Author: Zachary Bartsch

Trump Cutting & Spending: Day 45

Zachary Bartsch2 Comments

It’s hard to keep up with all of the Trump administration’s activities. There is such a flurry of activity related to funding, regulations, and executive actions that no one can keep up with everything. Individuals and news outlets have scarce resources and attention. There’s the added typical challenge of filtering out fact from analysis. If only there was way to summarize the administration’s activities in an objective and meaningful sense.

Luckily, numbers don’t lie – and the federal government publishes a lot of numbers. Specifically, they publish the Daily Treasury Statement which identifies each day’s various categories of outlays. We can look at the raw number of spending to get a sense for where and whether Trump is changing spending within the federal government.

Lauren Bauer at The Hamilton Project noticed that the US Treasury has an API for those daily statements.  She created a nice online tool at Brookings that is relatively user friendly. Individuals can visit and see each day’s spending or the cumulative spending throughout the year. Below is the cumulative federal spending for 2024 and 2025. As of March 5th, the US has spent a total of 5.2% more in 2025 than in the year prior (that’s on track with the growth rate of GDP). Importantly, she makes all of the data available for download so that individuals can conduct their own analysis. I lean on her data here.

Where have the cuts been happening? The below graph includes the 5 spending areas that have been most deeply cut relative to the same day in 2024.* The red line denotes inauguration day. The USAID cuts made big news, and it seems like they knew something was happening around the time of inauguration. It looks like they were trying to get spending out the door before the taps were shut off. The FCC and the Library of Congress were also affected by the funding freeze that was announced in late January.

President Trump claims to have made cutting waste a priority. With Elon Musk in tow, the administration has made waves by disrupting USAID, the NSF, and federal payroll. We’re 45 days into the administration. We can use the data provided by the Treasury and made accessible by Bauer to evaluate how the Trump administrations has been spending and cutting according to the numbers.

One way to evaluate spending is to compare the cumulative spending over the course of 2024 and 2025. That is, spending on the 45th day of the year should be more or less comparable in 2024 vs 2025. It’s still early in the year and since various payments can be quite irregular, there’s a lot of noise in the data so far. But we should be able to see big changes. Smaller changes will be easier to see as the year goes on.

The 5 areas of greatest cumulative spending growth relative to 2024 are graphed below.* It does look like some funding was trying to get out of the door prior to Trump taking office, but that’s just speculation on my part.   FEMA spending was up, likely due to the fires in California.  Much more US Treasury spending is happening, specifically for Claims, Judgments, & Relief. We might see that remain elevated as the new administration keeps ‘trying’ things and then being stopped by injunctions, being the subject of lawsuits, and owing compensation.

While big percent changes in outlays can have massive implications for individual programs, Musk and Trump will need to cut huge amounts in order to claim any kind of victory over profligate spending. (Just so we’re all on the same page, they will fail if they refuse to touch old-age entitlements.) Where have the biggest spending cuts happened as measured by actually dollars? See below.*** The deepest and most consistent cuts are coming from the reductions in federal employee insurance payments. Similarly, the USAID and FCC cuts amount to a $2 billion cut from this time last year. Department of Education spending and the hospital insurance trust fund are down, but are also more volatile in their expenditures. Those one-time spikes in the data are due to pay dates between 2024 and 2025 being offset by a day or two.

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What does the Department of Education even do?

Zachary Bartsch4 Comments

If you follow libertarian media such as Reason Magazine or its ancillaries, then you are well acquainted with the humdrum of “it goes without saying that most US programs should be ended“. They kind of just say this and then continue with their news. One of the favorites is to say that we should get rid of the Department of Education (ED). After all, 90% of K-12 education is paid for by states and localities. Here I was thinking “what does the Department of Education even do”?

Agreement is different from trust. I trust the Brookings Institute. They have a nice explainer on what ED does. It’s a quick overview and has plenty of the appropriate citations. I learned that most of what ED does concerns K-12 and is achieved through grants that have strings attached. Funding primarily goes to serving “educationally disadvantaged” communities (that have a high poverty rate). Funding also goes to programs for disabled children, minority education programs (like Howard University), and Indian tribes. They also administer Pell Grants and fund & regulate college loans (which are privately administered).

ED’s appropriated budget is online for anyone to see and includes pretty good detail about costs. The total discretionary cost of FY 2024 was $79 billion. The “mandatory” spending, which does not need to be voted on by congress every year, was $45 billion. For context, the entire federal FY 2024 expenditure was $6.75 trillion. So, eliminating the department of education *and* it’s responsibilities (an unpopular position) would reduce federal expenditures by 1.8%. For even more context, the budget deficit is $1.83 trillion or 27.1% of total federal expenditures. Eliminating ED and consolidating its responsibilities to other departments would save $0.6 billion. That assumes eliminating program administration, the ED office of civil rights, and the ED office of the inspector general.

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Trump’s Economic Policy Uncertainty

Zachary Bartsch3 Comments

I was on a panel of economists last night at an event titled “The Economic Consequences of President Trump”. We each gave a 5-minute summary from our area of expertise and then opened up the floor for questions.  This is a truncated summary of my talk. Since the panel included an investor, two industry economists, and another macro economist, I wanted to discuss something that was distinct from their topics. I’ve published a paper and refereed many articles concerning economic policy uncertainty (EPU) and asset volatility. I wanted to look at the data concerning President Trump – especially in contrast to Presidents Obama and Biden.

EPU matters because uncertainty can cause firms and individuals to delay investment and hiring decisions. Greater uncertainty can also cause divergent views concerning forecasted firm profitability. The result is that asset prices tend to become more volatile when EPU rises. One difficulty is that uncertainty occurs in our heads and concerns our beliefs, making it hard to measure. We try to get at it by measuring how often news media articles include the terms related to uncertainty, policy, and the economy. Since news content tends to report what is interesting, relevant, or salient to customers, there’s good reason to think that the EPU index is a decent proxy.

Using the Obama years as a baseline, the figure below simply charts out EPU. It was relatively low during Trump’s first term and then it was higher during Biden’s term – even after accounting for the Covid spike. The sharp increase toward the end is after Trump won the 2024 election. The EPU series conflicts with my perception of social media and media generally. My experience was that the media was far more attentive to the uncertainty that Trump caused. But, it may just be that the media outlets had plenty to report on rather than it being particularly indicative of EPU. After all, if the president exercises his power, then there is a certain swift decisiveness to it.

But if we look at a couple of particular policy areas, Trump’s administration faired worse. Specifically, Trump caused a ruckus concerning trade policy and immigration. Remember when Biden continued the aggressive trade policy that Trump had adopted? That’s consistent with lower EPU. Similarly, Biden made the immigration process much easier and faster while Trump’s deportation haranguing results in a somewhat stochastic means by which people are deported.  Again, that spike at the end is after Trump won the 2024 election.

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Forecasting the Fed: Description Vs Prescription

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After raising rates in 2022 to belatedly combat inflation, the FOMC was feeling successful in 2024. They were holding the line and remaining steadfast while many people were getting all in a tizzy about pushing us into a recession. People had been predicting a recession since 2022, and the Fed kept the federal funds rate steady at 5.33% for an entire year. Repeatedly, in the first half of 2024, betting markets were upset that the Fed wasn’t budging. I had friends saying that the time to cut was in 2023 once they saw that Silicon Valley Bank failed. I remained sanguine that rates should not be cut.

I thought that rates should have been higher still given that the labor market was strong. But, I also didn’t think that was going to happen. My forecasts were that the Fed would continue to keep rates unchanged. At 5.33%, inflation would slowly fall and there was plenty of wiggle room for unemployment.

Then, we had a few months of lower inflation. It even went slightly negative in June 2024. Some people were starting to talk about overshooting and the impending recession. I documented my position in August of 2024. Two weeks later, Jerome Powell gave a victory lap of a speech. He said that “The time has come for policy to adjust”.  Instead of discerning whether the FOMC would cut rates, the betting markets switched to specifying whether the cut would be 0.25% or 0.5%. The Fed chose the latter, followed by two more cuts by the end of the year.

https://fred.stlouisfed.org/graph/?g=1DIsX

I was wrong about the Fed’s policy response function. But why? Was the FOMC worried about the downward employment revisions? That was big news. Did they think that they had inflation whipped? I’m not sure. There was a lot of buzz about having stuck the soft landing. In late 2024, I leaned toward the theory that the Fed was concerned about employment. Like, they thought that we had been doing better until then.

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RGDP Underestimates Welfare

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Like many Principles of Macroeconomics courses, mine begins with an introduction to GDP. We motivate RGDP as a measure of economic activity and NGDP as an indicator of income or total expenditures. But how does more RGDP imply that we are better off, even materially? One entirely appropriate answer is that the quantities of output are greater. Given some population, greater output means more final goods and services per person. So, our real income increases.  But what else can we say?

First, after adjusting for price changes, we can say that GDP underestimates the value that people place on goods and services that are transacted in markets. Given that 1) demand slopes down and 2) transactions are consensual, it stands to reason that everyone pays no more than their maximum value for things. This implies that people’s willingness to pay for goods surpasses their actual expenditures. Therefore, RGDP is a lower bound to the economic benefits that people enjoy. Without knowing the marginal value that people place on all quantities less than those that they actually buy, we have no idea how much more value is actually provided in our economy.

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How FRASER Enhances Economic Research and Analysis

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Most of us know about FRED, the Federal Reserve Economic Data hosted by the Federal Reserve of St. Louis. It provides data and graphs at your fingertips. You can quickly grab a graph for a report or for a online argument. Of course, you can learn from it too. I’ve talked in the past about the Excel and Stata plugins.

But you may not know about the FRED FRASER. From their about page, “FRASER is a digital library of U.S. economic, financial, and banking history—particularly the history of the Federal Reserve System”. It’s a treasure trove of documents. Just as with any library, you’re not meant to read it all. But you can read some of it.

I can’t tell you how many times I’ve read a news story and lamented the lack of citations –  linked or unlinked.  Some journalists seem to do a google search or reddit dive and then summarize their journey. That’s sometimes helpful, but it often provides only surface level content and includes errors – much like AI. The better journalists at least talk to an expert. That is better, but authorities often repeat 2nd hand false claims too. Or, because no one has read the source material, they couch their language in unfalsifiable imprecision that merely implies a false claim.

A topical example would be the oft repeated blanket Trump-tariffs. That part is not up for dispute. Trump has been very clear about his desire for more and broader tariffs. Rather, economic news often refers back to the Smoot-Hawley tariffs of 1930 as an example of tariffs running amuck. While it is true that the 1930 tariffs applied to many items, they weren’t exactly a historical version of what Trump is currently proposing (though those details tend to change).

How do I know? Well, I looked. If you visit FRASER and search for “Smoot-Hawley”, then the tariff of 1930 is the first search result. It’s a congressional document, so it’s not an exciting read. But, you can see with your own eyes the diversity of duties that were placed on various imported goods. Since we often use the example of imported steel and since the foreign acquisition of US Steel was denied, let’s look at metals on page 20 of the 1930 act. But before we do, notice that we can link to particular pages of legislation and reports – nice! Reading the Smoot-Hawley Tariff Act’s original language, we can see the diverse duties on various metals. Here are a few:

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Buying on Margin is Like an Option

Zachary Bartsch4 Comments

Over the winter break I was able to catch up on a lot of podcasts. I also began listening to the Marginal Revolution podcast (which is phenomenal). I especially enjoyed the final episode of season 1 about options and how many transactions can be characterized as giving someone an option. Here, the term option echoes a financial option. You pay today for the ability to do something in the future. In financial markets, you can purchase the right to buy or sell at a particular price in the future.

But lots of things count as options. Staying in the financial context, purchasing a stock gives you the option to sell that stock at the future spot price. So, in this way, something can be characterized as an option even though we are not accustomed to describing as such explicitly. More mundane transactions can also be interpreted as options. Assume that you buy a can opener. You are buying the option to have that tool on hand in the future and to open some shelf-stable food. You can choose to exercise the option simply by opening your kitchen drawer.

But financial options often include the possibility of losing money. It may be that your grocery purchases never include canned items and that you never have occasion to use your can opener. Maybe that’s a bad investment. You sunk your money into something that you never used. Except… You did in fact have the option to use the can opener. Maybe you had peace of mind that you were well prepared just in case a guest arrived with a can of something. Buying a can opener is like buying an option.

Returning to the realm of finance, let’s discuss buying on margin. Buying an asset on margin is when you borrow from your broker in order to purchase a financial asset. It’s not entirely free money. They have rules about the amount you can borrow and, of course, you must pay back the loan with interest.

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Intersectionality Eliminates Measured Hiring Bias

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The US Equal Opportunity Commission identifies characteristics by which an employee can’t be harassed, hired, paid, or promoted. A challenge with enforcing the non-discriminatory standards is that the evidence must be a slam dunk. There needs to be a smoking gun of a paper trail, recorded conversation, or multiple witnesses. Mere statistical regularities are insufficient for demonstrating that characteristics like race, age, or sex are being considered inappropriately.

If employees are all identically qualified, then we’d expect the employment at a firm to reflect the characteristics of the applicant pool, within a margin of error due to randomness. One difficulty is that plenty of discrimination can occur within that margin of error. A firm may not have sexist policies, but a single manager can be sexist once or even multiple times and still keep the firm-level proportions within the margin of error. This is especially stark if the company managers or officers are the primary positions for which discrimination occurs.

Another difficulty is that randomness can cause extreme proportions of employee characteristics. Having a workplace that is 95% male when the applicant pool is 60% male isn’t necessarily discriminatory. In fact, given a sample size, we can calculate how likely such an employee distribution would occur by randomness. Even by randomness, extreme proportions will inevitably occur.  As a result, lawsuits or complaints that have only statistical evidence of this sort don’t  go very far and tend not to win big settlements.

But this doesn’t stop firms from avoiding the legal costs anyway. Firms generally prefer not to have regulatory authorities snooping around and investigating. Most people break some laws even unintentionally or innocuously, and a government official on the premises increases the expected compliance costs. Further, even if untrue accusations are made, legal costs can be substantial. Therefore, firms have an incentive to ensure that they can somehow demonstrate that they are not being discriminatory based on legally protected characteristics.

However, as I said, extreme proportions happen randomly. If those extremes are interpreted as evidence of illegal discrimination, then the firms have an incentive to hire among identical applicants in a non-random manner. They have an incentive to tilt the scales of who gets hired in favor of achieving a specific distribution of race, sex, etc. People have a variety of feelings about this. Some call it ‘reverse discrimination’ or discrimination against a group that has not historically experienced widespread disfavor. Others say that hiring intentionally on protected characteristics can help balance the negative effects of discrimination elsewhere. I’m not getting into that fight.

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Keeping Receipts

Zachary Bartsch1 Comment

Online shopping is convenient and even the norm for many items. Going to the store sounds like a time-consuming labor or an exceptional outing. My family, for example, lives in a suburban location that doesn’t have well-priced grocery home delivery. Shipping only works for some non-perishables. So, for many items we order online and do ‘drive-up pick-up’. We don’t even need to go into the store for many items. And reordering the same items repeatedly is a breeze.

We are also accustomed to the ability to return things. If your blender breaks on your first smoothie, then no worries – you can return it. If the chocolate cookies don’t taste like chocolate? Return it – satisfaction guaranteed. You can buy three pairs of shoes in different sizes and then keep the ones you want at the original sale price. Return the others.

For me, besides the time saved and convenience, a major factor in my decision to make purchases online is the documentation. I don’t need to save the receipt in a shoe box, Ziploc, or file drawer – the online retailer keeps an archive of all my purchases. Often this includes the date, amount, and shipping details including delivery date. There’s a super convenient digital paper trail.

If I need to contact a seller in order to exercise a warranty, then I have their contact information. I don’t need to retain the product packaging or investigate the brand at a future inopportune time. For example, I recently bought a Little Tykes water table for my kids. As I was assembling it on Christmas Eve I realized that I was missing a small part. I was able to work around it. But I was also able to immediately contact the manufacturer with a copy of my invoice. I emailed the date of purchase, the product model number, and the instruction manual had conveniently included part numbers. They were able to ship me the parts after a single email. Online shopping, and the resulting trail of evidence, makes the process much more practical than keeping paper records in a likely unorganized fashion.

There are other benefits to the paper trail. Back before widespread online shopping, retailers would often offer rebates as a sales strategy. In the year 2004, I bought a computer hard drive for $120 before a $40 mail-in rebate. The retailer (or manufacturer, I can’t remember) was hoping that people saw the post-rebate price and then failed to redeem it. And that often happened.  You needed to fill out a rebate form on an index card, cut the UPC bar code of the product packaging, and then mail them with your receipt to the company rebate department in a stamped envelope. If you dragged your feet, then you’d probably lose an important piece of the crucial combination and lose out on your $40 rebate. If the items were lost in the mail, then you were shucks-out-of-luck. Now, rebates have gone the way of the dodo since receipts are automatically retained and retrievable.

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¡Hedonic Frijoles! …And Televisions!

Zachary Bartsch1 Comment

You may have seen on your social media recently that the price of TVs has fallen 98% since 2020. That’s certainly what the data from the BLS says. This would seem to imply that a one-thousand dollar TV in the year 2000 would now be priced at $20. While we have seen amazing things in the market for TVs, we’re not seeing $20 TVs.  One take away might be that the data is just wrong. But that data is always wrong. The question is how the data is wrong and whether it’s a problem.

The reason for the disagreement between the data and the price on the shelves is due to something called ‘Hedonic Adjustment’. The idea is that some goods have quality features that change over time, even if the price doesn’t change so much. In the case of TVs, we might see higher resolution, flatter screens, larger screen sizes, smart features, etc. TVs are not a stable set of qualities. They are a bundle of characteristics, and those characteristics have some wiggle room while still satisfying some sensible criteria for being a TV. In theory, every single good is a bundle of services that we value. The reason that the some CPI categories have fallen so much is not only because the price has fallen necessarily. Rather, the amount of services that we get from a TV has increased so that each dollar that we spend can purchase more of those TV features.

Continue reading for the gif.

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