Politics

95 Days of Trump Spending & Cutting

Zachary BartschLeave a comment

Generally, decisions to spend federal funds come is the authority of congress. But the Trump administration has very publicly made clear that it will try to cut the things that are within its authority (or that it thinks should be within that authority). Truly, the fiscal year with the new Republican unified government won’t begin until October of 2025. So, the last quarter is when we’ll see what the Republicans actually want – for better or for worse. In the meantime, we can look past the hyperbole and see what the accounting records say. The most recent data includes 95 days after inauguration.  First, for context, total spending is up $134 billion or 5.8% from this time last year to $2.45 trillion.

The Trump administration has been making news about their desire and success in cutting. Which programs have been cut the most? As a proportion of their budgets, below is a graph of were the five biggest cuts have happened by percent. The Cuts to the FCC and CPB reflect long partisan stances by Republicans. The cuts to the Federal Financing Bank reflect fewer loans administered by the US government and reflect the current bouts to cut spending. Cuts in the RRB- Misc refer to some types of railroad payments to employees. In the spirit of whiplash, the cuts to the US International Development Finance Corporation reverse the course set by the first Trump administration. This government corporation exists to facilitate US investment in strategically important foreign countries.

But some programs have *increased* spending since 2024. The five largest increases include the USDA, the US contributions to multilateral assistance, claims and judgments against the US, the federal railroad administration, and the international monetary fund. Funding for farmers and railroads reflect the old agricultural and new union Republican constituencies. The multilateral assistance and IMF spending reflects greater international involvement of the administration, despite its autarkic lip service.

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Anti-Tariff Declaration

James Bailey2 Comments

The Smoot-Hawley Tariff of 1930 was opposed by a thousand economists, but passed anyway, exacerbating the Great Depression. Now that the biggest tariff increase since 1930 is on the table, the economists are trying again. I hope we will find a more receptive audience this time.

The Independent Institute organized an “Anti-Tariff Declaration” last week that now has more signatures than the anti-Smoot-Hawley declaration, including many from top economists. One core argument is the sort you’d get in an intro econ class:

Overwhelming economic evidence shows that freedom to trade is associated with higher per-capita incomes, faster rates of economic growth, and enhanced economic efficiency.

But I thought the Declaration made several other good points. Intro econ textbooks say that tariffs at least benefit domestic producers (at the expense of consumers and efficiency), but in practice these tariffs have been mainly hurting domestic producers, because:

The American economy is a global economy that uses nearly two thirds of its imports as inputs for domestic production.

I get asked to sign a petition of economists like this every year or so, but this is the first one I have ever agreed to sign onto. Most petitions are on issues where there are good arguments on each side, like whether to extend a particular tax cut, or which Presidential candidate is better for the economy. But the argument against these tariffs is as solid as any real-world economic argument gets.

The full Declaration is quite short, you can read the whole thing and consider signing yourself here.

How Scott Bessent Outfoxed Peter Navarro to Get the 90 Day Tariff Pause

Scott Buchanan1 Comment

Despite the nearly universal outcry, President Trump was standing firm on his massive tariffs. “No backing down”, etc., despite the evaporation of trillions of dollars in stock values. On Tuesday, April 8, White House spokesperson Karoline Leavitt affirmed: “The President was asked and answered this yesterday. He said he’s not considering an extension or delay. I spoke to him before this briefing. That was not his mindset. He expects that these tariffs are going to go into effect.” However, the next day, Wednesday, April 9, Trump announced on his social media platform, Truth Social, that for all countries but China, there would be a 90-day pause in reciprocal tariffs.

What happened here? The common explanations are that (1) the chaos and losses in the markets had finally grown intolerable, or that (2) the president had planned all along to pause the tariff hikes on April 9. I suspect there is some merit to both of these factors – -despite all the prior warnings, I think (1) Trump did not expect such market devastation (he sincerely believes that he is making the American economy great, so why should markets crash?), and also (2) that he had indeed planned to play around with tariff implementations in pursuit of deals.

But what some analysts pointed out as a further factor was the drop in the market value of U.S. Treasury bonds, which correlates directly to a rise in interest rates. The actions of the Administration have seemingly caused market participants, especially abroad, to question the risk-free status of U.S. debt. If the government has to pay higher interest on its debt, it is game over, as interest payments will spiral up and consume an ever-higher share of the federal budget. The chart below shows in orange the price movement of the TLT fund, which holds long-term T-bonds, plummeting on April 7, 8, and 9 (red arrow), as an indicator of rising rates. TLT price then shot upwards, along with stocks (the green line is S&P 500 fund SPY) late on April 9, in the relief following the tariff announcement:

As Treasury Secretary, Scott Bessent would be particularly sensitized to the interest rate issue, and able to communicate that to the boss. He has been a successful hedge fund trader and manager, so he understands the plumbing of the system, unlike some other presidential advisors. Up till then, however, economist Peter Navarro, who is ultra-hawkish on tariffs, had had the ear of the president.

So, what did Bessent do? (This is the part that only came to my attention a few days ago, even though technically this is old news). It seems he enlisted the support of Commerce Secretary Lutnick, and adroitly chose a time when Navarro was tied up in a meeting, and barged in on the president in an unscheduled meeting so they could get him alone. And it worked! Evidently, they persuaded him that now was the time to do the clever deal-making thing and issue a pause. It’s a mark of how readily the president can change his mind that his own press spokespeople were unaware of this volte-face, and had to scramble to make sense of it. It is also interesting that cabinet members are resorting to cloak-and-dagger tactics to get policy done.

Bessent naturally gave all the credit to the president for the decision, but he and Lutnick had photos taken to show who saved the financial world – for now:

Scott Bessent (standing, left) and Howard Lutnick (right) with President Trump as he signs 90-day pause in reciprocal tariffs.  Source: Daily Mail.

The president’s recent musings about trying to fire the supposedly independent Fed chairman have since contributed to interest rates going back up again, but that is another story.

Trump’s National Sales Tax

James Bailey1 Comment

Tariffs are going up to levels last seen in the 1930 Smoot-Hawley tariffs that helped kick off the Great Depression:

Tariffs are taxes- roughly, a national sales tax with an exemption for domestically-produced goods and services. I think the words make a difference here- “raising tariffs on countries who we run a trade deficit with” just sounds abstruse to most people, while “raising taxes on goods bought from firms in net-seller countries” sounds negative, but they are the same thing.

Of course, in this case the plan is to raise taxes to at least 10% on goods from all other countries even if they aren’t net-sellers, and raise taxes up to 49% on those that are. This is not a negotiating tactic. We know this from the math- the new tax formula uses net imports from a country rather than a country’s tariff rates, so a country could cut their tariffs on US goods to zero today and it wouldn’t necessarily reduce our “reciprocal” tariffs at all; at best it would reduce them to 10%. We also know it isn’t about negotiating because the administration says it isn’t. Their goal, obviously, is to reduce trade, not to free it.

They say they are doing this to bring manufacturing back to America and to promote national defense. But American manufacturers don’t seem happy. Even before the latest huge tax increase, trade war was their biggest concern:

The National Association of Manufacturers Q1 2025 Manufacturers’ Outlook Survey reveals growing concerns over trade uncertainties and increased raw material costs. Trade uncertainties surged to the top of manufacturers’ challenges, cited by 76.2% of respondents, jumping 20 percentage points from Q4 2024 and 40 percentage points from Q3 of last year.

The National Association of Manufacturers responded to the latest tax increase with a negative statement; so even the one major group that might have benefitted from tariffs is unhappy. Foreign producers and US consumers will of course be very unhappy. I think Trump is making a huge political blunder alongside the economic one- he got elected largely because Biden allowed inflation to get noticeably high, but now Trump is about to do the same thing.

I also see this as a huge national security blunder. For tariffs on China, I at least see their argument- we should take an economic hit today in order to become less reliant on our peer-competitor and potential adversary. But the tariffs on allies make no sense- they are hitting the very countries that are most valuable as economic and/or military partners in a conflict with China, like Canada, Mexico, Japan, South Korea, Vietnam, India, and Taiwan (!!!). One of our biggest advantages vs. China has been that we have many allies and they have few, and we appear to be throwing away this advantage for nothing.

What can you or I do about this? Stock up on durable goods before the price increases hit. Picking investment winners is always hard, but things this makes me consider are gold, stocks in foreign countries that trade little with the US, and companies whose stocks took a big hit today despite not actually being importers. Finally, we can try nudging Congress to do something. The Constitution gives the power to levy taxes to the legislative branch, but in the 20th century they voted to delegate some of this power to the executive. Any time they want, Congress could repeal these tariffs and take back the power to set rates. I have some hope they actually will- just yesterday the Senate voted to repeal some tariffs on Canada, and more votes are planned. The alternative is to risk a recession and a wipeout in the midterms:

Information Regarding Russian Voting

Joy BuchananLeave a comment

Grok 3 beta (paid version) says this:

The Reality

  • Opposition: Genuine opposition is stifled. Prominent critics like Alexei Navalny (who died in prison in 2024) are barred from running, imprisoned, or sidelined. Parties like the Communist Party or LDPR exist but are often seen as “systemic opposition”—allowed to operate but not to seriously challenge the regime.
  • Media and Campaigning: State-controlled media heavily favors United Russia and Putin. Independent outlets face censorship, shutdowns, or exile (e.g., Meduza, TV Rain). Campaigning for opposition is restricted, with candidates disqualified on technicalities or facing harassment.
  • Voting Process: Reports of irregularities are common—ballot stuffing, coerced voting (especially among public sector workers), and inflated turnout figures. The Central Election Commission oversees it all, but it’s widely viewed as Kremlin-aligned. Electronic voting, introduced in recent years, has raised further transparency concerns.
  • Turnout and Results: Official turnout often hovers around 50-70%, though skepticism about these numbers persists. Putin’s 2024 victory, with 87% of the vote, came amid the Ukraine war and suppression of dissent, with no credible challengers.

Public Perception

Many Russians see elections as a formality—Putin’s approval, while fluctuating (per Levada Center polls, it dipped to 59% in 2018 but spiked to 80%+ after Crimea’s annexation), reflects a mix of genuine support, apathy, and resignation. Critics argue the system prioritizes stability over democracy; supporters say it’s what Russia needs given its history and external pressures.

Recent Example

The 2024 presidential election (March 15-17) was a case study: held over three days, including in occupied Ukrainian territories, with Navalny’s death fresh in memory. Three token candidates ran against Putin, none polling above single digits. Protests like “Noon Against Putin” (voters showing up at noon to signal dissent) were symbolic but powerless against the machine.

In short, Russian elections are predictable, heavily managed spectacles—less about choice, more about reinforcing the status quo. If you want specifics on a particular election or X posts about it, I can dig deeper. What angle are you curious about?

Click Read More to see the answer to my follow-up question “Explain coerced voting for public sector employees?”

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US Federal Government Spending Hasn’t Decreased (Yet)

Jeremy Horpedahl1 Comment

Despite DOGE and the President partially stopping some payments for some federal agencies, the changes so far aren’t visible at all in federal payments data. The Brookings Institution has put together a new tool that tracks daily spending data from the US Treasury. (My co-blogger Zach wrote about this tool last week too.) Here’s a chart from that tool showing total federal outlays by calendar year. Notice that 2025 is right on track with the past two years, or just slightly above (dollars are in nominal terms):

Of course, given the massive amount of US federal spending and the large number of agencies, we might expect it to take more than a few months to get spending under control or significantly alter its course. But this way of tracking the data is definitely picking up any changes made so far. For example, notice the flat lining of USAID funding after Trump comes into office at the end of January:

So while we don’t see any big changes yet in the aggregate spending, the few small agencies that DOGE has frozen are showing up in this data. That tells this will be a useful tool to follow going forward.

Europe Doesn’t Have to Be A Defenseless Museum

James Bailey2 Comments

America has withdrawn aid from Ukraine. Contra the Vice-President, we could easily afford to reverse this, and I hope we will. I know we could afford it because even the much poorer Europeans can, and I think they might finally be ready to try.

Until now, Europe has been fighting with both hands tied behind their back- letting their economic growth fall far behind America’s due to poor policy, and committing only a tiny share of that economy to defense. Here’s how Polish Prime Minister Donald Tusk put it:

500 million Europeans are asking 300 million Americans to defend them against 140 million Russians.

Europe may be significantly poorer than the US on a per-capita basis, but it has significantly more people, so the total size of their economy is almost as large as the US and over 4 times larger than Russia:

Source: my graph of World Bank data

But Europe has put only a small fraction of their economy toward defense for a long time. Russia alone spends more on their military than the rest of Europe combined despite their much smaller economy, by putting a much larger fraction of their GDP toward the military:

When European countries spend so little on their own defense, they have little to share with Ukraine. Many leaders complaining about the end of US support have contributed much less themselves, even as a share of their smaller economies:

Europe can be much stronger than Russia, but only if they start trying at least half as hard as Russia. Yes, Europe has poor demographics, but Russia’s are worse; Europe has many more military-age men:

Yes, Russia has nukes, but so do Britain and France, and France might actually take advantage of this.

Economically speaking, is this a good time for Europe to rearm? To me it looks fine. The best time would have been the late 2000s to early 2010s, both because it could have been in time to dissuade Russia from starting this war, and because their economic problems then were much more about a lack of aggregate demand. But right now inflation is fine at 2.4%, NGDP growth is fine at 4.3%, and 10-year bond yields the major countries are around 3-4%. Overall this looks like AD is currently about right, but markets expected that economic growth could turn negative this year, and a burst of defense spending could head that off:

This would be especially valuable if it can be paired with the supply-side reforms that European leaders know they should to do anyway, and that would allow for more growth without pushing up inflation. Europe has fallen far behind the US in productivity, to the point that it is now a bigger issue than their higher unemployment and lower hours worked in explaining why the US is much richer:

The silver lining here is that the further behind the US they fall, the faster they could potentially grow- catchup growth is easier than frontier growth, you just need to copy the technologies and implement the strategies already figured out by the frontier economies. Europe easily has the human capital to do this, they just haven’t had the will- have preferred to regulate new technologies like fracking and AI into oblivion, along with older technologies like nuclear power. They won’t drill for oil and gas themselves in the name of decarbonization but have spent hundreds of billions on Russian oil and gas just since the war began. But if they ever decided to change their policy, their economy could rapidly improve- like letting go of the rubber band you’ve been pulling back.

European leaders appear to finally be realizing this. The European Commission just proposed a 150 billion Euro joint defense fund. This week Germany proposed spending half a trillion on infrastructure and defense, sending European stocks above their previous all-time high set in the year 2000 (!).

The EU always used to be able to excuse their economic failings by saying “at least we brought peace to a continent formerly full of war.” But this is no longer the case. If they cannot settle the war on good terms, they have no excuse. The good news is that European decline has been a choice, and it is a choice they could decide to change at any moment. Victory awaits those who will it.

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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Telling Stories at the Campfire

Joy BuchananLeave a comment

This week has been busy with the enjoyable task of hosting a distinguished economist in Alabama. I can only briefly follow up on my campfire post. (Yes, this is apropos of everything.)

I do not usually use LLMs to write even part of my posts but since I am pressed for time, I will just take this as a chance to assess Claude. I pay for Claude and Grok, currently. Both of those subscriptions resulted from a particular moment when I thought I could get a particular task done with them and was in a hurry. If I could do it all over again, I would undo those subs, I think, and go more in on the OpenAI Pro products.

Prompt: Finger wagging is surprisingly ineffective; telling a compelling story is surprisingly effective. Can you expand that out into a paragraph for a blog?

Claude response: The art of persuasion often defies our intuitive assumptions. While many of us default to stern lectures and admonishing fingers when trying to change minds, research consistently shows this approach tends to backfire, causing people to become defensive and dig deeper into their existing beliefs. What proves remarkably more effective is the simple act of storytelling. When we encounter a compelling narrative, our brains react differently than they do to facts and figures alone – we become emotionally invested, our neural patterns sync with the story’s flow, and we naturally lower our defensive barriers. Stories create a shared experience that bridges ideological divides, allowing new ideas to take root not through force, but through the gentle power of narrative empathy. This explains why parables and fables have been humanity’s preferred teaching tools for millennia, while memories of being lectured rarely inspire lasting change.

Claude is always a little too verbose, in my opinion. Still, the logic and grammar are good. The machines can write.

I might write more soon about how AI’s used narrative to influence humans in the novel The Diamond Age.