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.
2025-11-20 16:33:06
The most prophetic post I’ve ever written wasn’t about economics — well, not directly at least. It was about military technology. I’m not much of an expert in that subject, but I managed to make some predictions that were unpopular at the time but which have been borne out spectacularly in the years since. The original article, written for Quartz, was in 2013, but right now I can only find this republished version from 2020. Here’s what I wrote:
The human race is on the brink of momentous and dire change. It is a change that potentially smashes our institutions and warps our society beyond recognition. It is also a change to which almost no one is paying attention. I’m talking about the coming obsolescence of the gun-wielding human infantryman as a weapon of war…
You may not even realize you have been, indeed, living in the Age of the Gun…But imagine yourself back in 1400. In that century…the battlefield was ruled not by the infantryman, but by the horse archer—a warrior-nobleman who had spent his whole life training in the ways of war. Imagine that guy’s surprise when he was shot off his horse by a poor no-count farmer armed with a long metal tube and just two weeks’ worth of training. Just a regular guy with a gun…
For centuries after that fateful day, gun-toting infantry ruled the battlefield…But sometime in the near future, the autonomous, weaponized drone may replace the human infantryman as the dominant battlefield technology. And as always, that shift in military technology will cause huge social upheaval.
The advantage of people with guns is that they are cheap and easy to train…The hand-held firearm reached its apotheosis with the cheap, rugged, easy-to-use AK-47; with this ubiquitous weapon, guerrilla armies can still defy the mightiest nations on Earth…
But another turning point in the history of humankind may be on the horizon. Continuing progress in automation, especially continued cost drops, may mean that someday soon, autonomous drone militaries become cheaper than infantry at any scale.
Note that what we call drones right now are actually just remote-control weapons, operated by humans. But that may change…Sometime in the next couple of decades, drones will be given the tools to take on human opponents all by themselves…meanwhile, technological advances and cost drops in robotics continue apace. It is not hard to imagine swarms of agile, heavily armed quadrotor drones flushing human gunmen out of buildings and jungles[.]
That was twelve years ago. At the time, when I floated this idea on Twitter, people jumped to scoff at it. They told me that electronic warfare would be too powerful for drones to overcome, that drones wouldn’t have the firepower to dominate the battlefield, and so on. They pointed out — quite correctly — that when it comes to military technology, I don’t have any expertise.
And yet as of 2025, my prediction has been utterly vindicated. Reports from the battlefield in Ukraine tell of a battlefield so completely dominated by drone warfare that experts are forced to go out of their way to argue that traditional artillery still has a role. Here’s Michael Kofman (my favorite Ukraine expert):
Drones continue to be responsible for most daily casualties, with the front line defined by overlapping drone and artillery fire engagement zones 20-25km from the forward line of troops. This is commonly referred to as the ‘kill zone.’..Drone units work to suppress and displace the opponent’s drone crews further from the front…[L]onger range drones strike artillery, logistics, and enemy drone teams further in the rear…
On the Russian side Rubicon formations remains a leading problem for drone operators, not only the drone companies themselves, but because they train other Russian drone units to replicate their approaches focused on AFU logistics, drone crews, and intercepting ISR…One of the observed changes is the balance of casualties in the AFU has shifted from infantry to supporting roles, drone operators, logistics, etc. There is very little infantry forward, and in many AFU brigades infantry now bears less of the casualties…
Most units now have a UGV platoon, company, or battalion. These require greater skill and training to employ, but hold considerable promise, reducing casualties…The airspace has become even more contested for longer-range ISR, with both sides establishing dense tactical radar coverage to detect drones, and one way attack munitions…
Artillery remains important to suppressing enemy forces and shaping how they attack, especially in bad weather, which is more prevalent this time of year. Fog, wind, and rain significantly degrade drone operations[.]
Other reports all tell the same story.
The drone is increasingly regarded as the infantryman’s basic weapon. The U.S. Army is ordering a million drones to equip its soldiers (a war would require many, many times that). Drones are replacing artillery, now having the capability to take out infantry, tanks, artillery, and basically anything else at a fairly long range. Strike drones are supplementing bombers and long-range missiles as a way of dealing damage behind the lines; Ukraine’s drone strikes are degrading Russia’s oil industry from thousands of miles away.
And drone technology is still in its infancy. Currently, drones are still piloted by humans. This makes them subject to electronic warfare that jams the link between pilot and drone, forcing them to use spools of fiber-optic cable to maintain a secure connection. And it means that drone operators have to stay somewhat near the front, exposing them to enemy strikes. Skilled human operators are a valuable resource that limits the amount of drones that can be used at once.
This is about to change. Advances in AI are going to enable drones to behave autonomously — the “killer robots” out of a science fiction novel. In fact, Ukraine has already experimented with autonomous drone swarms. Drones are going to first supplement and then replace boats, fighter jets, submarines, and every other manned weapon of war. Human infantry, and human-crewed vehicles, will become obsolete due to their sheer expense. Soldiers and big vehicles cost a lot; drones cost much less.
All of these predictions are fairly obvious and easy to make. AI is only getting better. And machines are generally cheaper than humans, who are only going to get more expensive over time.1 Those two facts are all I really needed2 in order to predict the rise of drones back in 2013, and neither has changed since then.
What happens next is harder to foresee. Obviously, everyone will look for ways to shoot down swarms of drones. At first this will involve very fast guns, like Rheinmetall’s Skyranger. A drone is cheap, but a bullet is cheaper. Even cheaper, eventually, will be a puff of light; laser weapons are being developed that can shoot down drones cheaply, quickly, and very accurately. Eventually, we may see big battleships and tanks bristling with point defense lasers force their way through swarms of drones, while defenders try to take them out with big fast missiles.
Maybe that will result in the return of WW2-style maneuver warfare. Or maybe missiles will cheaply take down any big vehicle, creating static battlefields more like World War 1 (or the current Ukraine War), where the only way to win is to have your economy produce more drones than the enemy. Recall that I’m not actually an expert in military technology, so I can’t say how this will shake out. I’m not sure if anyone knows yet.
But what I do think is very likely is that the organization of human societies will have to change.
Take a look at the long-term history of warfare. Our numbers are pretty patchy, but as far as we can tell, there have been three really big waves of warfare over the last millennium:
The Mongol conquests in the 1200s (and follow-up conquerors in the 1300s like Timur)
The Thirty Years’ War and the fall of the Ming Dynasty in China in the 1600s
The World Wars and communist revolutions of the 1900s
People argue a lot over why there were these three big outbreaks of war all over the world. Some blame climate change, while others blame patterns of trade, population growth, and so on. But I think one big plausible factor is military technology.
Each of the three waves of war coincides with a dominant package of military technology. The Mongols ran circles around their opponents with stirrup-equipped horses, and outranged them with recurved bows. The wars of the 1600s represented the peak of gunpowder warfare, while the wars of the 20th century were the peak of industrial warfare — planes, tanks, metal ships, and so on.
Interestingly, none of those big wars happened right after the key technologies were introduced. There was always a substantial lag. Most of the bow and stirrup technologies that made the Mongols so fearsome were invented a millennium earlier by the Xiongnu (the predecessor of the Huns). Cannon and muskets were invented a century before the cataclysms of the 1600s. The World Wars saw rapid innovation, but the machine gun, the howitzer, the ironclad battleship, and other key technologies were pioneered earlier. There were constant incremental improvements in all of these technologies, of course, but it’s unlikely that they reached some special threshold of lethality that caused wars to suddenly get much much bigger and deadlier.
Instead, what changed were the societies that made use of the weapons.
There were plenty of steppe empires before the Mongols, but they usually weren’t able to overcome densely populated, settled civilizations like China. Only once Genghis Khan implemented reforms like meritocracy, writing, and so on were the steppe warlords able to break through and conquer the world. Mongol tactics — especially the ability of mounted units to remain separate for days and then all converge on the same place at the same time — required sociocultural innovations to prevent defection/betrayal and ensure cooperation among highly mobile subcommanders.
Similarly, firearms and artillery saw wide adoption by the 1400s, but it wasn’t until the 1600s that gunpowder armies grew to truly massive size — hundreds of thousands of men instead of tens of thousands. That increase in size drove much of the higher death toll of the wars of the 1600s, since those giant armies had to live off the land, which caused famines and massacres (the battlefield death toll was higher too, obviously).
Those big armies required lots of money, which required lots of financing — better tax collection and more bank loans. Paul Kennedy notes that the countries that won wars in the gunpowder era tended to be the ones that were the best at tax collection. Charles Tilly argues that gunpowder-era wars made the modern state, because the regimes that survived were the ones that developed complex bureaucracies in order to collect more taxes to fund their wars.
The World Wars were also made possible by innovations in social organization — modern corporations, even larger bureaucracies, modern supply and logistics, and continuous research and development. Those social innovations emerged partly as a way to make countries more effective in war — if you didn’t develop those things, you were liable to be conquered.
It’s likely that all three eras of warfare required innovations in persuasion, ideology, and communication as well. Genghis Khan had to convince a plethora of fractious steppe warlords to all stick together and cooperate. The great powers of the 1600s used a combination of religion and local loyalties — often communicated using the printing press — to help motivate their large armies to fight. In the 20th century wars, ideologies like communism, fascism, and democracy were key, and radio was an important new tool. All of those ideological changes changed society as well.
It was these social changes that allowed wars to get so big and cataclysmic in each era. So it might seem like the changes I’m describing are a bad thing — and in fact, I do think it’s a distinct possibility that we’ll see a cataclysmic global drone war sometime in the future. But from any one country’s point of view, those social changes were absolutely necessary, since the only thing worse than winning a war is losing a war.
And historically, warfare acted as a vector for the beneficial spread of both physical and social technologies. Countries in the early modern period had to adopt modern fiscal systems in order to be able to resist conquerors who already had those systems in place. Industrial production spread not just because it made citizens wealthier, but because you needed it to make guns, ammunition, railroads, and so on.
In other words, it’s very difficult for countries to resist the changes that new dominant packages of military technologies necessitate. In the 1700s and 1800s, you either learned to be a gunpowder empire, or you got conquered and enslaved. In the 20th century, you had to become a modernized industrial state, or you got plowed under. If there is a single driving irresistible force of History, I think it must be the innovations that we use to kill each other.
Right now, we’re in the middle of a revolution in military affairs that will be just as profound as the Industrial Revolution, the introduction of gunpowder, or the rise of steppe warfare. The two great inventions of our time — AI and the electric tech stack — are rapidly eclipsing industrial warfare. That will probably make war more capital-intensive, as human labor is increasingly removed from the equation (and because AI is very capital-intensive). It will almost certainly make it more knowledge-intensive, as understanding of how to apply AI effectively becomes decisive.
These changes are going to force our society to change and adapt. The America that won World War 2 didn’t look like the America of Thomas Jefferson’s time. And if we want to remain powerful and secure, the America of the 21st century won’t look like Roosevelt’s America, either. It can’t.
Right now, China looks like it’s outpacing other societies in terms of adapting itself to the new requirements of war. Possibly alone of all countries, it has mastered every part of the drone supply chain:
China’s emphasis on manufacturing, while perhaps not economically efficient, has also probably prepared it better for prolonged capital-intensive war. Right now, they would be able to out-produce the rest of the world in terms of drones. If we are to match them, we’re going to need to make better use of industrial policy to patch the holes in our supply chains, stop wrecking those supply chains with tariffs on our allies, and form closer partnerships with those allies so that we can achieve the scale to match China.
China also seems to be adapting the new communications technologies of social media more effectively than many of its rivals — or at least, more effectively in terms of warfighting ability. We scoff at China’s massive system of internet thought control, but it’s possible that this is the only way to keep a modern nation from fracturing and spiraling into chaos in the age of social media. I hope there are ways to hold together a modern nation-state without resorting to centralized thought control. But we really need to start looking for those techniques, instead of just assuming that stability will somehow naturally reemerge from the chaos of X and TikTok.
Most of all, America — and Europe, and other developed countries — must prepare for dramatic, wrenching change. These days we often find ourselves looking backward — resisting the adoption of new technologies, blocking development, and wallowing in nostalgia for the glory days of the 20th century. But the kind of society we had then will not serve us as well in an age when flying robots rule the battlefield. Just as Thomas Jefferson’s America gave way to Franklin D. Roosevelt’s, we must find a way to preserve the core benefits and advantages of our liberal democracy while transitioning to the next thing.
Right now, I don’t think either Americans or Europeans are mentally prepared for that change. I hope it doesn’t take a catastrophic defeat in a major war in order to wake us up.
The cost of a human soldier goes up with both lifetime earnings and with the subjective value that society places on each human life. Both of those things go up as economies grow.
Technically, I also had to know that explosives carried by drones would win the battle against new kinds of armor. But that’s just obvious from basic physics. It takes a huge amount of energy
2025-11-18 17:57:20
“Can I get my punk ass off the street?/ Won’t die on the vine/ Wanna knock it all down” — Third Eye Blind
Peter Thiel doesn’t seem like the most likely person to offer a trenchant critique of capitalism. But in a letter in 2020, and in a recent interview with The Free Press, that’s exactly what he did. Thiel identifies real estate as the weak link in a “generational compact” that’s failing to pass down prosperity from the old to the young:
The rupture of the generational compact isn’t limited to student debt…I think you can reduce 80 percent of culture wars to questions of economics—like a libertarian or a Marxist would—and then you can reduce maybe 80 percent of economic questions to questions of real estate.
It’s extremely difficult these days for young people to become homeowners. If you have extremely strict zoning laws and restrictions on building more housing, it’s good for the boomers, whose properties keep going up in value, and terrible for the millennials. If you proletarianize the young people, you shouldn’t be surprised if they eventually become communist…
Younger generations are told that if they do the same things as the boomers did, things will work out well for them. But society has changed very drastically, and it doesn’t work in quite the same way. Housing is way more expensive. It’s much harder to get a house in a place like New York or Silicon Valley, or anywhere the economy is actually doing well and there are a lot of decent jobs.
Now, for what it’s worth, I disagree pretty strongly about the claim that “you can reduce 80 percent of culture wars to questions of economics”. There’s pretty strong evidence that many sociocultural issues — and many of the divisions in American society over the last decade — revolve around either conflicts of values or perceived conflicts between identity groups.
The economics of immigration, for example, change little over time, but sometimes many Americans see immigrants as a threat, while at other times they take a welcoming attitude. Across countries, too, attitudes toward immigration differ radically; it’s hard to imagine that these differences are all dollars and cents. Race relations abruptly crashed around 2013-14, even though the economy was doing OK by then.
There’s also evidence that media technologies can exert strong effects on public opinion; for the same economy, you could get very different politics depending on whether people are getting their news from CBS and ABC or from X and Reddit. You can always choose to believe that subtle, unobserved economic changes are behind every cultural shift and identity conflict, but it’s not a very parsimonious or useful explanation.
But that having been said, I do think Thiel might have a purpose when he says that culture wars are fundamentally economic, even if it isn’t strictly true. Cultural issues are hard to solve — differences in values are deep-rooted and often immune to persuasion, while identity conflicts can take on a life of their own. We just don’t have great toolkits for solving those sorts of problems. But we do have a lot more of an idea of how to give people more of what they want in the material sense. So you can argue that economics should be our primary focus, simply because we have greater agency in terms of fixing it. “God grant me the courage to change the things I can”, and so on.1
And Thiel is exactly right that if you’re going to address economic problems, real estate is probably the one you want to start with, especially if you’re trying to make things better for young people.
In many ways, the economy is working just fine for America’s young generations. For example, Zoomers and Millennial men have higher wages than previous generations did at similar ages, with Gen Z looking especially good:
If you look at total income after taxes and transfers, each generation is doing better than the last:
In terms of wealth, too, the younger generations are coming out ahead. By the time they reach 30, young people these days have more wealth than previous generations did, even after accounting for inflation:
And this is true across the distribution; poor Millennials have more wealth than poor Gen Xers or Boomers did, middle-class Millennials have more wealth than middle-class Gen Xers or Boomers did, and so on.
In fact, since the pandemic, young Americans have been building wealth far faster than older Americans!2
Now this doesn’t mean young people aren’t going to be mad about the economy. Social media has made it a lot easier to compare people’s lifestyles across income classes; seeing rich people brag about their fancy lives on TikTok may make inequality less tolerable than it was before. And sociocultural unrest — racial conflict, gender conflict, and so on — may seep into people’s perceptions of economic issues, so that material challenges feel more irritating.3
Those are perfectly respectable reasons to feel down about the economy. But they’re not necessarily something that policymakers can do much about, at least with the known tools of economic policymaking. Improving young people’s lives incrementally is doable, but allowing everyone to live the life of a TikTok influencer, or healing America’s cultural divides, is currently beyond the powers of any politician.
But housing is one area of economic life where the system really isn’t working for a significant portion of young people, and where the government could be doing a lot more than it is.
2025-11-16 09:46:14
“And the man in the suit has just bought a new car/ From the profit he’s made on your dreams” — Traffic
Leftist online personality Hasan Piker recently took a trip to China, and — like many other influencers who have been there — declared it to be a paradise, praising “abundance style consumption paired up with a centrally controlled economy” and “1950s Soviet era building blocks next to the Gucci store”.1 Meanwhile, pro-China pundits continue to crow about the country’s technological achievements and export performance.
But when you talk to ordinary Chinese people about what their lives or their families’ lives are like these days, a less rosy picture emerges. Helen Gao writes:
Behind the orderliness of everyday life, a quiet desperation simmers. On social media and in private conversations, there is a common refrain: worry over joblessness, wage cuts and making ends meet…
Internationally, China looks strong…That muscular facade is punctured here in China, where despair about dimming economic and personal prospects is pervasive. This contrast between a confident state and its weary population is captured in a phrase Chinese people are using to describe their country: “wai qiang, zhong gan,” roughly translated as “outwardly strong, inwardly brittle.”…
Many now feel the very state policies that have made China appear strong overseas are hurting them. They see a government more concerned with building global influence and dominating export markets than in addressing the challenges of their households…These days, there is a sense of bitter anger among the people at being the voiceless victims of the state’s obsession with world power and beating the United States…The government recently began cracking down on social media content it considered “excessively pessimistic” — a clear sign it is concerned about this public unease undercutting its agenda.
For even more direct insight, I recommend the blog Reading the China Dream, which translates Chinese writing and online commentary. The blog has a good translation of a recent report from a Chinese marketing company on morale among the youth. Here are some excerpts from the bloggers’ summary:
The text translated here is [the] last of a series meant to sum up 2024 and preview 2025…[T]he tone of the text is unsparingly bleak: the China Dream has stalled and no one knows what to do about it…Chinese young people inherited great expectations from China’s phenomenal economic rise, which began to slow in the 2010s, and from the democratization of China’s higher educational system…This ringing success has fallen flat because the job market has not kept up with university expansion. Consequently, China’s vulnerable generation…find themselves in a limbo defined by a flat job market, stagnant salaries, and high prices, especially for real estate…This appears to be where China is now: school is a marathon, but nobody wins.
And this is from the translated report itself:
The number of young people who are depressed or anxious continues to rise, and young people have the worst emotional state of all age groups. The China National Mental Health Report (2019-2020) shows that young people aged 18-34 have the highest anxiety level; at the same time, people’s mental health level has dropped significantly compared with ten years ago.
Young people’s emotional problems are becoming more and more serious, especially in the context of fierce competition in education…As a result, emotional problems tend to emerge at a younger age. Through longitudinal comparison, the China Youth Research Center found that between 2015 and 2020, the sense of hope of primary and secondary school students decreased by 11.8 percentage points.
This all fits with everything my Chinese expat friends tell me about how their relatives are faring back home. It also fits with the descriptions of young Chinese people’s disillusionment in Dan Wang’s recent book Breakneck.
Essentially, it seems as if Chinese people — especially young people — are stuck on a treadmill. China’s young people are studying hard, getting a college education, and putting in grueling long work hours. And yet youth unemployment rates are rising relentlessly, many college graduates can’t find the kind of white-collar work they trained for, and wage growth is sluggish. To a huge number of Chinese people, the modern Chinese economy is less of a “Chinese Dream” than a Sisyphean nightmare.
In fact, the word “treadmill” also hearkens back to where China’s problems began. Way back in 2010, hedge fund manager Jim Chanos declared that China’s real estate market was on a “treadmill to hell”. That prediction was way too early — the real estate market probably didn’t become a bubble until the late 2010s, and didn’t begin to crash until near the end of 2021.
But crash it eventually did, and four years later it’s still in a protracted state of collapse. Despite government support, Chinese property prices are still falling:
China’s home-price slump worsened in October, ending a traditionally peak sales season with a weak reading as recent loosening measures failed to revive the moribund market…New-home prices in 70 cities, excluding state-subsidized housing, dropped 0.45% from September, the steepest decline in a year, National Bureau of Statistics figures showed Friday. Resale home values fell 0.66%, the fastest slide in 13 months.
This price decline is a catastrophe for regular Chinese households. Even more than in most countries, Chinese households have their wealth concentrated in real estate. The stock market is underdeveloped, and bonds have crappy interest rates,2 so people save money by buying houses or housing-linked bonds. When real estate prices go down, it means Chinese people are getting poorer and poorer, despite working hard and living frugal lives.
The property bust is also weighing on the macroeconomy. Property investment is down almost 15% since a year ago. This is a big reason why unemployment is rising, wages are stagnant, and lots of college grads can’t find jobs commensurate with their skills.
For a while, China used manufacturing investment to fill the economic hole left by real estate. The country embarked on the greatest industrial policy push in human history, spending an estimated 4.4% of GDP on manufacturing subsidies of various kinds. Industrial lending and output surged, keeping GDP growth from collapsing even as the real estate sector floundered.
But this strategy also hit its limits. It turns out that if you pay a whole bunch of companies to make the same products, they end up competing viciously with each other, and their profits evaporate. Here are some excerpts from a recent story in the Atlantic about China’s EV industry, which is both beating the world and floundering financially at the same time:
The Chinese electric car has become a symbol of the country’s seemingly unstoppable rise on the world stage…[But] bloated by excessive investment, distorted by government intervention, and plagued by heavy losses, China’s EV industry appears destined for a crash. EV companies are locked in a cutthroat struggle for survival. Wei Jianjun, the chairman of the Chinese automaker Great Wall Motor, warned in May that China’s car industry could tumble into a financial crisis; it “just hasn’t erupted yet.”…
Dunne Insights, a California-based consulting firm focused on the EV industry, counts 46 domestic and international automakers producing EVs in China, far too many for even the world’s second-largest economy to sustain…In most economies, the market would sort out this mess by culling the weakest players…In China, state support or ownership of automakers extends the life of struggling businesses. Local governments are also reluctant to lose the jobs they bring, so officials prop up unprofitable companies. The city of Wenzhou recently helped arrange financing for an EV maker called WM Motor, to get the company’s local factory humming again. The city of Hefei rescued the EV start-up Nio in 2020, but the publicly listed company continues to lose money—$1.6 billion in the first half of this year.
This so-called “involution” results in misallocation of capital, reducing productivity growth and ultimately slowing GDP growth. By destroying profit margins for even the best-run Chinese companies, involution damages their ability to invest for the future. The excessive corporate competition from involution contributes to China’s overwork problem, because it gives companies an incentive to work their employees to the bone in order to get a competitive edge. And worst of all, involution drives down prices, causing deflation that exacerbates the value of the debt left over from the property bubble.
So China’s leaders are going on an “anti-involution” campaign. It’s not clear what this means — the details of the policy are mostly out of the public eye — but if it’s anything like what Japan’s industrial policy bureaucrats did to stop “excessive competition” in the 1970s, it will probably involve telling Chinese companies to get together and all raise their prices at the same time.
That’s going to mean slower growth. Why? Because demand curves slope down. If Chinese car companies all raise their prices, fewer cars will be sold. Another way of saying the same thing is that the easiest way to raise prices is to curb production. Either way, this means less investment, because Chinese companies won’t need to build as many factories. And less investment means slower GDP growth in the short run.
In fact, this might already be happening. China’s fixed-asset investment has begun to fall in the last few months, right around the time the anti-involution campaign began. Bloomberg reports:
China’s economic activity cooled more than expected at the start of the fourth quarter…Fixed-asset investment shrank 1.7% in the first 10 months of the year…according to data released by [China’s] National Bureau of Statistics…Bloomberg Economics estimates investment dropped as much as 12% in October, extending its streak of declines into a fifth straight month.
And here’s a chart:
This investment drop is a bit statistically weird, since it contradicts some other data sources. Data quality in this area is notoriously bad. But it seems to fit with some other pieces of data, such as slowing loan growth — especially industrial loans — and rising unemployment.
It also fits with the generally pessimistic mood that Chinese people express about their economy:
Chinese households became more pessimistic last quarter and their view of the jobs market fell to the worst ever, according to a survey by the central bank…Consumers turned increasingly negative about income, employment, and prices in April-June, the poll showed…
The data also revealed that people’s willingness to consume dropped to the weakest since the outbreak of the pandemic, with almost two-thirds of respondents saying they want to save more, while an employment index fell to a record low…The data also showed a shrinking percentage of respondents expecting consumer and housing prices to rise.
Put this all together, and it makes perfect sense that Chinese people — especially young people — would be feeling futile and pessimistic. They’ve been hit with a bunch of huge negative shocks, all within a short space of time:
A real estate bust that destroyed a significant portion of their wealth, as well as their hopes of asset appreciation in the near future
An economic slowdown that destroyed expectations of constantly rising living standards, made it hard for people to find jobs, and meant that lots of college degrees are going to waste
A government industrial policy that encouraged “involution”, made a lot of people work hard for little gain, and exacerbated the hangover from the property crash
These negative shocks would be brutal for any country. But for China, which has known nothing but skyrocketing living standards for over three decades, it’s especially galling to be suddenly thrust into a world where you have to run flat-out just to stay in place.
Ten years ago, Chinese people worked hard because they knew that tomorrow would be much better than today; now, they work hard because they know that if they don’t, tomorrow will be much worse than today. Their dream has suddenly flipped from aspiration to survival.
All of this raises the question of who, exactly, the modern Chinese nation-state is built for. In many ways, China is the greatest nation on Earth — it has endless miles of high-speed rail, futuristic technological marvels, vast productive power, sprawling malls and highways and forests of towering apartment blocks. Its cities sparkle with light, drones zip through its skies, and robots crawl along its streets. And yet many of its people now toil in quiet desperation. It feels like a nation built for the glory and greatness of its leaders and owners, rather than for the happiness of its regular people.
This was not always true, of course. Under Deng Xiaoping, Jiang Zemin, and Hu Jintao, China vanquished poverty, created a vast middle class, and made a concerted effort to spread its new prosperity all across the nation. That was always the deal — prosperity for political quiescence. Now, under Xi Jinping, the deal has been altered. China’s people are basically being told “Let them eat national greatness.”
Interestingly, this is very similar to my own description of Chinese urban life: “at the end of the day you live in an isolated tower block and you drive to the mall.”
This is partly due to China’s strategy of “financial repression” — a policy of keeping interest rates low in order to make it cheap for businesses to borrow.
2025-11-14 09:01:46
I recently attended the excellent Kilkenomics festival in Kilkenny, Ireland. If you ever get the chance to go, I recommend it. Putting comedians and economists on the same stage doesn’t sound like it makes sense, but it’s surprisingly effective; they balance each other out quite well. And Ireland is a wonderful country, of course.
But I did notice one thing at the festival that made me a little sad. Since I’m American, the festival organizers stuck me on two panels about the United States — one about the economy, the other about Trump and politics. All throughout those panels, the comedians made jokes at America’s expense — how Americans don’t have health care, how everyone is poor, how guns and violence are everywhere, and so on. The crowd ate it up. But whereas in the past this would have felt like friendly teasing, now it felt strained and a little desperate.
Europeans have good reason to be mad at the United States right now. Donald Trump has scaled back U.S. aid to Ukraine, cut military aid to the Baltic states, expressed friendship and sympathy for Russia, and in general has done lots of things to indicate that the transatlantic alliance isn’t as firm as it used to be. Trump has slapped tariffs on Europe for no good reason, and has threatened much worse. And Trump’s vice president and other MAGA figures have demonstrated an unhealthy obsession with European immigration.
After all of that, it’s natural for Europeans to want to fire back. And compared to what Trump is doing, jokes about American health care and guns are pretty weak tea.
But at the same time, this catechism of America’s supposed problems often feels like a type of cope — a way that Europeans can avoid confronting their region’s own challenges by telling themselves that “Well, America is worse!”. In fact, I often encounter this same list of criticisms on Twitter, and in casual conversation with Europeans. It includes the following claims:
Americans don’t have health care
America is a poverty-ridden, deeply unequal country with no social safety net
American politics is dominated by rich plutocrats
Americans are uneducated
America is full of guns and violence
One problem with this litany is that most of it isn’t true; some of these problems were always exaggerated, and many of them have been effectively addressed since the 1990s. But a bigger problem is that these criticisms are deeply pointless. Even if all of these things were true, it wouldn’t reduce Europe’s need to address its own deep-seated set of problems.
On Twitter or other social media, commentary about national strengths and weaknesses almost always takes the form of head-to-head comparisons. The question isn’t “How can America and Europe solve their problems?”, it’s “Which is better, America or Europe?”. This rapidly becomes a zero-sum game, with each country’s partisans trying to win bragging rights by proving that the other is doing worse.
If you were starting from scratch and picking a system to emulate, this kind of head-to-head comparison might make sense. For example, in the Cold War, lots of newly decolonized countries had to pick which system to emulate, American-style capitalism or USSR-style communism.
But those days are over. First of all, almost every country on Earth already has its basic legal and institutional arrangements in place. But more fundamentally, there’s just not that much difference between the European and American systems. Both are basically capitalist economies, with fairly high levels of taxation, robust social safety nets, and fairly efficient public services.
For example, a lot of people think America doesn’t do a lot of social spending. That’s wrong. The U.S. is similar on this scale to the Netherlands or the UK:
America’s fiscal system is also highly redistributive. Fisher-Post and Gethin (2025) estimated tax progressivity — the amount that the government’s tax and transfer system redistributes income — and they found that the U.S. is about as progressive as Europe:
The U.S. also has a reputation for being a lot friendlier to business and capitalism than Europe. But measures of “economic freedom” tend to put the U.S. at about the same level as North European countries like Germany or Sweden. Here are some numbers from the World Bank in 2019:
And what differences do exist between the American and European systems are often due more to historical accident and institutional path-dependence than to any deep difference in philosophies about how economies ought to be run. European countries do not consider themselves “socialist”, as some Americans would like to believe. Nor are their governmental systems very different; many European countries have presidents.
I’m not saying Europe and America are exactly the same; there are some important differences, and we’ll talk about these in a bit. But the bigger point is that these are broadly similar systems; whether you chose to build your country on the “American model” or the “European model”, it would end up looking pretty similar.
It’s not useless to contrast European policies and institutions with American ones. But thinking of Europe versus America in terms of a zero-sum competition is an activity with extremely limited utility, and plenty of downsides.
The most obvious point here is that even in the age of Trump, Europe and America are allies. If the U.S. does poorly, this will ultimately make Europe poorer and less secure. So when Europeans crow “Haha, look how bad America is!”, whether true or false, it’s what the kids call a “self-own” — they’re simply bragging about things about which they ought to be apprehensive. (Naturally this also applies to Americans who brag about “Europoors” and such.)
Even more fundamentally, pointing out America’s shortcomings — even if they’re real — doesn’t do anything to help Europe solve its own problems.
Every country and region in the world has challenges and shortcomings. Europe is no exception. Back in August, the Wall Street Journal had an article summarizing some of Europe’s woes, entitled “Europe is Losing”. Some key excerpts:
[T]oday Europe, particularly Western Europe, finds itself adrift, an aging continent slowly losing economic, military and diplomatic clout…The continent’s economies have been largely stagnant for about 15 years, likely the longest such streak since the Industrial Revolution, according to calculations by Deutsche Bank. Germany’s economy is 1% bigger than it was at the end of 2017, while the U.S. economy has grown 19%…Europe’s proportion of the global economy is now likely the lowest since the Middle Ages, according to the Maddison Project…
In the past 15 years, a key engine of European growth—manufactured exports—has been hobbled by events beyond its control, including U.S.-led trade wars, China’s mercantilist policies and Russia’s invasion of Ukraine, which sent European energy prices skyrocketing…But Europe’s lack of economic dynamism has deeper roots, too. Taxes and regulations have risen inexorably; the volume of EU regulations has doubled since 2010. Sprawling rules protect old buildings, incumbent firms and aging consumers, limiting the creation of new infrastructure and industries…
Red tape in Britain is so bad that it took electricity firm Scottish Power 12 years to get permits for a high-voltage transmission line across Scotland. A project to build a new tunnel under the Thames river outside London has so far spent $340 million just on planning permits—documents that total 359,000 pages. Games Workshop, a fast-growing gaming company, is facing delays to build a new parking lot on its headquarters because a single bat lives there…
Energy is another problem. In Germany, industrial electricity costs three times as much as in the U.S.; in the U.K., four times as much. Britons now consume less electricity per person than the Chinese, and Germany’s overall electricity consumption is lower than it was before the Berlin Wall fell. Yet Germany has banned nuclear energy, and the U.K. has scrapped new offshore oil and gas exploration. Policymakers across Europe have laid out ambitious renewable energy plans…But the transition is proving painful…
Europe’s economic slide has been accompanied by shriveling military prowess. The continent’s share of the world’s military power is also at its lowest since the Middle Ages, after decades of focusing on welfare spending instead of defense. Though European leaders are now vowing to take defense more seriously in the face of a revanchist Russia, they are struggling to build up their forces.
Basically, Europe’s problems include:
Stagnating living standards
The Russian military threat
Expensive energy
Overregulation that makes it hard to build anything
Structural fiscal deficits
These problems tend to compound each other. Stagnating GDP makes it hard to fund Europe’s welfare states and pensions, and also to defend against Russia. Expensive energy makes European industry uncompetitive, which makes it hard for Europe to build the energy infrastructure that would bring costs down again. And so on.
On paper, Europe is committed to building green energy and electrifying its economy — both to power its industries and sustain its living standards, and also to fight climate change. But in practice, the region’s anti-development regulations and broken grid interconnection system are preventing the transition. The Financial Times reports:
Electrification has been stuck stubbornly at about 22 to 23 per cent of final energy use for more than five years, according to industry body Eurelectric. That’s roughly the same as the US but means that Europe has been rapidly overtaken by China, which is approaching a 30 per cent share…
Instead of abundant cheap, renewable power, energy costs are still between two and five times higher in Europe than in the US or China. European industry is flailing in response…
One of the main barriers to electrification in Europe is energy taxation…According to Eurostat, taxes on electricity have…increased faster than those on gas in recent years...Another challenge is the lack of incentive to improve the grids…The commission is working on new rules with the aim of speeding up permitting and grid connections (such is the backlog that in the Netherlands — often a canary in the coal mine for EU issues — some will only get grid connections in the mid-2030s)…[F]ragmented national concerns and slow efforts to rollout interconnectors between states have hindered progress [on a unified energy market]…Other challenges [include] the cost of solar installations, which are roughly four to six times higher in the EU than, say, Australia[.]
Europe’s expensive energy and overregulation have also made it completely incapable of meeting the competitive challenge from Chinese manufactured exports, which are beginning to hollow out Europe’s traditional industries. Germany used to make a bunch of money exporting industrial machinery to fuel China’s rapid industrialization; now, with Germany’s competitiveness imploding and China subsidizing its industries, the flow has reversed:
That’s only one example. There are many more:
Germany’s industrial backbone is facing an unprecedented challenge. Once the leader in high-end manufacturing, the country has witnessed a five-year decline in industrial production, which threatens up to 5.5 million jobs and 20% of gross domestic product (GDP), according to a recent report by the London-based Centre for European Reform (CER)…
The speed at which China has caught up with Germany is perhaps most evident in the auto industry. German carmakers have been criticized for a lack of innovation, a slow transition to electric vehicles (EVs) and not predicting fierce competition from Chinese brands like SAIC Motor and BYD. Those issues have led to threats of tens of thousands of layoffs and domestic plant closures…
Chinese chemical giants, for example, have significantly increased their output in recent years…[driving] down the profit margins of German producers like BASF…Even in the European Union…China grew its share of chemicals exports in the decade to 2023 by 60%, while Germany’s share fell by more than 14%…
Germany’s mechanical engineering sector…is also facing stiff competition from Chinese rivals. While Germany’s market share of industrial machinery exports declined slightly to 15.2% from 2013 to 2023, China’s share grew by more than half (from 14.3% to 22.1%).
If Germany can no longer compete with Chinese industry, what hope does the rest of Europe have?
This is all the more frustrating because China is vanquishing Europe in industries in which Europe should have a fundamental comparative advantage. Europe’s long-standing and deep concern for the climate, and its determination to switch to green energy, should make it a leader in producing batteries, solar panels, and electric vehicles — except China reigns supreme in all three industries, and Europe is primarily a consumer, writing China IOUs in exchange for shipments of green technology.
Bashing America will not help Europe solve any of these issues. Pointing out the fact that America has higher inequality than Europe will not help Germany build a single electric car. Decrying U.S. gun violence will not bring down British electricity prices by one penny. Taunting America over the chaos of its politics will not let France install a single air conditioner.
Focusing on these things will only serve as a distraction — a way for Europeans to rally a tiny scrap of civilization pride, even as the fundamental basis for that pride erodes out from under them. It is, in short, a cope. And it is not helpful.
And it’s especially unhelpful because there are some cases — not all, but a few — in which becoming a little more like America would actually help Europe solve some of its problems. No, putting guns on the streets and electing Trump-like leaders would not be a good idea. Privatizing health care wouldn’t be a good idea.
But in order to build new industries — battery and drone industries to fight Russia, an EV industry to be independent from China, a space industry to be independent of SpaceX — Europe will have to loosen its regulations around things like factory construction, mining, mineral refining, hiring and firing, and so on. That might exacerbate inequality at the top of society, because it would allow a few entrepreneurs to get very rich building these new industries. And it could lead to increased carbon emissions in the short term, before the green energy buildout gets big enough.
Those things would make Europe a little more like the U.S. in certain uncomfortable ways. If Europeans insist on continuing to buck up their spirits by painting a lurid picture of America as a plutocratic hyper-capitalist hellhole, it could make them avoid some very sensible and necessary policies.
So anyway, even if Eurocope were totally right about America, it would be counterproductive for Europeans to keep pointing the finger across the Atlantic whenever anyone suggests that Europe itself has grave challenges. But in addition, Eurocope is broadly wrong about America — or at least massively exaggerated in most areas.
My general sense is that Eurocope draws its mental image of America from the 1990s and 2000s — and especially from the Bush era, when tensions between Europe and the U.S. ran high over the Iraq War. But in the decades since Europeans formed their stereotypes of America, much has changed.
For one thing, most Americans now have health insurance. Elderly Americans were always covered by Medicare, but since the passage of the Affordable Care Act (Obamacare) in 2009, most other Americans have insurance too:
This improvement basically came from giving people a way to buy insurance that didn’t involve getting a corporate job.
And among the remaining uninsured, most are young people, who tend to need insurance much less. In other words, some percent of America’s remaining uninsured people are choosing to voluntarily forego insurance, despite universal availability and significant subsidies thanks to Obamacare.1
Nor are Americans paying a ton of out-of-pocket expenses for their health care. They used to, but thanks to policy changes, these days they no longer do. In fact, these days, Americans pay a lower percent of their health care costs than British or Swedish people:
The U.S. does have lower life expectancy than Europe, but this is primarily a function of obesity and drug/alcohol abuse; ironically, Americans’ higher purchasing power allows them to consume more unhealthy stuff that kills them. It is not a function of the relative quality of the American health care system.
To be clear, the U.S. health system is still worse than Europe’s in many regards. As the Commonwealth Fund’s international comparison shows, America ranks near the top in the quality of service, but lags badly in access, equity, and administrative efficiency. The U.S. has plenty more health reforms to do before its system rivals the best in the world on all fronts. But it’s simply not true that Americans “don’t have health care”.
As for America being a hyper-capitalist country that leaves its poor people to rot in the cold, that has not been true for a very long time. In recent years, America has gotten a lot less laissez-faire. With the shift of the tax burden to the rich, and the expansion of social services for the poor and working class — SNAP, various health care programs, the EITC and CTC, Section 8 housing assistance, and so on — America has become much more progressive since 1990. This is from a study by Lindert (2017):
In fact, some recent studies go farther. Blanchet et al. (2022) find:
Contrary to a widespread view, we demonstrate that Europe’s lower inequality levels cannot be explained by more equalizing tax and transfer systems. After accounting for indirect taxes and in-kind transfers, the US redistributes a greater share of national income to low-income groups than any European country.
As you can see from the chart earlier in this post, America spends a lot more on social welfare than it used to. The reason America still has higher inequality than Europe is mostly due to “predistribution” — basically, pretax wage inequality — rather than a reduced willingness to provide for the poor or redistribute from the rich.
Other Eurocope tropes have never really been true. America’s education system takes a lot of flak, but on international comparisons Americans generally do just fine. On the PISA test — generally considered the best international test — White and Asian Americans clobber their European counterparts, while Hispanic Americans do about as well as Israelis and Black Americans do about as well as Romanians or Ukrainians:
That’s a picture of a very unequal education system, but overall a very effective one. Americans are not dumb.
Nor is the U.S. plutocratic oligarchy. That should be more than apparent from the way businesses have been impotent to stop Trump’s tariff rampage. But also, there’s evidence showing that middle-class Americans tend to get their way in politics (contrary to one high-profile study that got thrown around a lot in the 2010s but turned out to have serious flaws).
Not all Eurocope tropes are false, of course. America is a very violent, high-crime nation compared to European countries. The U.S. is much more unequal. Americans work more, and have much worse public transit.
But many of the standard Eurocope beliefs are simply no longer accurate. In the 1990s, 2000s, and 2010s, Americans realized we had problems with poverty and patchy health insurance, and we acted to address those problems — even though doing so was politically tortuous.
Europe would be well-advised to do the same. Countries are always more effective when they focus on self-improvement over comparisons with rivals. Europe has a lot of work to do in order to dig themselves out of their hole of economic stagnation and military weakness. It’s time to stop making excuses and get started.
In a true insurance system, this would cause a problem, because the exit of healthy people from the risk pool would raise premiums for everyone else until the system collapsed from adverse selection. Under Obamacare, however, government subsidies make up for reduced “subsidies” from healthy young people paying into the system. Health insurance isn’t really insurance in the traditional sense.
2025-11-12 05:16:48
As expected, Zohran Mamdani has won the New York City mayoral election. Most of the commentary about Mamdani has centered around either his Muslim religion, his leftist ideology, or some intersection of the two. This is only to be expected. The GOP electoral victory in 2024 left the Democratic party without any obvious leader, and Mamdani is a charismatic guy who ran a slick, competent campaign and inspired a lot of people. It would be an exaggeration to say that Zohran is now the de facto leader of the progressive movement or of the Democrats as a whole, but he’s definitely soaking up a ton of attention, and his success is widely seen as an indicator of where the left in general is headed.
Mamdani’s Muslim religion and his stance on Israel will certainly soak up a lot of attention and controversy. But ultimately his leftist ideology will probably be more important to how he governs as mayor. Back in June, I argued that Mamdani’s socialist roots have given him some bad instincts about how to run a city:
Essentially, Zohran’s instinct for improving affordability is to provide a bunch of free services at the city level — free buses, city-run grocery stores, and so on. That will not work very well. If he’s successful, the quality of those services is likely to be poor, drawing criticism and backlash far out of proportion to their actual economic significance. But many of the plans are unlikely to be implemented in the first place, given the need to win approval from statewide agencies like the MTA.
Meanwhile, Zohran’s housing and education policies are likely to be contaminated by bad ideas from the progressive information-bubble. Mamdani’s attack on elite public schools is based on the common but mistaken idea that these schools worsen racial gaps; in fact, they are a vehicle for discovering and giving a boost to talented minority kids. Zohran’s housing policy is based on subsidizing “affordable” homes, but — as we’ve seen in California — this will make housing harder to build overall, while increasing construction costs, and will ultimately not lead to a big boost in supply.
It’s therefore easy to envision a pretty depressing scenario for Mamdani’s tenure in office. Identity, foreign policy, and ideology might soak up tons of attention, stirring general nationwide fear about the direction of the Democratic party, while distracting from NYC’s real material concerns. And the failures of a few economically minor but symbolically important socialist initiatives could draw widespread condemnation, painting Mamdani’s whole tenure in office as a failure. This would basically parallel what happened to Chesa Boudin, San Francisco’s leftist district attorney, or (more loosely) to Chicago’s socialist mayor Brandon Johnson.
And that would be a shame, because New York City has some serious problems that Mamdani really should be addressing. NYC is America’s flagship city — in some sense, its only real city. But its tentpole industry is slowly abandoning it, leaving the future of its economic base in doubt. And it’s beset by ruinously high costs, leading to a slow degradation of public infrastructure and services. These are problems that socialist approaches will simply never fix — but if NYC is going to thrive, someone has to fix them.
