Every since the late 2010s, the US fiscal situation has become unsustainable. Unless dramatic changes are made, we are eventually headed toward a major problem (sharp tax increases, high inflation, or default.) Now it seems as though dramatic changes are going to be made—albeit in the wrong direction. Here’s Bloomberg:

The back-and-forth over taxes has escalated in recent days. In an interview with CBS News over the weekend, Republican vice presidential nominee JD Vance tried to outflank Democrats by floating a $5,000-per-child tax credit — $3,000 more than the size of the current credit and even larger than President Joe Biden has proposed.

Harris, rallying supporters in Nevada, endorsed a version of Trump’s own promise to exempt tipped wages from taxes. . . .

Trump has also proposed ending the tax on Social Security benefits entirely, replacing current policy that gives targeted tax breaks to lower-income seniors. His proposal could cost as much as $1.8 trillion and ultimately endanger the Social Security trust fund itself, according to nonpartisan budget watchers.

Largely absent from the discussion, for now, are the tax cuts from Trump’s 2017 tax law that will expire at the end of 2025. Extending those cuts carries a $4.6 trillion price tag.

Just what the tax code needs—more complexity.

Inevitably, people will tell me that it’s always been this way. No it hasn’t. America has not always been a banana republic. The national debt as a share of GDP fell sharply in the second half of the 20th century. Bill Clinton ran three consecutive budget surpluses at the end of his administration. Fifty years ago, presidents were held accountable for their crimes—indeed bipartisan pressure forced Nixon to resign. You did not have the Supreme Court ruling that presidents were above the law.

Sorry, it has not always been this way.

I guess if we’re going broke anyway, why not throw a wild party with borrowed money before the creditors show up at the door. Or pray that AI will save us all.

PS. As always, there will be unintended consequences:

But the plan is not without controversy. Economists say it could incentivize workers and employers to shift more compensation from wages to tips.

I recall when 10% was normal. Then 15%. If this passes I might just become one of those greedy old curmudgeons and stop at 20%, no matter how high they try to push the standard tip. And will my dentist start demanding tips, with the threat of pain if I don’t pay up?

As for Social Security, lower wage seniors are already exempt from paying income tax on their benefits. So that tax cut will favor the more affluent—like me!

PPS. Oh, and I forget to mention Trump’s plan to use billions of taxpayer dollars to invest in cryptocurrency. What could go wrong?

PPPS. Predict how many days before one of our politicians advocates abolishing the gasoline tax.

I’ve come around to the HL Mencken view of the world. Treat politics like a big joke or it will drive you crazy.

We all hold back on some unpleasant truths, at least now and then. That’s partly due to fear of angering co-workers, friends or family. We wish to be polite. But if I were rich enough, then I’d be able to say whatever I wish. I would have no fear of losing my job in response to a non-PC remark. And zillionaires always have loyal friends and family.

Or would I? Maybe there is no amount of money that would turn me into a completely honest man. Perhaps I’d still have all my current personality flaws, even if I became the richest man on Earth.

What do you think? In the comment section, tell me how high a net worth you’d need to feel confident expressing the unvarnished truth in 21st century America.

PS. This Matt Yglesias tweet caught my eye:

Elon is absolutely correct, on both points. I truly believe that.

A few days ago Claudia Sahm wrote a Bloomberg column entitled:

My Recession Rule Was Meant to Be Broken

Even before I read the article, I suspected that I would sympathize with her argument, which proved to be the case:

The US is not in a recession, despite the indicator bearing my name saying that it is. The Sahm rule, which was triggered with Friday’s weaker-than-expected jobs report, joins a long list of economic tools skewed by the unusual disruptions of the past four and a half years.

That said — and I say this with a mixture of humility and concern — the Sahm rule is still relevant. The risk of a recession is elevated, strengthening the case for the US Federal Reserve to cut interest rates. . . .

But conditions can change quickly, and by the time the NBER has officially designated a recession, it is usually too late to guide policymakers. The purpose of the Sahm rule is to act as a kind of early diagnosis.

I frequently argue that recessions are almost unforecastable, because if there were a reliable technique for forecasting a (demand-side) slump, the Fed would move to try to prevent this from occurring. I’ve previously suggested that the lack of mini-recessions in the US is evidence that the Fed often reacts too slowly to the onset of recession.

Sahm sees her rule not so much as an unconditional forecasting technique, rather as a guide to help policymakers improve on stabilization policy. As an analogy, the beep your car makes backing up near an object is not supposed to predict an accident, it’s supposed to prevent an accident.

It seems to me that Sahm strikes exactly the right note—that her rule should be viewed as useful, not infallible. The recent triggering of the Sahm’s Rule suggests that the risk of recession is substantially elevated and that policymakers need to take this information into account.

The economics/finance community is full of people with big egos. I often hear people brag about how they have been correct time after time, which tends to make me take their views less seriously. At times, it almost seems like they care more about their reputation than about the health of the economy. Sahm seems to understand that if her rule ends up preventing a recession, it would be a vastly greater achievement than if it ends up predicting a recession. Let’s hope that this time her rule fails, and she succeeds.

1. For years, I’ve been complaining about the US bullying of smaller nations. This tweet thread by Jeff Stein documents the fact that US bullying has increased dramatically over the past decade.

2. By some measures, Texas is far and away the most environmentally conscious state. Another link suggests that Texas produces more electricity from renewable energy than New York produces in total. How is that possible? It has nothing to do with their attitudes, which are far less environmentally conscious than those in places like New York and California. Instead it seems due to the fact that free markets are good for the environment, and Texas has much freer markets than California.

3. Here’s Richard Hanania:

Ezra Klein talks about how he has no idea what a left-wing version of Jordan Peterson would look like, given that liberals don’t really have a positive vision of masculinity. Conservatism is less conflicted on this issue, but its version of masculinity has no place for stoicism in the Trump era. I find few things to be more unmasculine than exaggerating the problems and challenges one faces. Right-wing spaces are nonetheless filled with individuals referring to themselves as “kulaks,” “dissidents,” or “heretics.” In a way, Trump is the perfect leader for this movement, in that he has all the vices of masculinity and few of the virtues. MAGA populism looks at what happened to Alexei Navalny and says that this only reminds us that the real victim is Trump, and I wonder how much their aggressive callousness towards the victims of Putin reflects the shame of individuals play acting as freedom fighters getting angry when confronted by the real thing.

BTW, here’s what Scott Alexander says about Hanania:

Hanania is terrible at being right-wing. He’s pro-choice, pro-immigration, pro-euthanasia, pro-vaccine, pro-globalism, pro-Ukraine, atheist, and supports the recent guilty verdict on Trump.

4. And from the same post, Alexander describes Yglesias:

Nietzsche wrote in the 1890s. There were still real nobles and emperors walking around; communists had not yet started calling capitalism “late capitalism”. Sure, his world was probably some sort of weak compromise between master and slave morality, but it was different from our weak compromise. Our weak compromise was forged through dialogue and warfare with fascism’s novel take on master morality and socialism’s novel take on slave morality. I think of Yglesias – who combines an insistence that good things are good and a proclivity for embiggenment with commitments to democracy, the welfare state, and the poorest among us – as one of its most self-conscious proponents.

Alexander has recently been on a roll.

5. Alexander also linked to an excellent post by Freddie DeBoer:

Perhaps you feel like Alice Munro pulled the wool over your eyes. You’re in good company. Many seem to be taken aback by the fact that a writer whose work spoke to them so deeply was one who could live with this kind of darkness. That attitude, I’m afraid, demonstrates an inability to understand that every artist is first and fundamentally a liar, in fiction or non. That was Munro’s great skill, and that is why you feel betrayed. A writer for The Indian Express says, “I will always question her motivations behind writing what she wrote and wonder if she actually felt this deeply or just knew how to lie with great finesse.”

But that’s the thing about great artists, darling; for them, there’s no difference.

That last line is perfect.

6. It looks like Vance is also a fan of Viktor Orban. Why am I not surprised? Trump should go with his original intention and replace Vance with Doug Burgum.

7. This interview from 2021 is exactly why you don’t want to nominate an intellectual for VP. They say really stupid stuff. Start at the 11:30 mark. Inconvenient?

8. Trump refuses to say that Vance is ready to step in as president if needed, despite being asked directly. Here’s Jim Geraghty at the National Review:

And he’s shameless about throwing his own running mate under the bus when he’s the one who picked him:

Harris Faulkner: When you look at J. D. Vance, is he ready on Day One?

Trump: Does he what?

Faulkner: Ready on Day One? If he has to be?

Trump: I’ve always had great respect for him, uh, and for the other candidates too, but I will say this. And I think this is well documented. Historically, the vice president in terms of the election does not have any impact. I mean, virtually no impact. You have two or three days where there’s a lot of commotion as to who, like you’re having it on the Democrat side, who it’s gonna be. And then that dies down and it’s all about the presidential pick. Virtually never. Has it mattered? Maybe Lyndon Johnson mattered for different reasons than what we’re talking about. Not for vote reasons, but for political reasons, other political reasons. But uh historically, the choice of a vice president makes no difference. You’re voting for the president and you can have a vice president who’s outstanding in every way. And I think J. D. is, I think that all of them would have been, but, but you’re not voting that way, you/re voting for the president, you’re voting for me.

This is a yes-or-no question, and Trump did not answer “yes.”

There’s no doubt in my mind that Trump now agrees with me—it was a horrible choice. And I agree with Vance that Trump is a reprehensible person. Both Trump and Vance have very sensible views of their running mate.

9. This is one of the best blog posts I’ve ever read, but also the most depressing. Not for the faint of heart. A good rebuttal to all of the misinformation attacking Canada’s right to die policy. (Also see this comment.)

10. Here’s National Review:

It seems that many of Vance’s economic views come from his ruminations on kitchen appliances. He has said that an old refrigerator he used to have proved that “economics is fake” because it could keep lettuce fresh for longer than newer fridges. Now he says, in his stump speech, that “We believe that a million cheap, knockoff toasters aren’t worth the price of a single American manufacturing job.”

Maybe I spoke too soon when I said that Vance was smart. (Yes, I know, there are lots of things that are so silly they could only be said by an intellectual.)

11. James Carville says don’t call them weirdos, call them creeps. After all, there’s nothing wrong with being a weirdo (I’m one myself.)

1. Here’s what happens when the West turns away from globalization:

While the United States has free-trade agreements with 11 Latin American countries, it shows no appetite for more. Uruguay’s centre-right government is negotiating an accord with China after its requests for one with the United States were rebuffed. France and others are blocking the ratification of a trade pact between the European Union (eu) and Mercosur (a five-country bloc including Brazil and Argentina) which took more than 20 years to negotiate.

2. Remember when trade barriers with China were going to reduce America’s trade deficit? As I predicted, it never happened. Here is just one of the reasons why:

The two-step is a way in which some retailers make use of a loophole in American trade rules known as the “de minimis” exemption, which means “too small to be trifled with” and allows packages worth less than $800 to enter America without facing duties. . . .

Trade through the exemption—mostly the regular import of small packages rather than any trickery—is now so large it distorts national data. Seven in ten de minimis parcels arrive from China. Shein and Temu, two large online retailers with Chinese supply chains, alone account for three in ten. Our calculations, based on China’s share of de minimis imports, suggest that America’s trade deficit in goods is 13% larger with China, and 5% larger with the world, than official numbers indicate. This may help explain a growing puzzle in Sino-American trade statistics. China says that it exports about $73bn more than America thinks it receives, and some economists believe the true gap may be more than $150bn.

3. The Economist says China is becoming a scientific superpower, but that nationalism is an issue:

Chinese collaborations are common for Western researchers. Roughly a third of papers on telecommunications by American authors involve Chinese collaborators. In imaging science, remote sensing, applied chemistry and geological engineering, the figures are between 25% and 30%. . . .

In America and Europe, political pressure is limiting collaborations with China. . . .

There are also concerns among scientists that China is turning inwards. The country has explicit aims to become self-reliant in many areas of science and technology and also shift away from international publications as a way of measuring research output. Many researchers cannot talk to the press—finding sources in China for this story was challenging. One Chinese plant scientist, who asked to remain anonymous, said that she had to seek permission a year in advance to attend overseas conferences. “It’s contradictory—on the one hand, they set restrictions so that scientists don’t have freedoms like being able to go abroad to communicate with their colleagues. But on the other hand, they don’t want China to fall behind.”

This is a central paradox of nationalism. Do you want to be strong? Or isolated from globalization?

4. But cHiNa iS the rEaL tHReaT:

Oh, and Russian TV news people are now claiming that Russia is the rightful owner of Alaska.

5. A good essay on the parallels between the pre-WWI period and today’s US/China tensions.

6. A new estimate says China’s population decline will be even worse than feared, with Pakistan likely to overtake China in less than 100 years (by extrapolation.)

7. On a more optimistic note, China is moving from being a copycat to becoming major innovator in technology:

Western R&D centres in China have been re-engineered, from places to learn about the domestic market into hotbeds of innovation whose fruits can be found in products sold everywhere.

Foreign chief executives now believe that China’s brainpower and its innovation-curious regulatory regime are crucial ingredients of their companies’ global success. Nowhere else in the world can newfangled technologies, from novel drugs to flying taxis, be tested as quickly as in China, marvels a foreign diplomat. So even as the Chinese economy slows—it grew by a surprisingly tepid 4.7% in the second quarter, year on year—and multinational businesses try to reduce their reliance on Chinese supply chains amid mounting geopolitical tension, global CEOs are desperate to protect this critical third function of their Chinese operations.

Unfortunately, every silver lining has its clouds:

Western companies would understandably hate to be shut out of this r&d paradise. Some are nonetheless bracing for such an eventuality. In June America’s Treasury department issued draft rules that would ban American firms from investing in ai, semiconductors, microelectronics and quantum computing in China. These could come into force later this year. . . .

At the same time, Mr Xi’s paranoid security apparatus is making it harder to move some intellectual property (ip) generated in China outside its borders, ignoring economically minded officials’ concomitant efforts to attract foreign investment. Exports of some ais, such as speech- and text-recognition software or even TikTok’s recommendation algorithm, now need permission from the commerce ministry. So far this has not stopped most ip from leaving the country. But this may change at any moment, says Alex Roberts of Linklaters, a law firm. “We are at a tipping point.”

8. On a lighter note, Tim Walz and I have one thing in common. We both spent our honeymoons in China, and in both cases during the first part of June, 1994.