than a quarter of the students needing remedial math had a 4.0 grade point average in math. The average was 3.7…A number of high schools are awarding A grades to AP Calculus students who do not have any calculus skills and who would get the lowest possible score on the AP Calculus exam if they took it…
“I have taught AP Calc in circumstances that produced this kind of result,” one public school high school math teacher told me. “No one can do fractions.”…[A]lmost all of them fail the AP Calculus exam at the end of the year.
And The Atlantic’s Rose Horowitch finds that while the problem is especially severe at UC schools, it’s a nationwide issue, and it has its roots in falling standards at public schools:
[UCSD’s] problems are extreme, but they are not unique. Over the past five years, all of the other University of California campuses…have seen the number of first-years who are unprepared for precalculus double or triple. George Mason University…students began arriving at their calculus course unable to do algebra…
America’s students are getting much worse at math. The decline started about a decade ago and sharply accelerated during the…pandemic. The average eighth grader’s math skills, which rose steadily from 1990 to 2013, are now a full school year behind where they were in 2013, according to the National Assessment of Educational Progress…
Many [school] districts adopted a “no zeros” policy, forcing teachers to pass students who had little command of the material. One study of public-school students across Washington State found that almost none received an F in spring 2020, while the share of students who received A’s skyrocketed. Math grades have remained elevated in the years since…Together, these changes meant that even as students’ math preparation was stagnating, their grades were going up.
New York Magazine’s Andrew Rice has more details on the collapse of public education in America:
Last winter, the federal government released the results of its semi-annual reading and math tests of fourth- and eighth-graders…On reading tests, 40 percent of fourth-graders and one-third of eighth-graders performed below “basic,” the lowest threshold…
Nearly 30 percent could not pick the answer (“He wants to read it instead”). A similar proportion of eighth-graders failed to come up with the following sum:
12 + (-4) + 12 + 4 = _______.
…One math problem set out a scenario involving a restaurant check…Test-takers were asked to add the costs of…six items and calculate a 20 percent tip. Three-quarters of the high-schoolers were unable to correctly answer one or both parts of the question.
Rice’s article is very long and has many more details about how and why public education quality has collapsed in America. The basic story is that the education reform movement spearheaded by George W. Bush, which focused on improving test scores, collapsed in the mid-2010s. After that, public schools across the country began to lower their standards — passing kids who didn’t know the material, making their curricula a lot easier, etc. Often, kids just skip class entirely — in Oregon, around a third of all schoolchildren are chronically absent from school.
This was sometimes done in the name of “equity”— even though the new lax policies lead to widening racial and gender gaps. The rise of phones in schools probably exacerbated the trend, as did the pandemic, but the fundamental cause is lax standards everywhere.
Most of the articles about this slow-motion disaster just stick to decrying the report, calling for tighter educational standards, and tracing the demise of the education reform movement. I share their alarm, and I agree with their prescriptions. But I think it’s also worth thinking about exactly why education is going down the tubes in America.
One obvious possibility is that this is just another case of progressive activist culture on autopilot. In the past two or three decades, progressive governance has absolutely collapsed at the city and state level in a number of areas — housing, crime, infrastructure city services, and so on. It makes sense that education would just be one more failure of a progressive ideology that consistently prizes the bad ideas of the loudest activists. In this case, it was activists who pressured the UC system into dropping standardized test requirements.
Another obvious theory is that America is a very rich country, and the richer people get, the less they want to work hard — and helping your kids get through a tough, demanding education system is certainly hard work. Andrew Rice’s article mentions how local school board elections are usually dominated by upper-income white voters, while the degradation of educational standards tends to impact disadvantaged minorities more.
But I think there’s something else going on here. The extremely widespread nature of the breakdown of American education suggests that it’s not just progressive activism and lazy rich people. I basically see efforts to dilute and hobble the U.S. education system as a misguided attack on our pervasive economic and social inequality. To put it bluntly, Americans think that by giving everyone a free pass and refusing to educate smart kids, they can smooth out some of the inequality that results from the uneven distribution of talent.
2025-11-23 16:01:43
Hi, folks! I’m back from my travels in Europe, and just getting back into the swing of blogging. I have a bunch of posts lined up, but if there’s anything you really want me to write about, just drop it in the comments!
Here’s an episode of Econ 102, where Erik and I go through a variety of topics:
Onward to the list of interesting things!
The American economy’s future — and possibly, the future of American politics — hinges on the question of whether AI will have a big crash. In a previous post, I wrote that the question likely hinges not on traditional “bubble” processes like speculation or extrapolative expectations, but merely on whether or not people are overestimating the speed with which AI can generate real returns.
But I might be wrong about that. There might also be more traditional “bubble” processes at work — herd behavior, or speculation, or psychological FOMO, etc. — that might be driving some real AI investment. If so, one warning sign we’d want to watch out for is a drying up of investor liquidity.
In lots of economic models of financial bubbles — the extrapolative expectations model, the information overshoot model, etc. — the bubble stops when people simply run out of more cash to throw into the frenzy. So I get worried when I see stories about AI investors running out of cash:
In the recent past, big tech companies like Google and Meta funded — or at least, could have funded — their AI expansions out of their own profits. But the WSJ has a story about how data center builders are starting to have to borrow instead of just redirecting the cash from their core businesses.
That’s ominous, because that process can’t go on forever.
Economists were right about the fact that Trump’s tariffs would hurt U.S. manufacturing by making it harder to purchase intermediate goods. Trump should have listened to the economists about this.
But were economists wrong about the inflationary effects of tariffs? JD Vance seems to think so:
Now first of all, it’s pretty foolish to make sweeping claims about the economics profession based on a missed forecast. The economics profession, in general, isn’t in the business of macroeconomic forecasting (because none of its forecasting methods are very effective). And even if it was, forecasting is inherently an inexact science; sometimes, forecasters are going to get it wrong.
That said, it’s a fair question to ask why tariffs haven’t resulted in much inflation yet. Inflation might be trending back upwards — it’s too early to tell — but so far it’s still in the 3% range that it’s been hovering in since mid-2023:
But did economists really think that tariffs would raise inflation substantially? Recall that there’s more than one way that tariffs can affect prices. They raise prices directly, and they make production more expensive — that’s inflationary. But tariffs can also hurt the real economy, causing shocks in the system and an increase in negative sentiment that reduces aggregate demand. Reducing aggregate demand is disinflationary. Here’s what I wrote back in July:
If some sort of economic event scares people, they’ll pull back their spending and try to save money instead. This does two things: 1) it causes a slowdown in growth, because consumers are spending less, and because companies are investing less to meet consumer demand, and 2) it causes a reduction in inflation, because companies are forced to cut prices to maintain their sales to reluctant consumers.
It’s not just me. Economists always knew this was one possibility. Now, some economists at the San Francisco Fed have examined the historical record and found that in fact, demand destruction often cancels out the inflationary effects of tariffs:
[W]e find that a tariff hike raises unemployment (lowers economic activity) and lowers inflation…We also obtain similar results if we restrict the sample to the modern post World War II period or if we use independent variation from other countries (France and the UK). These findings point towards tariff shocks acting through an aggregate demand channel.
But just because tariffs are often deflationary doesn’t mean they’re good. The way they create deflation is by harming the economy so much that people stop spending and prices go down! Right now, Trump’s tariffs are probably pushing up on prices modestly on net, increasing inflation by maybe 0.5 percentage points — not a huge amount. But the reason they might only be having such a minor effect is that they’re also causing mild economic weakness that’s pushing down on prices.
Basically, this is a case where one harm of tariffs partially cancels out another harm from tariffs. That’s not a good thing, and it’s not a reason to stop listening to economists. Quite the opposite, in fact.
I’m constantly amused by the fact that the 1980s/90s cyberpunk visions largely came true, and I enjoy speculating about what future visions might come true next. One candidate is “solarpunk”, but so far, that’s mostly just an artistic aesthetic rather than a fully fleshed-out future vision. Singapore has cool-looking plants on buildings, but otherwise it’s just a pretty standard cyberpunk metropolis.
But Skander Garroum makes a convincing case that solarpunk is actually the future of Africa, in a way that cyberpunk was the future of Asia and parts of the U.S.:
Basically, Africa has weak states that aren’t good at providing infrastructure. So solar power is electrifying the continent, because it can be built in a distributed fashion — and because Africa is very sunny, so solar works especially well.
Some excerpts from Skander’s post:
What’s happening across Sub-Saharan Africa right now is the most ambitious infrastructure project in human history, except it’s not being built by governments or utilities or World Bank consortiums. It’s being built by startups selling solar panels to farmers on payment plans. And it’s working.
Over 30 million solar products sold in 2024. 400,000 new solar installations every month across Africa. 50% market share captured by companies that didn’t exist 15 years ago. Carbon credits subsidizing the cost. IoT chips in every device. 90%+ repayment rates on loans to people earning $2/day…
The grid that never came turned out to be a blessing. While development experts spent 50 years debating how to extend 20th-century infrastructure to rural Africa, something more interesting happened: Africa built the 21st-century version instead.
Modular. Distributed. Digital. Financed by the people using it, subsidized by the carbon it avoids.
Cyberpunk was a vision of states coexisting alongside — and sometimes being controlled by — powerful corporations. Perhaps solarpunk is a vision of an anarcho-technological future filled with weak states, where independent individuals and small communities have to take technology into their own hands — a fundamentally African future.
And that’s important, because the future of the human race is the future of Africa:
One of the more depressing facts about the modern world is that humans are causing a mass extinction. Go to the Wikipedia page for “Holocene Extinction”, and it says:
The Holocene extinction, also referred to as the Anthropocene extinction or the sixth mass extinction, is an ongoing extinction event caused exclusively by human activities during the Holocene epoch…Widespread degradation of biodiversity hotspots such as coral reefs and rainforests has exacerbated the crisis.
The fact of the human-induced mass extinction comes up again and again in discussions of environmental policy. As well it should; animals and plants have no natural representation in human society, so if we care about their well-being, we need to fight very hard to keep it on the agenda.
Except here’s something interesting: The “Holocene extinction” may already be ending:
A new study by Kristen Saban and John Wiens with the University of Arizona Department of Ecology and Evolutionary Biology…revealed that over the last 500 years extinctions in plants, arthropods and land vertebrates peaked about 100 years ago and have declined since then. Furthermore, the researchers found that the past extinctions underlying these forecasts were mostly caused by invasive species on islands
For their study, Saban and Wiens analyzed rates and patterns of recent extinctions, specifically across 912 species of plants and animals that went extinct over the past 500 years. All in all, data from almost 2 million species were included in the analysis…
Somewhat unexpectedly, the researchers found that in the last 200 years, there was no evidence for increasing extinction from climate change…For some groups, such as arthropods and plants and land vertebrates, extinction rates have actually declined over the last 100 years, notably since the early 1900s…
One of the reasons for declining extinction rates “is many people are working hard to keep species from going extinct. And we have evidence from other studies that investing money in conservation actually works.”
There might be an environmental Kuznets curve at work here — as countries get richer, they might have more concern for animals, and fight harder to protect habitats. Also, needless to say, richer societies hunt wild animals a lot less.
In other words, we should take heart — there is something we can do to stop habitat destruction and mass extinction, and we’re already doing some of it.
The wheels started to come off of George W. Bush’s presidency in 2005. Even before Hurricane Katrina, the financial crisis, or the growing pessimism over the Iraq War, Bush tried and failed to implement a scheme to invest some of the Social Security trust fund in higher-yielding assets like stocks. His defeat marked the beginning of a long downward slide in popularity.
But was Bush wrong? Via Marginal Revolution, I just came across a very interesting paper in the Journal of Economic Perspectives by Chien, Du, and Lustig, arguing that Japan has been reducing its sovereign debt by using a slightly similar scheme:
Japan presents a striking puzzle in public finance. Government debt exceeds 200 percent of GDP, budget deficits have persisted for decades, and economic growth has been sluggish. Yet inflation has remained subdued, and no major debt crisis has emerged. Understanding how Japan has managed to defy the standard logic of debt sustainability is the starting point for our analysis.
The key lies in the Japanese public sector’s operation of a de facto sovereign wealth fund. Unlike countries such as Norway and Saudi Arabia, which fund such vehicles with national savings from natural resources, Japan finances its investments largely through domestic borrowing at very low floating interest rates. While the risk premia on these investments have generated strong returns over the past two decades and supported debt sustainability, this strategy exposes the government to considerable interest rate and exchange rate risks.
So was Bush right? Should we have just put Social Security money into stocks, thus reducing the federal government’s future liabilities? As Chien et al. note, doing this comes with substantial risks — adverse macroeconomic events can end up making government debt even worse, or make bondholders lose money. That risk was why Bush’s scheme got scotched in the first place. And Chien et al. note that many of the factors that allowed Japan to earn a good return on its “sovereign wealth fund” simply aren’t present for the U.S.
Still, I think it’s worth looking into the possibility of having the U.S. government get more upside from the U.S. stock and real estate markets. This is something I plan to write about more.
Remember that time that Trump’s ICE agents raided a South Korean battery factory in Georgia, arrested a bunch of Korean workers, kept them in terrible conditions, and caused a diplomatic incident, thus threatening U.S. technology, investment, and alliances all at the same time?
Well, Trump doesn’t seem happy about it:
In fact, Trump has harshly and publicly criticized the ICE raid multiple times now, and the White House has officially apologized to South Korea for the incident.
Which raises the question: Who is actually making immigration policy in Washington? The obvious answer is “Stephen Miller”, but the truth may be even worse. The raid may have been carried out by low-level ICE officials trying to meet Stephen Miller’s numerical quotas for arrests and deportations:
[A]ccording to an immigration attorney representing several arrested workers, ICE agents chose to arrest the Korean workers to fulfill the quota of 3,000 daily immigrant arrests set by White House Deputy Chief of Staff Stephen Miller.
In other words, the answer to “Who is making immigration policy?” is “no one”. There are no smart people in Washington, D.C. deciding whether a South Korean battery factory worker is a better person to arrest than an MS-13 gangster. ICE has simply been unleashed on the country and told to go arrest and deport a bunch of people, with no thought given to which people to focus on deporting. There’s no one driving this bus.
I’ve been arguing that the U.S. is losing the technological future to China because we’re failing to master the Electric Tech Stack — the package of new energy technologies that includes batteries and electric motors. And I’ve argued that the reason we’re falling behind is ideological — we still think the Electric Tech Stack is about climate change rather than about power.
Now other people are starting to say the same. Here are some excerpts from a very good Channing Lee op-ed in The Hill:
Now, China commands 60 percent of global battery electric vehicle sales and dominates the battery supply chain that will power tomorrow’s cars, trucks and buses. America barely reaches 16 percent…It didn’t have to be this way. It was an American company — Tesla — that reintroduced electric vehicles into modern driving…
[But] the U.S. took a wrong turn. Instead of focusing on the electric vehicle as a breakthrough technology, Washington framed it as an environmental issue — one that remains politically divisive…That narrow framing had global consequences. While we debated environmental incentives, China was building the foundations of a new industrial order…
Electric vehicles are not just clean cars, but rather computers on wheels, connected to data, chips and infrastructure. Losing the electric vehicle race means losing leverage over critical technology standards, supply chains and industrial jobs. This isn’t just about automakers; it’s about national power and the future of our tech ecosystem…
Electric vehicles aren’t a climate accessory. They’re the next platform for global technological power.
Well said. A lot more people need to hear this message. It’ll take a long time and a lot of shouting for Americans to start seeing electric technology as being about something other than climate.
2025-11-21 10:44:14
Americans are not very happy with Donald Trump’s second term in office. Trump’s approval has trended downward since he returned to power, and has recently fallen again. Here are some numbers from Nate Silver:
Even Fox News admits how bad it’s getting:
Unhappy with the economy. Pain with prices. Unsure about Trump administration policies. It adds up to high disapproval among the president’s loyal constituencies…
Some 76% of voters view the economy negatively. That’s worse than the 67% who felt that way in July and the 70% who said the same at the end of former President Biden’s term…Large numbers, overall and among Republicans, say their costs for groceries, utilities, healthcare and housing have gone up this year…Voters blame the president. About twice as many say President Donald Trump, rather than Biden, is responsible for the current economy. And three times as many say Trump’s economic policies have hurt them (they said the same about Biden’s last year). Plus, approval of how Trump is handling the economy hit a new low, and disapproval of his overall job performance hit record highs among core supporters…
Trump’s job performance drew career-high disapproval among men, White voters and those without a college degree…Among all voters, 41% approve of the job Trump is doing, while 58% disapprove…For comparison, Biden’s marks were a bit better at the same point in his presidency: 44% approved and 54% disapproved in November 2021.
As Fox points out, it’s the economy, rather than immigration policy or culture wars, that’s driving these results. Despite employment, growth and inflation numbers that don’t seem too bad overall, Americans are deeply unhappy with their economy. Preliminary numbers for November’s consumer sentiment show it falling back to the low point it hit in 2022, during the height of the post-pandemic inflation:
And as Fox notes, voters overwhelmingly blame President Trump, rather than Biden, for the economy. Even 42% of Republicans blame Trump rather than Biden, which must be a galling thing to tell a pollster on the phone. Analysis by David Shor finds that Republicans’ trust advantage is evaporating on issues like the cost of living, the budget deficit, and the economy in general.
Exactly why Americans hate their economy right now is a tough question. Sometime during the Biden administration, we saw economic sentiment decouple from the macroeconomic numbers that traditionally correlated with sentiment — in other words, we saw the beginning of the “vibecession”. Now after a modest recovery in 2024, we’re seeing another vibecession under Trump. What’s going on? Is it mortgage rates? Anxiety about AI? Are people displacing their concerns about social unrest onto their perceptions of economic conditions?
One possibility is that Americans are expressing their unhappiness about economic policy, rather than economic results. Both Trump’s approval and consumer sentiment fell abruptly during the recent government shutdown, and they also hit a previous low in May after Trump’s “Liberation Day” tariffs were announced. So low consumer sentiment, and low Trump approval ratings, might be Americans’ way of expressing unhappiness about what Trump is trying to do to the economy.
People must have an intuitive sense that the AI boom is the main thing propping up the macroeconomy right now, and that this could end at any moment. And they probably realize that the AI boom is having to fight against the headwinds created by Trump’s tariffs. They can also see that tariffs are causing localized harm to parts of the U.S. economy right now.
The part of the economy being hurt the most is manufacturing — exactly the sector that Trump has long pledged to help. Even as employment holds up in service jobs like health care and education, employment in goods-producing industries has plunged since “Liberation Day”:
In fact it’s not just manufacturing that’s hurting. Construction and transportation/warehousing jobs, which were booming in Biden’s final year in office, have basically collapsed under Trump. A lot of that construction was factories, which boomed more under Biden than at any time since the 1960s. Under Trump, the factory construction boom has begun to deflate.
But no sector is hurting worse than manufacturing, which continues to shed jobs at a rapid rate. Almost every type of manufacturing is doing badly, but the auto industry has swung from expansion under Biden to contraction under Trump:
What’s going on here? The obvious answer is “tariffs”. Here’s Reuters from a couple of weeks ago:
U.S. manufacturing contracted for an eighth straight month in October as new orders remained subdued, and suppliers were taking longer to deliver materials to factories against the backdrop of tariffs on imported goods…Backlog orders remained subdued as did export orders…Production was weak after briefly rebounding in September. Manufacturers have cited tariffs as a major constraint…
Tariffs are gumming up supply chains, resulting in longer delivery times to factories. The ISM survey’s supplier deliveries index increased to 54.2 from 52.6 in September. A reading above 50 indicates slower deliveries…Factories continued to pay more for inputs[.]
This story is not a one-off. In fact, we have seen a steady drumbeat of stories about American manufacturing’s tariff-induced woes since May. In September, Moody’s Analytics assessed that manufacturing was experiencing recession-like conditions, thanks to tariffs. The Institute for Supply Management, which interviews manufacturers, has been receiving an avalanche of tariff-related complaints, along with consistent pessimism about business conditions, for months now.
Things are not as catastrophic as they might have been. Resource prices have fallen worldwide, which has helped cancel out some of the tariffs’ impact. And Trump has backed off of some of his tariffs, especially on China, while granting a byzantine maze of exemptions and deferrals. The effective tariff rate on imports has risen, but only to 10.5% so far — considerably less than the headline rates that Trump has been throwing around on the news.
But although tariffs are hurting less than they would have if Trump had stuck to his guns, they’re certainly hurting to some degree. It’s entirely reasonable for the American people to be unhappy about their government intentionally hurting the economy, even if it doesn’t end up being as bad as promised.
It didn’t have to be this way. If Trump had listened to economists, he might have known that tariffs don’t work the way you might assume from watching CNN in the early 1990s — which, as far as I can tell, is where Trump got most of his ideas about the way the world works. If Trump had listened to economists, he might have understood why tariffs hurt manufacturing.
The reason is that tariffs include taxes on intermediate goods, which make production less efficient.
I’ve talked about this a number of times in the past, and I’ve shown some empirical evidence that tariffs on intermediate goods really do hurt U.S. manufacturing. But I’ve never really talked about the theory behind this idea. I really should talk about it, because if Trump and his people had understood this concept, they might have avoided a lot of pain and a lot of mistakes.
The theory originally comes from a 1971 paper by Peter Diamond and James Mirrlees. Diamond and Mirrlees realize that the government needs to tax the economy in order to produce various stuff (highways, education, research, etc.), and to redistribute income via the welfare state. Most types of taxes tend to distort the economy.1 But Diamond and Mirrlees showed that if the government can tax everything — cars, pizza, back massages, labor, and so on — at different rates, you can levy taxes without distorting economic production.
Now, that’s not that useful of a result. In reality, you can’t actually put different tax rates on every different kind of good or service. But the real value of the Diamond-Mirrlees result is that it shows what kind of taxes you don’t want to use: taxes on intermediate goods. They show that taxing intermediate goods is always worse than taxing either final goods — i.e., stuff consumers buy, like cars and pizza — or “factors of production” (i.e., labor, capital, land, etc.). You never want to tax stuff like steel, or auto parts, or computer chips that companies buy in order to produce other stuff.
If you like, here are some slides from Todd Lensman that explain the math of this result in a simplified form.
So why don’t you want to tax intermediate goods? Because you want to make as much stuff as you can make before you start redistributing it. If the purpose of taxes is to redistribute the economic pie,2 you want to redistribute as big of a pie as you possibly can. Taxes on things like steel, auto parts, and computer chips cause the economy to make fewer cars, houses, computers, etc. So when you collect taxes and then give people money to spend, there are fewer cars, houses, and computers for them to buy with the money you give them. You should have just let capitalism work its magic and make as much stuff as possible, and then worried about how to redistribute.
This is a very powerful and deep result. Diamond and Mirrlees made some simplifying assumptions in order to make the math easier, but other theorists came in later and did the harder math, and they showed that the basic result — no taxes on intermediate goods — holds for a pretty wide range of assumptions.
That’s a very useful real-world result! In fact, real-world tax systems in rich countries mostly stick to the Diamond-Mirrlees principle. Income and payroll taxes are taxes on “factor inputs”, so they’re OK. Corporate taxes allow you to deduct business expenses, so they’re also OK — you’re not taxing the cost of the intermediate goods that businesses buy.
U.S. sales taxes are actually bad, because they violate the Diamond-Mirrlees principle — lots of sales taxes are levied on B2B transactions. Europe does this much better — their value-added tax (VAT) is basically a sales tax that doesn’t get charged on the things businesses buy. America would be a bit richer if we switched from sales taxes to VAT, but we won’t, because sales taxes are used by our state and local governments, while a VAT would have to be nationally administered.
Anyway, Trump’s tariffs absolutely violate the Diamond-Mirrlees principle. When most people think about imports, they think about cheap stuff you buy on the shelf at Wal-Mart. Diamond and Mirrlees would be fine with taxing that stuff — the things on the shelf at Wal-Mart are “final goods”. But almost half of what America imports from overseas is intermediate goods. Here are numbers from 2019:
Trump’s tariffs apply to all of those intermediate goods. That’s why carmakers are having trouble making cars right now. And it’s why even if Trump does mail tariff rebate checks to every American, the number of cars they’ll be able to buy with those checks will be fewer than they could have bought before the tariffs.
Because neither Trump nor any of his people understood the basic insight of Diamond-Mirrlees (1971), they are trying to redistribute a pie that they’ve already shrunk. And the American people don’t appear to be happy about it.
Are there ever situations where you’d want to tax intermediate goods? Yes. Like any economic theory, if you break enough of the assumptions, the basic result no longer holds. Costinot and Werning (2022) show that if your only taxes are income taxes and tariffs, you should use tariffs to reduce inequality. Basically, if imports from China hit a few kinds of American workers very hard, and you have no way to specifically compensate those folks,3 then you should have some tariffs on China, in order to protect those few workers. But even then, Costinot and Werning show that the optimal tariff will be very small — between 0.02% and 0.12%, compared with the 10% that Trump has enacted so far. The world isn’t exactly like Diamond-Mirrlees, but it’s pretty close.
So anyway, tariffs on intermediate goods are bad. Economists knew this, and shouted it from the rooftops. But the Trump administration prides itself on not listening to economists. JD Vance has declared that “the economics profession doesn’t fully understand tariffs”, and hardly a day goes by when Trump-aligned intellectuals like Oren Cass don’t sneer at the economics field.
And yet this willful ignorance comes with real political costs. No, economists don’t know everything about how the economy works. Maybe they don’t even know most things. But they do know some things, and one of those things is that taxing intermediate goods hurts the economy.
If Trump’s people had allowed themselves to understand that fact — if they had listened to the economists — Trump’s approval ratings might not be nearly so low as they are.
And if you’re a progressive, the temptation to laugh at Trump over all of this will naturally be very strong. But the right lesson here isn’t that “Trump is dumb” (though that is probably true). The right lesson here is that although there are lots of things they don’t know, and although they don’t get everything right, and although they’re often overconfident, economists are worth listening to, even when they don’t tell you what you want to hear. That’s a lesson that Biden and his people should have heeded before they unleashed a stimulus plan that macroeconomists predicted would exacerbate inflation. And it’s a lesson that will come in handy the next time Democrats are in charge of the economy.
Update: In the comments, Charlie Hammerslough relates his own experience with the tariffs:
Here’s the perspective of a start-up manufacturer of a physical good. Our product is made from steel parts that I’m currently in India to source. Plus off the shelf electronics and a lock that we import from China, because there is no other source.
We assemble the product in the US, creating jobs there. I *want* to manufacture in the US.
The electronics and lock have doubled in price since April. I’d love to cut and bend the steel in the US, but protectionist tariffs have increased local steel prices by 50%, reducing the advantages of domestic manufacturing.
So, tariffs are approximately 35% of the cost of the finished product. This is a struggle. Sometimes I want to bag it and just invest my money in something more predictable.
Yep. This is exactly how the Diamond-Mirrlees model works. Economics looks like this abstract math on a page, but that math is ultimately about real people and real businesses, with real stakes. I wish a lot more people in our government realized that.
Except for land taxes and “lump-sum” taxes. Lump-sum taxes are where the government says “OK, every citizen give me $100”. Obviously that’s not going to fly in real life. Land taxes actually do work in real life, although they can logistically be tough to implement, due to the difficulty of distinguishing between the value of land and the value of all the stuff that’s built on top of the land.
Diamond and Mirrlees also allow for another purpose of government: to produce useful stuff, like infrastructure and education. But here, their solution is basically just “run the government production exactly like a private company would run it” — essentially, make some SOEs that minimize costs like a private company would. Easier said than done, right? But anyway, that doesn’t really affect the “intermediate goods” result.
From a Diamond-Mirrlees standpoint, the best way to compensate these folks would probably be to subsidize the industries that are subject to the most intense Chinese competition, rather than to send money to workers who get displaced.
