If we weren't idiots, Balance of Payments edition

Tomorrow is "liberation day" when Donald Trump is supposed to unveil a catastrophic slate of tariffs, layered on top of the belligerent tariffs he has imposed already on Canada and Mexico. Of course, you never know, because Trump's de facto policy is always policy uncertainty.

Trump's tariffs are stupid. Singling out and discriminating against particular countries is worse than stupid. It rips opens the demon seal of national grievance, from which wars and end times may emerge. The whole American political class is guilty of this sin with respect to China. But Trump takes it to another level. He takes such pleasure in the pettiest application of gratuitous insult. (Canada? Really?)

Trump's tariffs, and tariffs in most (but not quite all) cases, are stupid. Worrying about bilateral trade balances is stupid.¹

But worrying about ones overall balance of trade is not stupid. It is necessary. Here is where the inchoate tendencies jockeying behind Donald Trump do have a point. The US policy establishment has pretended that the international balance of payments doesn't matter. Or that even if it does matter, it derives from a deep, mysterious imbalance of humors in the American temperament. We insist upon investing much more than we save due to predillections impervious to price or to policy.

All of that is bullshit. A country's balance of payments matters, and is a legitimate and necessary objective of a country's economic policy. As Michael Pettis often emphasizes, a current account deficit is a drag on domestic demand, which then requires a fiscal offset to sustain full employment. A capital account surplus, the obverse and equivalent of a current account deficit, implies an ever growing pile of promises to foreign investors and creditors. Honoring those promises may impose constraints on policy that ultimately harm domestic constituencies. Dishonoring those promises is dishonorable, leaves a nation's reputation in tatters, provokes international strife.

There are good reasons, sometimes, for countries to run large current account deficits. There are good reasons, sometimes, for countries to behave mercantilistically, and seek large current account surpluses. But most of the time, under most circumstances, a country's trade should be reasonably close to balanced. Balanced trade composes: every country can pursue it all at once without suspending the laws of arithmetic. Deviations should be just that — limited and temporary, undertaken for coherent and well understood purposes. They should be offset by international partners who have good reasons to take the other side of the flow, rather than showing up like some kind of emergent shruggie and continuing indefinitely.

So if, as I claim, international balance-of-payment is a necessary object of policy, and current-account deficit countries like the United States should pursue reversion toward balance, why am I so mean to Donald Trump? Why aren't tariffs the greatest word in the English language?

Because tariffs are a stupid way to pursue balance. They interfere with trade on the real side of the ledger, rather than on the regulatory side of the ledger, which is finance. They require enormous infrastructures in customs inspections, and enforcement of weird, fine-grained categorizations of goods. They hold up physical processes. They penalize balanced as much as imbalanced trade. They are often imposed in hostile, country-discriminatory ways. They invite corruption by favor or waiver. There are much better policy instruments.

If we weren't idiots, we would normalize policy of the following form:

Ownership of every financial claim issued by a country's government, firms, or citizens would be categorized as "foreign" or "domestic". Maintaining this categorization, based on beneficial ownership, would be a role of financial institutions, which are, among other things, privatized functionaries of the regulatory state. Countries would either require disclosure of beneficial ownership information by any party that wishes to hold legally enforceable financial claims, or else assume holders are foreign if beneficial ownership is not disclosed.
All payouts to foreign claimants, whether interest or dividends or capital gains, would be subject to a tax that domestic claimants would not pay. The level of this tax would be a policy variable by which a desired international balance can be effected.

That's it! It's not so hard! It's a regime that doesn't perniciously discriminate between nations, industries, or importers. It's an approach that international organizations could normalize, that states could cooperate to enforce.

Unlike a tariff, a foreign-payout tax imposes no cost on balanced trade. It taxes only imbalance. If a country is running an undesirably large current account deficit, it can incrementally raise the tax rate, making it less remunerative for trade partners to hold financial claims as payment for unbalanced trade. No trading partner is singled out, no containers are held for inspection, no fuss, no muss, no hurt feelings. There's just a tax of financial instruments, which raises revenue and supports what should be universally recognized as a legitimate national interest.

I can't claim this suggestion is particularly novel. The aforementioned Pettis, along with partner-in-crime Matthew Klein, sometimes proposes similar solutions. I've long described these ideas as "capital account protectionism". Like most good policy ideas, this constellation of proposals lies strewn among blog posts and whitepapers, discussed for a moment and then abandoned.

The neglect has left real problems unaddressed and unaddressable. Now we get to watch Donald Trump blow up the world under pretext of filling the void.

When, someday, civilization re-emerges from the radioactive muck, let's, maybe, just try this?

Note: This piece is published April 1, only because April 2 is Trump's "liberation day". It is very much meant in earnest.

Worrying about trade deficits, bilateral or otherwise, is distinct from worrying about the diversity and resilience of sourcing for important goods and services. The latter should always be an object of policy.
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draft by Steve Randy Waldman
2025-04-01 @ 12:30 PM EDT

Delivering rough consensus

Hannah Story Brown offers an excellent piece on the "abundance agenda", reviewing books by Ezra Klein and Derek Thompson and Marc Dunkelman (ht Ketan Joshi):

The “liberalism that builds” camp, in short, would find more allies among the progressives they criticize if they acknowledged that some things should not, in fact, be built. We need better levers to prevent abuses and better processes for getting public goods built. But the authors refuse to dignify the question of how to prevent existing abuses from worsening if we take away existing guardrails...

Dunkelman frames the dilemma this way: “[T]here is no way to serve the greater good without exacting some cost on at least someone ... Giving everyone a seat at the table doesn’t by any stretch guarantee a mutually agreeable fix. But, as we’ve seen, giving anyone at the table a veto almost ensures that nothing will be accomplished.”

Brown emphasizes that what this really amounts to is a quality of democracy issue:

Progressives want the state to do more of the right thing, and also less of the wrong thing. This balancing act and its attendant trade-offs will never be perfect, never resolved. This is the messiness of democracy, eternally heartening and disheartening. This is the task.

I want to add a small, hopefully helpful, clarification of exactly the quality of democracy we are currently lacking. What democracy is supposed to deliver is rough consensus outcomes.

A democracy cannot be expected to achieve perfect consensus. That's impractical for a polity of any size. But if a democracy delivers minoritarian or even narrowly majoritarian outcomes, it annoys, oppresses, dispossesses much of the public. Representative democracy, the whole sausage factory, all the wheeling and dealing that stands in for deliberation, are supposed to achieve outcomes a supermajority of the public ultimately assent to — perhaps not for every particular project, but at the level of the full portfolio state actions.

When a democratic state consistently achieves rough consensus, it earns the trust of its public. It can just do things. However, if the institutions of government do not yield near-consensus outcomes, but victories by narrow majorities or even canny minorities, members of the public are left with a terrible dilemma. They can protect themselves by agitating for veto points by which they can frustrate oppressive state action. This ultimately replaces desirable rough consensus with a paralyzing full consensus requirement and guts state capacity. Alternatively, they can concede the necessity of a vigorous state, and hope that the governing faction — whether a bare majority, a minority, or a singular autocrat — does good things rather than bad things from their perspective. Almost certainly, for much if not most of the public, it will not.

Our democracy (at least the one we had before November 5) has evolved to a structure under which democracy's main actors — political parties — purposefully destroy the possibility of rough consensus, largely by reshaping who we are and how we understand ourselves as an electorate. Each party must do so in order to remain competitive with a rival party that does the same. Our legislature no longer legislates in the traditional sense of shaping and reshaping and sweetening legislation until a supermajority are willing to sign on. On almost every major question, one party wins, one party loses, the discontent of roughly half the public is simply overridden.

Under these circumstances, there is no answer to the problems the abundance discourse laudably seeks to address. I for one am not at all interested in letting the Elon Musk administration, with the help of the narrow majority in Congress it keeps docile via threats of financing lavish primary challenges, just do things. I think they will do bad, horrible, things. They already have. Vetocracy now, I say.

But vetocracy now means vetocracy then too, when an administration whose purposes and intelligence I respect might do good things.

The state is the most important, most wonderful, and most terrible invention in all of human history. All the best possibilities for human flourishing demand creative, assertive, state action. The worst possibilities — total war, extermination, mass enslavement, human extinction — are possibilities at all because states can prosecute, enforce, and enable them.

The quality of state action is everything. It is not sufficient, as the abundance faction emphasizes, to simply get out of the way and let the state act. It is not sufficient, as has been the status quo in the US for two generations, to bind the state within a skein of veto points so elaborate almost nothing can be done until nearly everybody has been bought off.

The always insightful Dan Davies writes

Rather than the regulations themselves, we need to look at the overall system by which the regulatory state is brought to a place where it prevents things happening which have majority support.

That "overall system by which the regulatory state is brought to a place where it prevents things happening", even things that under other circumstances might find widespread support, is when government becomes a battlefield, when state action comprises victories one faction scores against the will of embittered others, rather than a portfolio of outcomes most of us understand ourselves as having assented to.

An effective state must recruit rough consensus. The institutions of a republic — elections, legislatures, media — are supposed to be machines that deliver rough consensus for state action. Instead we have a machine that reliably, predictably, for reasons we understand well, produces division, polarization, and resentment.

Until we fix that, we'll find that our demands for streamlining and our insistence on vetocracy — seemingly so opposed — are just two sides of the same spinning coin.

draft by Steve Randy Waldman
2025-03-26 @ 03:40 PM EDT

Voice of a Maryland

It's time for state governments to overtly and generously stand-up media organizations.

The death of local newspapers is much bemoaned, but that ecosystem which was once the beating heart of our public square is dead nonetheless.

I've long supported reforms along the lines Dean Baker suggests, letting citizens earmark public funds to media organizations they support. But we are in an emergency occasioned in large part by plutocratic control over media. We need to change the media environment rapidly and directly.

A mode of governance — like, you know, liberal democracy — cannot survive without a media ecosystem in which the case for that mode of governance is full-throatedly and vigorously offered, alongside more critical views. Outlets like Fox Media, X, and Facebook are mouthpieces for authoritarian plutocrats. They use opposing views to only launder the thumb they place on the scale. Outlets like The New York Times, ABC, CBS, CNN are corporate interests themselves. They rely upon the goodwill of regulators for getting mergers through and for other treats and goodies.

Very few prestigious, influential outlets will make a muscular case for social democracy, or even for what used to be "centrist" liberalism, when a vindictive Federal government seeks to suppress and discredit those views. In theory, of course, the Federal government cannot discriminate against corporate media on the basis of viewpoint. Ha. It will be trivial for political appointees to invent pretexts that hide the connection between editorial position and adverse regulatory treatment. Plutocrats control the commercial marketplace of ideas now, either directly or by credible threat.

It would not be a huge burden for state governments to run news organizations on the scale of the major dailies that their cities used to host. States have First Amendment rights against the Federal government. They have every right to speak, to provide news from their own editorial perspective, to communicate what they are doing and their case for why they are doing it.

"State media" might become blatantly propagandist, little Pravdas for whatever the governor is doing. But that sort of media probably would not attract much of an audience or engender much respect. Far better models would be Voice of America and Radio Free Europe, which are high quality, largely independent, news organizations, whose editorial perspectives are shaped by US interests. We could have fifty diverse but capable news organizations very quickly under this model.

Of course, Texas would have its news organization as much as Maryland would. Red state outlets might well adopt the editorial perspective of Fox News, OANN, Newsmax, etc. That's fine. They have every right. But our news ecosystem is already saturated with that viewpoint, so the addition of these new voices would do little new harm.

Our news ecosystem is starving for voices that make the affirmative case for high quality government, extensive public goods provision, pooling resources and working together to build a more just and prosperous society. Some of the publicly funded state outlets might take on this role. Even red state governments might betray some sympathy for the good work of government. The marginal benefit to social democrats would be much greater than the marginal benefit to plutocrats, if a stable of state-financed media organizations were to emerge..

But US states, like corporations, also depend on the Federal government. Won't their coverage be warped by the same pressures that turn corporate outlets into tongue-tied pussycats?

To a degree, perhaps. But the Trump Administration already overtly discriminates in favor of red jurisdictions and treats blue states with hostility. From a blue state's perspective, the marginal cost of pissing plutocrats off just a bit more than their baseline intent to destroy and subdue is low. Majorities of voters in their states sincerely want media that describe the world plainly and are unapologetic about supporting democratic values.

Plus, the existence of state media might open new avenues for states to defend against politically motivated discrimination. I don't know whether it's legal for the Federal government to discriminate between states on the basis of electoral outcomes, but it is certainly unconstitutional for it to discriminate on the basis of a state's speech. The thin-skinned narcissists who run the Federal government will predictably, inevitably, constantly lose their shit over stuff blue-state media outlets say. States then could argue that any petty and punitive kneecappings are in retaliation for speech and constitute unlawful viewpoint discrimination. It might or might not succeed. I'm as cynical about the current Supreme Court as anyone. As with corporations, operatives will always invent speech-unrelated pretexts for their sabotage. But at the margin, outspoken state media may help more than hurt blue states that will be targeted no matter what they do.

The traditional, liberal case against overt state media is that it would be overweening. State subsidy would confer so great an advantage over private speech that government might dominate the marketplace of ideas — not on the merit of those ideas, but by virtue of relentlessness and sheer volume. Neutrality among citizens is an important value that liberal states seek to uphold. But neutrality presupposes basic equality between the citizens that constitute the public square. That prerequisite is no longer in place. In a much more equal society, it might make sense for states to largely opt out of direct participation in media. In a tremendously unequal society, however, the speech that is overweening is speech purchased by plutocrats. In a world with Elon Musk, Jeff Bezos, and Citizens' United, "neutrality" is a sham. The value we must lean upon is pluralism. The liberal remedy to bad speech is more speech. For that to work, the more speech must be loud enough to be heard above the din. Fifty US states can provide both pluralism and volume.

We are in an emergency. The survival of meaningful democracy in the United States, the hope for any kind of civilized society, is under severe threat. Private media are largely captured by fascists. A unique strength of the United States is its strong federalism. State governments could unilaterally and quickly restore an ecosystem of vibrant, diverse media with substantial capability and reach.

Let's do this.

draft by Steve Randy Waldman
2025-03-09 @ 02:00 PM EDT

Meeting Starter

Republican Representative and Senators are standing around with their hands in their pockets while Elon Musk unlawfully and unconstitutionally decimates the United States government, under the imprimatur of Donald Trump.

When Republican members of Congress meet with their constituents, the public expresses a certain, um, lack of delight with the current state of affairs. The growing discontent has spurred these honorable leaders to bold action. They increasingly resolve no longer to conduct open, public meetings where constituents might confront them.

In-person, human-to-human meetings are the heart of democratic governance. Much of why Americans have become so cynical about democracy is there are so few opportunities to participate in forums that put our representatives directly within earshot of us, and us them.

I think it's a mistake that we let our humble servants, our hired hands, set the terms of when and whether they will deign to meet with us. When we want to meet, they ought to show up and speak to us. They have one job.

Here's an idea: Suppose that we create public websites on which constituents and organizations can propose public meetings. It would be the responsibility of the proposer to price out a suitable venue, support staff, any catering, etc. Constituents could then reserve seats, pledging if they can afford it to cover their portion of the cost.

But constituents would be encouraged to pledge more than simply the cost of their own seats. The excess would first subsidize seats of those who can't afford a paid admission, then to create a "goodwill surplus".

The goodwill surplus would be donated. But not to the Congressperson's campaign. We have too much of that kind of legalized bribery already. The surplus would be donated to the government that our representative serves. For a member of the US Congress, the surplus would be donated to the US Treasury. For a meeting requested with a city councilperson, the surplus would be donated to the city budget.

Citizens have no way to compel representatives to take our meetings. If we are unwilling to bribe them with campaign donations, they usually decline. But with "meeting starter" websites, the asks and responses would be public and visible. Declining meetings with substantial goodwill surpluses would amount to directly costing taxpayers money.

Suppose a hundred citizens publicly ask for a meeting, proposing a reasonable venue during a recess of the representative's chamber, offering a goodwill surplus of a few thousand dollars for an hour and a half of their time. The representative can still say no. But she will have shirked the core obligation of her job, and she will have cost taxpayers those several thousand dollars as well.

She will have provided pretty clear evidence what kind of public servant she is. Which voters might take into consideration at the next election.

draft by Steve Randy Waldman
2025-03-02 @ 03:55 PM EST

A theory of Elons

Over the years, I've struggled with how to understand Elon Musk.

A decade ago, it was easy. I admired him. Tesla had proven electric cars could be more than golf carts, that they could be adequate or even superior replacements to gasoline-powered vehicles. When Musk proposed out-of-left-field ideas like the hyperloop and The Boring Company, transportation experts dismissed and maligned him. I remained curious and cut Musk some slack. Maybe he really was a genius who would prove the naysayers wrong.

The years have not been kind to my admiration. The experts were right about The Boring Company and the hyperloop. The more Musk engaged on Twitter, the harder it was to concede him any kind of genius. Even before he threw himself headlong into replacement theory and Nazi salutes, 2020 Musk seemed more PT Barnum than any kind of Einstein, "hustling" (his word) DOGE when it was just a memecoin, hustling Tesla stock in largely the same way.

And yet. Tesla is falling behind, but in its early years, it was a remarkable achievement. SpaceX is Musk's newer jewel. By increasing the frequency and reducing the cost of satellite launches, then becoming its own customer to build global internet provider Starlink, it has made itself indispensable.

The Musk of social media is obviously an idiot, at least if you take his tweeting at face value rather than as cynical propaganda. Yet it strains credulity to say he just lucked into the accomplishments of both Tesla and SpaceX. There must be some competence or competences he does contribute.

Noah Smith wrote a piece over the weekend trying to make sense of it all. This bit struck me as mistaken, but productively so:

Elon did [all] this in spite of the entire apparatus of American proceduralism and anti-development policy being against what he was trying to do. It’s famously difficult to build factories in America, thanks to land acquisition costs, procedural barriers like NEPA, regulation, high labor costs, and so on. And yet as of 2023, Tesla produced more cars in America than it did in China

The mistake I think is the suggestion that Musk was disadvantaged by all the inertia and procedure and regulation. On the contrary, I think the key, or at least a key, to Musk's successes lies in his unusual competence at overcoming these barriers. In particular, Musk is endowed with an extraordinarily high risk tolerance, a willingness to brazen things out and dare anyone to stop him. He never asks for forgiveness, but he doesn't ask for permission either. "You can just do things." You can just break the law.

Musk has always been rich, but there were lots of comparably rich kids who wanted to play entrepreneur. Most rich kids color inside the lines. They have nice lives to lose if they get put in jail.

It's not uncommon for tech entrepreneurs to capitalize on pushing against the fetters of the law, to place themselves in a zone one might describe as gray or "aggressive". Jeff Bezos resisted collecting sales tax for years. Travis Kalanick of Uber is probably Musk's closest peer. Uber violated municipal taxi regulations with abandon, then relied on customers to exert political pressure to absolve them of any serious consequence and legalize their business model after the fact. That it betrayed plain promises to, say, NYC taxi drivers and drove them to suicide was only the price of progress.

In the libertarian paradise Musk is desperate to create, I think he would have been outcompeted by people wiser and more substantatively capable than the toddler now dismantling the US government. But in the actual world with all its regulations and procedures, wise, capable, already wealthy, people are simply not willing to go as far in daring authorities to fine their firms out of existence, and perhaps put them in jail. Lots of tech entrepreneurs play in gray areas. Musk goes all the way to black. The FAA says, very specifically, do not launch. He launches anyway.

Elon Musk is not actually interesting enough to merit these thousand of my words. He is a low-grade villain who has found his way to where the crystals are kept and is now tossing them at the wall to work out anger issues and to test his sophomoric theories about the world. Elon Musk needs to be stopped, that's all.

What is interesting is the social environment that rendered Being Elon adaptive. What made so sad and stunted a person the richest man in the world? I think two facts shaped the niche in which Elon has thrived.

The first is the one to which Noah alludes. In the modern world, which is interconnected and wealthy, most things innovators might attempt will have serious externalities, which means they must be subject to regulation. In practice, our regulatory environment is so poorly arranged innovators often find it burdensome, sometimes impossible, to comply, even when "on the ground" the externalities could be adequately addressed or compensated.

The second fact that shaped the environment in which Elon became great is elite impunity. Our legal system in fact very rarely dishes out serious consequences to people who can hire great lawyers and are coded as wealthy, white, and entrepreneur. Ex ante, it's really dangerous to break the law. You could go to jail and trade your plush rich-boy jet-set life for an in-cell commode. Ex post, if you break the law brazenly, publicly, and In The Name Of Innovation, you are really unlikely to go to jail. Half the country will rise in your defense with greater passion than an Uber-rider at a city council meeting. The people whose job it is to enforce the law are the ones who bear consequences if they act, no matter how many planes get turned around to avoid the debris, no matter how many people die to provide training data for "full-self driving".

These two characteristics — a regulatory environment in which complying with the law is burdensome plus elite impunity that immunizes people who refuse to comply if they can code themselves "heroic striver" — create an ecological niche that selects pretty strongly for people like Musk, whose main talents are not technical insight or managerial genius, but drive and showmanship and shamelessness.

Another figure who emerges from the same selection pressures is Donald Trump.

For those of us who do not think it awesome that people like Trump and Musk are at the apex of our society, we'll have to address each of these two charateristics that selects them.

First, regulation. Regulation is necessary in an interconnected world. But the compliance burden of regulation is always shared between the regulated and the state. If the regulated party fills out forms, some civil servant must read and evaluate them. Both bear a cost. We should ask the state to bear a much larger share of the regulatory burden, so that actually complying is not a competitive disadvantage. Note that this implies devoting more, rather than fewer, resources to regulatory agencies, both for personnel and to cover direct compliance expenses. When you open your coffee shop, let the government cover the cost of great accommodations for disabled people.

Second, we need to enforce the law, for reals, on people who are rich, people who are famous, people who are popular. Donald Trump's misbehavior would not have been so adaptive if, say, the plain meaning of the 14th Amendment of the Constitution were actually enforced. Elon Musk's Tesla may well surpass Waymo in the race to true autonomy. But, as Matt Yglesias points out, that would only be because Waymo is punctilious about working within the law and operating safely while Tesla is not. The law should have crushed Tesla for its ends-justifies-the-means approach to public safety, rather than repeatedly slap the firm on the wrist while it buys its data with our lives.

Make both regulation and compliance into functions of government. Enforce the law vigorously on the rich and powerful. That's all we need to do.

Then our great industrialists might also be admirable people. Our presidents too.

draft by Steve Randy Waldman
2025-02-25 @ 11:30 AM EST