WEEK 8
Wednesday, April 2
The electoral results are in. I do not think that the reduction of Republican margins in the two Florida districts means anything. But the state-wide Wisconsin result may be informative. Trump beat Harris by 0.8 percent in Wisconsin, so a 10 point margin, 55% to 45%, in favor of the Democratic candidate looks like a meaningful swing. It is not clear whether this was a reaction against Trump or only Musk. In either case, I am most curious what, if any, will be Trump's reaction. It should indicate whether he is concerned about electoral constraints.
I still do not understand why the government is dismantling the NIH and the CDC. Members of the administration do take medicines and, I suspect, they are vaccinated against most contagious diseases. The economic evidence that investing in biomedical research has high returns is overwhelming. The total NIH budget was about 47 billion, so even eliminating it completely would not make a dent in the federal deficit. Some people interpret it as a revenge for Covid but it would take suicidal blindness to react in this way. Moreover, Trump subsidized Moderna did during his first term. Why condition biomedical funds on the decision of a university with regard to its Middle East Center? It just does not make sense.
Thursday, April 3
We have been Liberated. Why imposing a 15% tariff on Papua New Guinea "liberates" the US leaves me befuddled, but semantics aside, the new tariffs look like an opening salvo for massive negotiations. I do not trust economic models that calculate their effects, in part because they are all over the place, but it is hard to believe that they would not reduce incomes. One estimate, by Niven Winchester in The Conversation of today, is that tariffs will reduce average income in the US by $1,188 if they are not reciprocated and by $3,487 if they are. According to the same model, their impact will vary greatly across countries, with some, namely the UK, benefiting from tariffs if it does not reciprocate.
There is no economic rationale for the particular numbers. They resulted from applying a simple formula: subject to a 10% minimum, divide the US trade deficit with a particular country by the value of this country's exports to the US, and you will get the tariff rate. This is the way Papua New Guinea got its 15% rate. With a few exceptions, the rate is the same whether the imports are bananas or computer chips. What are the economic consequences for the US of imposing this rate on this country no model can calculate but obviously the downstream consequences of increasing the price of imported bananas are not those of the chips. So this is just a giant plunge into the unknown.
It is also an opening salvo of a trade war. This war can develop in different ways. One extreme would be that the affected countries remain passive, absorb the economic consequences of the tariffs, and the US stops. The other extreme is that they reciprocate blindly, imposing the same tariffs on US products as the US imposed on them. Neither extreme is plausible. The affected countries will try to soften the blow but they are too smart to react mechanically. The immediate reaction of the EU appears to take things calmly: not to escalate the conflict with a blanket response but to use political leverage by precisely targeting the US imports produced in electorally marginal states and congressional districts. One can expect that Trump will double down on any retaliatory moves, some compromises will be made, and a new tariff system will stabilize. Wars always generate collateral damage, so some countries, such as Papua New Guinea, may be unable to escape the damage. It is hard to imagine how the US can negotiate on a bilateral basis with more than one hundred countries. WTO -- it still exists -- was an attempt to establish norms and procedures at the world scale but the Trump administration is averse to any multilateral frameworks and institutions. Hence, it seems that it will have to punt on a case-to-case basis.
The tariffs are also divisive internally, as is apparent from the reactions of different sectors and their lobbies. New York Times of today quotes National Retail Federation, National Association of Manufacturers, and National Restaurant Association as opposed to the tariffs and the American Iron and Steel Institute as well as Southern Shrimp Alliance as in favor of them. Even when new policies increase efficiency, there are winners and there are losers, so compensation becomes the center of the political game. But, given that there are no signs of any compensatory policies, it will be just an all-out conflict. The tariffs are a massive boost for the lobbying industry.
Finally, the political project of replacing taxes with tariffs is just not feasible. The estimates of the revenue from tariffs vary between $250 and $600 billion. The 2024 deficit was $1.83 trillion. These numbers cannot be squared.
A note on the irony of history. A French left-wing politician was reminded by a radio interviewer that this party opposed globalization in the past. Remember the massive anti-WTO protests in Seattle some years ago? Then the Republican Party was fully committed to free trade, while the Left was in favor of protection. The tables turned. But now the Left cannot invoke benefits of free trade against the tariffs. The French politician was caught disoriented, with no arguments. Is this the predicament of the Left in general?
Friday, April 4
A daily jolt, reported by nola.com: "While on his way to work on Monday, the 73-year-old grandfather was picked up by immigration enforcement agents near his Lafayette home. He sits today in an ICE processing center in Pine Prairie, a village in rural Evangeline Parish."
Harvard political scientists Ryan D. Enos and Steven Levitsky published a courageous and exceptionally well argued letter calling for Harvard to resist Trump's demands. The generic question is what will be left if universities cave in. They will not be able to decide what departments and programs to have. Their student admission policies and faculty recruitment will have to conform to "federal law and policy" (from the letter to Columbia). Their presidents will have power to suspend or expel students without any process (from the letter to Columbia). They will have no foreign students, at least not from some countries. They will have to "end ideological capture" (from the letter to Harvard). Their research will have to conform to government norms, which exclude several topics and even words. No wonder that universities are divided internally whether what would be left is worth defending. Some faculty, like the "liberal" from the Frankfurt University in 1933 whom I quoted earlier, care only whether they would be able to do their research. I am imagining writing a grant proposal, something I did several times decades ago: How can I avoid that the title and the abstract would not direct it immediately to a waste paper basket? How do I make it ideologically balanced, given that to do it I would have to cite obvious nonsense? Oops, I just said "unbiased," as in BLUE ("best unbiased linear estimator"), and this word is on the NSF prohibited list published a few weeks ago. The shadow of censorship hangs above every sentence I write: I have to be careful about what may tip "them" off, what will pass unnoticed, and what "they" make actually like. I am not saying I would not do it: one learns how to play new games and lives with it. But then I put myself in a classroom. Can I teach that tariffs cause inflation? Can I present research showing that immigration is economically beneficial? Can I say that American institutions are captured by oligarchs? What kind of students will universities that surrender generate? What kind of future researchers will they form? Are they worth preserving?
Here is something I need to admit. At the moment, some government grants are being extended on the condition that they remove plans for DEI that were required by the previous administration. Indeed, statements of DEI were required in almost all interactions with the government. DEI sensitivity training was compulsory at several universities. Democrats also had a party line. I remember Stanford threatening sanctions against a student who read a book by a book burner, Hitler. As the DEI ideology became institutionalized in bureaucratic hierarchies -- the University of Michigan had 241 DEI employees -- those newly occupying places of authority exercised it with a vengeance. Transgressions were dangerous: one could be fired as a journal editor, as a university professor, even as a radio announcer. Moreover, repression, as always, had a distributive effect. White male Ph.D.s were handicapped in finding jobs or in advancing their careers, while other people were favored. I say all this because what we are facing now is a counter-revolution, revolution against a revolution.
I do not know enough US history to figure out when and how it happened, but the politicization of universities did not begin with Trump. His administration is driven by hatred, by revenge. Its policies, its uses of language, its repressive instincts are exceptionally brutal. They weigh on everyday life, not only on universities. Politics was never absent from research and education: I remember joking some 50 years ago that one can write "class" and one can write "conflict" but one cannot write "class conflict." But I do not understand how the ideological life became so totalitarian, yes, totalitarian.
Saturday, April 5
All this is just too hard to bear and I have to pause. I will go for a walk to admire spring blossoms, watch soccer, and read a novel.
Sunday, April 6
Demonstrations took place yesterday in about 1,300 locations around the country, from all the large cities to some small towns. The slogans included a full range of demands, with the dominant theme of "Hands OFF, " listing schools, NATO, Veteran benefits, libraries, Social Security, science, civil rights, and human rights.
Academic literature on protests is huge, so I wondered if it illuminates the consequences of what happened yesterday. One lesson on which it converges is that numbers matter for the subsequent dynamic: large protests mobilize, small protests dwindle. Were the demonstrations "large"? 100,000 is the number cited by the press for New York and Washington, 8,000 for Boulder, "the largest ever" for Minneapolis, 500 in some small localities. Assuming the average size to be 1,000, about 1.5 million people participated all around the country, but if the average size was 2,000, this would mean that almost 3 million did. The organizers think it was in the range of 3 to 5 million. These are huge numbers. Given the history of midterm elections, my best guess is that about 110 million people will vote in 2026, so 3 million would be almost 3% of the electorate. The difficult question is whether they were large only in localities that vote Democratic or did they signal a warning also in some that voted predominantly Republican. This question cannot be answered without systematic data.
Most of the academic literature focuses on the effects of protests on the beliefs and on subsequent actions of the current non-participants. There seems to be a consensus that violence dissuades people from participating in the future and the demonstrations of yesterday were peaceful everywhere. Other conclusions are intuitive, perhaps with the exception of an article by Shadmehr and Bernhardt (2011) who argue that if the participants in a current protest are only people who are most militant, the effect on subsequent participation is negative. But even if the number of participants was only 1.5 million, they must have included many people with moderate views. Hence, one should expect protests to grow.
What I could not find in the academic literature is an analysis of the conditions under which democratic governments change policies in reaction to protests. Studies of the effects of protests focus on those that take place in non-democratic regimes, with the question whether they do or do not result in regime change. This is not, perhaps not yet, the context of the resistance to the Trump administration. Can Trump be made keep Hands OFF as a result of people coming to the streets? The list of subject protesters want Trump to desist from is large. For some protesters it also includes immigrants, Gaza, and Ukraine. There is a trade-off here: to mobilize large numbers, everyone who finds intolerable any aspect of Trump policy must be included; to achieve a specific policy change, protests must focus narrowly on some particular aspects. The demonstrations defending science were focused but they were miniscule; yesterday's demonstrations were large but their demands were diffuse. I know from personal experience that negotiations among different groups about which slogans should be permitted in a demonstration can be endless and sometimes fail. Yesterday's demonstrations did not have a disciplined strategy; they were opened to all. Their purpose seems to have been to signal the concern that Trump is destroying democracy and to express generalized opposition -- many slogans were directed personally at Trump and Musk -- rather than to effectuate a change of a particular policy. Perhaps the way to see them is as a signal to institutional actors -- legislative representatives and courts -- that the opposition to several aspects of Trump's policies is massive, so they must oppose them in their self-interest. They may be successful.
Finally, I wonder what Trump's reaction will be. He may just keep golfing and ignore the streets. He may organize street demonstrations in his support. He may also take repressive measures against the organizers and some of the participants. Nixon used the last two strategies with considerable success. But the Trump people do not seem to care much about public opinion. So what happens next?
Monday, April 7
Some people lost a lot of money on the stock market last week. Bank shares tumbled, technology shares (Apple, Nvidia, Tesla) plummeted, exporters to China (Boeing, Caterpillar) were hit. According to a Bloomberg poll of economists, the effect of announcing tariffs is that 93% of respondents revised downward their expectations of GDP growth, 87% revised upward their predictions of inflation, and 92% increased the odds of a recession. As I observed several times, the organs of business -- Bloomberg News, Wall Street Journal, Financial Times -- are united is their opposition to tariffs, at least as they are implemented. How can any government is a capitalist society govern without the support of business? I once asked the then President of Brazil, Fernando Henrique Cardoso, what he saw as the most important obstacles to his policies. He easily dismissed the public opinion and the Congress: his answer was "the markets." Why doesn't Trump fear the markets? My long held beliefs are again in question: I had always thought that any government in a capitalist system must anticipate the effects of its policies on the reactions of private firms; this is "Structural Dependence of the State on Capital" (an article I coauthored with the late Michael Wallerstein in 1988). Is it because Trump believes that they will come around because of his tax policies? The Senate just passed, and the bill is on its way to become law, a major tax relief for the wealthy. Still, markets tumbled and forecasts turned sharply negative. Obviously, business does not like taxes but the market reaction seems to indicate that it dislikes even more the prospect of lower pre-tax profits. All I can think is that this is not the normal life of a capitalist society. One of the slogans in Saturday's demonstrations was "Bring normality back again." Is this what business wants and what Trump upsets? How long can the chaos last? Can business adjust to uncertainty, which just exploded?
Tuesday, April 8
Back to tariffs. Economic decisions are supposed to be rational, in a well defined sense. An "agent" (this is the economics word for anyone who acts) is rational if he, she, or it chooses a course of action that maximizes her objectives given exogenous conditions and the expected actions of everyone else. Suppose that the objective of the government is to maximize "social welfare," or the rate of economic growth, or some other goal for the country as a whole, say employment. The government is then rational if it examines the expected consequences of its potential courses of action and chooses the one that maximizes this objective. Rationality requires looking forward at the consequences. Reacting to the past is not rational.
Economists have difficulties in explaining why millions of people voted for Trump if he would make them worse off economically. Reacting to inflation -- the prevalent explanation of Trump's victory -- is not rational because it is backward looking. To defend their way of thinking, economists must believe that Trump voters did believe they would be better off even if economists do not believe they will. There are some puzzles which economists can unravel only by making heroic ad hoc assumptions.
What does it mean about the tariffs? Rational tariffs would consider the effects of the totality of the new tariff system on the economy. The calculations would have to answer what is the effect of imposing a 20% tariff on cheeses, the effect of imposing 64% on chips, a 10% on copper, a 20% on pharmaceuticals, and so on, wherever these items come from. Economic consequences do not depend on whether the particular drug comes from Europe, India, or China but on the consumption of this drug in the US and the capacity of the US to produce it at a particular cost. Such a calculation would require a complex, well calibrated, general equilibrium model of the US economy. The existing models are not perfect but they are the only tool available to calculate the consequences. There is not even a hint that the Trump administration thought about the consequences.
Most likely it did not because the announced tariffs are not intended to stay but only to initiate negotiations. Now we are no longer in the realm of general equilibrium, in which one omniscient "command planner" makes decisions to maximize welfare given that no one else reacts, but in the realm of game theory, in which the US government must expect that its decisions would cause other actors to react in ways that will affect the US economy. This requires the US government to have a strategy, for example, "If the government of Costa Rica retaliates with increasing the tariff on American cars, we will double the tariff on Costa Rican bananas" or "If Costa Rican accepts the tariff on their bananas, we will call it quits." The general way of thinking in this way is to calculate that if we pursue a particular strategy and the Costa Ricans will respond with a particular strategy, we should do what is best for us given the expected response of Costa Rica. But given that Trump imposed tariffs on more than 100 countries and territories, including some uninhabited islands, the Department of Commerce would have to employ thousands of economists to play this game on a bilateral basis and they would have to coordinate their games.
No wonder then that the tariffs are an intractable mess. The economic uncertainty index skyrocketed and markets plunged. How to make economic decisions in a world in which it is impossible to calculate? The CEO's must be going nuts.
The Supreme Court just decided, by a vote of 5 to 4, to vacate the temporary restraining order issued by Judge Boasberg with regard to arresting immigrants on the basis of the Alien Enemy Act. Reading daily commentaries by Steve Vladeck, I realize how little I understand of the legal complexities. But suppose that the Court is not bound by the laws and is only pursuing a political strategy. I thought some time ago that the Court may play a strategy of invalidating minor actions of the government but yielding to it on big issues. Now I changed my mind. The strategy of the Court, or at least of its pivotal members, may be to avoid an open conflict with the administration, in particular the risk that the administration would openly disregard its decisions, by finding technicalities that can be used to validate government actions without yielding on the principles. The Court did not rule that the administration can use the 1798 law to send people to Salvadorean gulags but only that the case was not properly made, with details I do not understand.
The government is revoking visas of foreign students. According to Marco Rubio, 300 visas had been affected as of March 27, and the number is growing. It is impossible to figure out who are the targets.
384 books, including some novels, were removed from the US Naval Academy Nimitz Library. I am about to see an exhibit on "Degenerate Art" at the Picasso Museum in Paris. It reproduces to the extent possible the 1937 exhibition in Munich, which showed art that would not be tolerated under the Nazi regime.
Dr. Katrina Armstrong, the deposed President of Columbia University, was interrogated by a House committee. She did not return to her previous post as the Dean of the Medical School but took a year off. The vengeance does not stop.
Trump is putting $45 billion into building gulags. This was about the entire budget of the NIH. This world is not just uncertain; it is insane.