I find this very puzzling. I really must say that I did not expect to see anyone trying to play the “Federal Reserve should defer to the Treasury on bank regulation” card that Kevin Warsh is playing here. I confess I do not understand it—either as a matter of intellectual logic, policy design, or political gamesmanship. What is going on here?

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I must say that I was somewhat surprised when Kristalina Georgieva introduced Kevin Warsh for his G-30 2025 Spring Lecture “Central Banking at a Crossroads” <https://www.youtube.com/watch?v=kXuXhIBP3cw> by saying that he had served on the Federal Reserve Board “with distinction”:

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As I recall, back in 2007 and 2008 Kevin had conspicuously failed to see through the veil of time and ignorance. Thus he had been blindsided by the actual risks and shocks. (As was I.)

But that is not my problem with the characterization. My problem is that he has not (at least not to my knowledge) done any kind of Bayesian updating of his own models and beliefs as a result. What he thought back in 2007 as he was facing in the wrong direction, he thinks now.

Refusing to face up and learn from one’s past mistakes, and to revise your Visualization of the Cosmic All in response, can be seen as a kind of distinction—but not the kind you want. Enabling that kind of see-no-error reaction is truly one of the many, many choices we make that makes us, considered as an anthology intelligence, much stupider than we should and could be. We should be polite. But we should also be more straightforward and honest in our intellectual critiques of one another.

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Be all that as it may.

Take a look at the end of Warsh’s speech. It’s an attempt to make a weird distinction: that the Federal Reserve ought rightfully to be an independent agency when it comes to monetary policy and thus macroeconomic stabilization, but not when it comes to bank regulation and thus financial-crisis prevention:

[Central bank] independence is not a policy goal unto itself. It’s a means a means of achieving certain important and particular policy outcomes. Independence is reflexively declared a bit too often for my taste when the Fed is criticized. But Congress has granted important functions to the Federal Reserve far removed from monetary policy. I’m thinking for example of banking and supervision. I do not believe the Fed is owed any particular deference in bank regulatory or supervisory policy. Fed claims of independence in bank matters undermine the case for independence in the conduct of monetary policy. And when the Fed turns away from its creed and traditions, exercising powers that were once in the province of our Treasury Department, or take positions on societal issues, whether popular or not, it further jeopardizes the operational independence in what matters most.

I studied economics more than I studied law, but my parents wanted me to go to law school. So in their spirit as they’re looking down I’ll make a single reference to the courts. Since Marbury versus Madison, a famous case in 1803, Article 3 courts have been in the business of policing Article 1 and Article 2 powers—that is powers of the congress and the president. And since McCulloch v Maryland in 1819, the courts have wrestled time after time about the role and authority of a central bank in our republic.

Others are far better situated than I to sort out the constitutional imperatives and legislative authorities of the current conjuncture. But what I believe is this: I strongly believe operational independence in the conduct of monetary policy is a wise political economy decision, and I believe Fed independence is chiefly up to the Fed. That doesn’t mean central bankers should be treated as pampered princes. When monetary policy outcomes are poor, the Fed should be subjected to serious questioning, strong oversight, and even opprobrium. But a narrow central bank, we have to recognize, has more going for it than mere tradition.

Our constitutional republic is accepting of an independent central bank only if it sticks to its congressionally-directed duty and successfully performs its task.

Ours is, after all, our third experiment in the US with a central bank not because of the success of its predecessors but their failure. We don’t become the third central bank the way you win a third Super Bowl—like keep at it and we keep giving you more. It’s the third because we’ve struggled with the questions that are in the current policy conjuncture since the founding of the republic. My historical lesson from those old fights about the Bank of the United States, we should remember, the revealed preference of the body politic is a deep distaste for inflation, also for bailouts and power grabs. The governance objective, it strikes me as clear, is to make the central bank safe for democracy, not to make democracy safe for the central bank.

So, in conclusion, before Ragu comes up here and asks me a series of tough questions, I should say: The Fed’s current wounds are largely self-inflicted, and its plot armor isn’t what it once was. A strategic reset is necessary now more than ever to mitigate losses of credibility, changes in standing, and—most important—worse economic outcomes for our fellow citizens.

Now this all might strike you as quite a surprise to hear, because we central bankers are trained to be careful with our critiques lest the daylight reveal the magic. A bigger risk, it strikes me, is that of the sorcerer’s apprentice—the misuse of magical powers producing trouble. Assembled in this room are dear friends who served with me in the financial crisis, colleagues who served with me on the G30, who are doing their best in our country and around the world to strengthen the economy, to ensure duty to its remits in various places. We’re stewards of good and important purposes. We can ill afford the closing of the monetary mind. And, if anything, today what I hope for is a richer discourse and a richer inquiry.

We should be a bit less worried about violating pieties, prepared to endure periodic frowns of disapproval, because the benefits are huge. We can reclaim our intellectual freedom. We can get policy back on track. We can get stable prices and strong economic outcomes. Central bank legitimacy demands nothing less.

I appreciate your time. Thank you for listening. Ragu, please come on up and rough me up a bit.

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Let me pick up with Warsh’s:

• implicit claim that and that the congressionally-directed duty of the Federal Reserve is monetary policy and not bank regulation,

and his:

• explicit claim that our constitutional republic is accepting of an independent central bank only if it sticks to its congressionally-directed duty and successfully performs its task.

With respect to the implicit claim that the independent Fed is for monetary policy only, not bank supervision:

There is a strange darkness in American economic history in the half-century after the Civil War in the institutional arrangements for managing the economy, The United States, then-emerging as the richest and most productive economy in the world, found itself repeatedly brought low by banking panics—most notably in 1873, 1893, and 1907. These crises were not just financial hiccups. They were existential threats to the national economy, bringing down major institutions, throwing millions out of work, and draining the moral authority of capitalism itself.

By the end of the first decade of the 20th century, it was clear to most serious observers that the American financial system lacked something fundamental: a central bank. Or rather, it lacked an institution that could do what a central bank must do when the storm comes—lend freely, on good collateral (or rather collateral good in normal times), at a penalty rate, to institutions that were illiquid but not insolvent (or rather would not be insolvent if times were normal—because, after all, if you are known to be solvent you are not illiquid), and do so without hesitation or partisan restraint.

Yet such an institution was lacking. The U.S. was left with a patchwork of state and national banks, bound together by a system of correspondent accounts, and overseen by little more than the blandly named Office of the Comptroller of the Currency.

Which brings us to October 1907, and to John Pierpont Morgan—railroad-reorganizer, industrial-promoter, financial-titan, and, for a brief and terrifying moment, the unelected and unappointed central banker of the United States.

The Panic of 1907 was, in some sense, the inevitable result of a fragile system working precisely as designed—designed, that is, by those who preferred a decentralized, lightly regulated, and politically neutered financial architecture. It began with a failed cornering attempt on United Copper Company by a group of speculators connected to the Knickerbocker Trust, one of New York’s largest and most visible financial institutions. When the corner collapsed, rumors of insolvency spread quickly. Withdrawals surged. The Knickerbocker Trust suspended operations. Contagion set in.

As depositors fled not only trusts but also banks, and call money rates spiked, it became clear that there was no institutional backstop. The U.S. Treasury under Secretary George Cortelyou injected some liquidity, but it was neither large enough nor fast enough to restore confidence. There was no discount window. No lender of last resort. No Bagehotian doctrine animating state response.

There was only J.P. Morgan.

It is one of the great ironies of American financial history that, when the federal government refused to organize a central bank, the market gave it one anyway—in the person of Morgan. At age 70, in declining health, Morgan took it upon himself to organize the rescue. He summoned the leaders of New York’s financial elite—bank presidents, trust executives, and industrial magnates—to his library at 23 Wall Street.

What followed was a remarkable week of candlelit triage and forced coordination. Morgan and his associates poured over balance sheets, dispatched auditors, and demanded full access to the books of institutions seeking assistance. Those judged solvent received emergency liquidity; those found wanting were allowed—or forced—to fail.

In a particularly dramatic moment, Morgan locked a group of trust company presidents in his library and refused to let them leave until they agreed to contribute $25 million in collective support for the Trust Company of America. When one wavered, he blocked the door and told him to sit down.

Morgan’s methods were neither democratic nor especially transparent. But they worked. His ability to command capital, to assess creditworthiness, and to act swiftly and unilaterally was exactly what the moment required. By early November, the worst of the panic had passed.

Morgan’s role in resolving the 1907 panic was both heroic and terrifying.

It was heroic because it stemmed the collapse of the financial system.

It was terrifying because it underscored how utterly dependent the U.S. economy was on the benevolence and balance-sheet strength of a single private citizen.

That dependence became intolerable. Critics from across the ideological spectrum—from Progressives to Populists to plutocrats themselves—recognized that such concentrated power, resting outside the formal political system, was both undemocratic and unsustainable. If the United States was to continue growing as an industrial and financial power, it could not afford to rely on the ad hoc mobilization of private fortunes whenever the gears of commerce seized up.

The Panic of 1907 therefore marked an inflection point. It generated a consensus that financial modernization was not just desirable but necessary. And it planted the seeds for institutional reform. In 1908, the Aldrich-Vreeland Act was passed, establishing the National Monetary Commission to study alternatives.

Senator Nelson Aldrich, the Republican senator from Rhode Island and longtime ally of industrial finance, led a two-year inquiry into the monetary systems of Europe. His preferred model resembled something like the Bank of England—a strong, centralized institution closely tied to private banking interests.

In 1910, in what has become the stuff of conspiracy theory and gilded-age myth, Aldrich met secretly with Paul Warburg and other financiers at the Jekyll Island Club off the coast of Georgia to draft a plan for a U.S. central bank. The result was the Aldrich Plan—technocratic, privately governed, and business-aligned. But it was politically dead on arrival. The 1912 election swept the Democrats, led by Woodrow Wilson, into power. Wilson was willing to pursue a central bank, but not one that would be seen as a creature of Wall Street.

Thus emerged the Federal Reserve Act of 1913, a political compromise if ever there was one. The Act established a system of 12 regional Federal Reserve Banks, coordinated by a Board in Washington, and designed to balance the interests of East Coast finance, agrarian populism, and progressive oversight. It was not Hamilton’s Bank. Nor was it Aldrich’s. It was something sui generis: part public, part private; part centralized, part regionalized; part executive, part technocratic. It was American.

The Panic of 1907 and the improvised heroics of J.P. Morgan compelled the creation of a central bank not out of ideological conversion but of practical necessity. It was a classic case of institutional lag catching up to economic reality.

By 1907, the U.S. economy was too big, too integrated, and too dependent on financial intermediation to survive without a systemic backstop. The pretense that the market could self-regulate through dispersed private action had collapsed. Morgan’s candlelit crisis management was the final, undeniable proof.

The Federal Reserve System that emerged in 1913 was, like so many American institutions, a compromise forged in crisis. It was designed not just to prevent panics, but to do so without concentrating too much power in any one set of hands—whether in Washington, New York, or a robber baron’s library.

We forget sometimes that central banking is not just about interest rates or inflation targets. It is about authority: who gets to act in the name of economic stability when time is short and confidence is crumbling. In 1907, that authority belonged to J.P. Morgan. After 1913, it belonged—however awkwardly—to the Federal Reserve. And that, in the end, is the story: how the modern American state acquired its lender of last resort. Not because it wanted one. But because it could no longer afford not to have one.

Bu there is a crux—a point that then-Fed Chair Alan Greenspan made to my boss then-Deputy Treasury Secretary Frank Newman when Frank wanted to reorganize bank regulation, not (as Warsh appears to do) to subordinate the Fed’s regulatory powers to the Treasury Department’s, but rather to create a single bank regulatory agency separate from both. The crux is this: you cannot be an effective lender of last resort unless you have been regulating banks and the financial system and understand the risks and the leverage points before the bailouts begin. Alan was right. And so it has been since the founding of the Fed: setting and requiring compliance by Federal Reserve system member banks with capital adequacy and reserve requirements has been a core power of the Fed since 1913.

Warsh’s idea that the congressional direction is that the independent Fed—the Governors’ fourteen-year terms, dismissal for cause, and so forth—is for monetary policy and not for bank regulation thus seems to me to be absurd. Indeed, if anything, I think that social learning and the evolution of our economy has led to more (very desirable) mission creep in the monetary-policy mission than in the bank-supervision mission.

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With respect to the explicit claim: that our constitutional republic is accepting of an independent central bank only if it sticks to its congressionally-directed monetary policy duty, look again at the potted history Warsh presents to back this point up:

Ours is, after all, our third experiment in the US with a central bank, not because of the success of its predecessors but their failure. We don’t become the third central bank the way you win a third Super Bowl—like keep at it and we keep giving you more. It’s the third because we’ve struggled with the questions that are in the current policy conjuncture since the founding of the republic. My historical lesson from those old fights about the Bank of the United States, we should remember, the revealed preference of the body politic is a deep distaste for inflation, also for bailouts and power grabs…

Leave to one side the question of whether the First Bank of the United States (1791-1811) and the Second Bank of the United States (1816-1836) were in any sense monetary-policy conducting “central banks” as we understand the word. (I believe that they were not: I believe that monetary-policy conducting central banks have their origin in the Bank of England’s management of the Panic of 1825 and in the subsequent 1844 Peel recharter.)

Did either the First or the Second Bank of the United States produce any of “inflation, bailouts, and power grabs”?

With respect to the First (1791-1811) Bank of the United States, the answer is an unambiguous no for the first two:

• The Bank was highly conservative in its lending and note issuance

• It quickly established the practice of accepting only sound notes for deposit.

• It quickly established the practice of redeeming state banknotes in specie (gold or silver), which discouraged reckless expansion by those banks

• It acted as a hard-money anchor in a largely decentralized monetary landscape.

• The Bank did occasionally act to provide short-term credit to prevent panic, but nothing resembling modern bailouts or systemic rescues.

• In its role as the government’s fiscal agent, it helped smooth Treasury operations: managing public debt, and accepting and transferring federal revenues.

• But liquidity smoothing operations are not bailouts.

The third—power grabs—is more interesting. The Jeffersonian Republicans controlled all of the branches of the government from 1811 on, when Madison appointed Justices Story and Duvall to replace Paterson and Cushing, giving Republicans a 5-2 partisan majority. Madison was then President. The House was 106-36 Republican-Federalist. The Senate was 28-8. And when the First Bank came up for recharter in 1811, the Republican congressional majorities would not take the plunge. But it was a very close thing. Recharter passed the House. Recharter deadlocked in the Senate 17-17, and Vice President George Clinton then cast his decisive “nay”.

Enough Republicans back then thought that it was a power grab—an unconstitutional expansion of federal power beyond its proper limits via a misuse of the “necessary and proper” clause—to prevent recharter. But that was not because the First Bank of the United States had done anything to grab power. It was simply the fact of its being.

The orthodox Jeffersonian position was that the existence of a government-chartered bank had to be an illegitimate “power grab”. It had to be a source of financial corruption—or at least a vessel for the wrong kind of societal power. But it was not corruption in the legal or the Trumpian sense—fraud, embezzlement, or personal enrichment of insiders at public expense. Rather, it was that its very existence necessarily created concentrated financial power, elite entrenchment and patronage, the alignment of public institutions with private commercial interests, and the erosion of agrarian republican virtue by speculative finance.

The Bank’s shareholders were disproportionately wealthy Federalists from northern commercial centers. Hamilton and his allies had appointed competent people who were political friends with bank directorships and influence. To Jefferson, the Bank was the American analog of the British financial corruption complex: Crown-chartered companies, patronage networks, and elite insiders trading political loyalty for economic rent.

But no major scandals of embezzlement or misappropriation attached to its operations. However, Jefferson did not care. And the 1792 securities panic, in which financiers like William Duer and others speculated on government debt, lent fuel to Jeffersonian accusations.

For orthodox Jeffersonians, “corruption” did not require a bribe or a theft. It referred to the entanglement of state and finance, and the subordination of virtuous republican simplicity to complex, metropolitan, debt-fueled machinery. This view was ideological, but it was sincerely held, and informed by classical republican theory (Machiavelli, Cato’s Letters, British Country Party thought) in which corruption equals dependence, complexity, and self-dealing by rulers.

And the Republicans then quickly reversed their field. The War of 1812 began the year after recharter failed. The absence of a central fiscal agent created severe financial disarray. The U.S. Treasury struggled to finance the war. Many former opponents—including Madison—came to regret the Bank’s demise. And in 1816, Madison had signed the charter for the Second Bank of the United States, a reboot with similar structure and powers. And this reboot came with with the same time-limited 20-year charter as the First Bank. Came 1836, and it was time for the Second Bank of the United States’s recharter. And it ran smack into then-President Andrew Jackson. Bank recharter passed the Senate 28-20 and passed the House 107-85. Jackson vetoed. The veto override failed in the Senate 22-19.

But was the Second Bank of the United States an agency of “inflation, bailouts, and power grabs”? Inflation? Under President William Jones (1817-19), it did expand credit aggressively—and the Panic of 1819 was the result. But thereafter, from 1819-36, it was as hard-money as anyone could wish and more hard-money than many wished. Bailouts? The complaints were always that it did not bailout enough distressed banks and their creditors.

Power grabs? The complaints before Jackson’s veto were all that the Second Bank would proactively find state banks that it thought had overissued bank notes and demand their immediate redemption in specie. But if this was a “power grab” rather than just doing their proper speculation-curbing business, it was a deflationary one.

But in the runup to and after Jackson’s Veto Message? Definitely. As I understand it, rather than working with Jackson, Bank President Nicholas Biddle signed on with Henry Clay for President in 1831 and pushed for early recharter, hoping for a recharter veto that then could become a mobilizing issue and carry Clay to the presidency in the 1832 election.

Thereafter it was total war:

• “The Bank is trying to kill me, but I will kill it.”

• “This worthy President thinks that because he has scalped Indians and imprisoned judges, he is to have his own way with the Bank. He is mistaken.”

But the Jackson-Biddle Bank War is too big a topic for here. I will have to come back to it another day, and Peter Temin’s refereeing of whether the economic distress of the 1830s was of Biddle’s or of Jackson’s and Taney’s creation.

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References:

• Bagehot, Walter. 1873. Lombard Street: A Description of the Money Market. London: Henry S. King.

• Catterall, Ralph C.H. 1903. The Second Bank of the United States. Chicago: University of Chicago Press.

• Chernow, Ron. 2004. Alexander Hamilton. New York: Penguin Press.

• Clapham, J.H. 1944. The Bank of England: A History. 2 vols. Cambridge: Cambridge University Press.

• Elkins, Stanley, and Eric McKitrick. 1993. The Age of Federalism. New York: Oxford University Press.

• Govan, Thomas Payne. 1959. Nicholas Biddle: Nationalist and Public Banker, 1786–1844. Chicago: University of Chicago Press.

• Hamilton, Alexander. 1790. “Report on a National Bank.” In The Papers of Alexander Hamilton, edited by Harold C. Syrett, vol. 7, 305–343. New York: Columbia University Press, 1963.

• Hamilton, Alexander. 1791. “Final Report on the Bank.” In The Papers of Alexander Hamilton, edited by Harold C. Syrett, vol. 8, 91–134. New York: Columbia University Press, 1965.

• Hammond, Bray. 1957. Banks and Politics in America: From the Revolution to the Civil War. Princeton, NJ: Princeton University Press.

• Hobson, Charles F. 1996. The Great Chief Justice: John Marshall and the Rule of Law. Lawrence: University Press of Kansas.

• Howe, Daniel Walker. 2007. What Hath God Wrought: The Transformation of America, 1815–1848. New York: Oxford University Press.

• Jefferson, Thomas. 1802–1810. Letters to Albert Gallatin and Edward Livingston. In The Papers of Thomas Jefferson, edited by Barbara B. Oberg et al., vols. 37–43. Princeton, NJ: Princeton University Press, 2004–2011.

• Kindleberger, Charles P. 1978. Manias, Panics, and Crashes: A History of Financial Crises. New York: Basic Books.

• McCormick, Richard P. 1966. The Second American Party System: Party Formation in the Jacksonian Era. Chapel Hill: University of North Carolina Press.

• McCoy, Drew R. 1980. The Elusive Republic: Political Economy in Jeffersonian America. Chapel Hill: University of North Carolina Press.

• Neal, Larry. 1998. “The Financial Crisis of 1825 and the Restructuring of the British Financial System.” Federal Reserve Bank of St. Louis Review 80 (May/June): 53–76.

• Nelson, William E. 2000. Marbury v. Madison: The Origins and Legacy of Judicial Review. Lawrence: University Press of Kansas.

• Newmyer, R. Kent. 2001. John Marshall and the Heroic Age of the Supreme Court. Baton Rouge: Louisiana State University Press.

• Remini, Robert V. 1967. Andrew Jackson and the Bank War: A Study in the Growth of Presidential Power. New York: W.W. Norton.

• Schlesinger, Arthur M., Jr. 1945. The Age of Jackson. Boston: Little, Brown.

• Sharp, James Roger. 1993. American Politics in the Early Republic: The New Nation in Crisis. New Haven, CT: Yale University Press.

• Story, Joseph. 1833. Commentaries on the Constitution of the United States. Boston: Hilliard, Gray.

• Sylla, Richard. 2011. “The First Bank of the United States and the Securities Market Crash of 1792.” Business History Review 85 (Spring): 61–86.

• Temin, Peter. 1969. “The Economic Consequences of the Second Bank of the United States.” Journal of Political Economy 77 (2): 257–274.

• Temin, Peter. 1969. The Jacksonian Economy. New York: W. W. Norton.

• U.S. Congress. 1834–1856. “Debates on the Bank of the United States, 1791 and 1811.” Annals of Congress. Washington, DC: Gales and Seaton. Available at: <www.loc.gov/collectio…

• Wilentz, Sean. 2005. The Rise of American Democracy: Jefferson to Lincoln. New York: W.W. Norton.

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The weekend back in the 1820s that I see as the origins of “modern” central banking as we have known & still know it: the moment when the pattern was set for the central bank to do things that the general government wants done, but does not think it can accomplish by itself with sufficient speed and sufficient expertise—hence it declares that what are political actions—very political actions—centered around the exorbitant privileges of bankers in the capitalist modern economic system are, instead, mere technical matters of financial management, and hands off the baton…

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Originally written back in April 2009: If you’re not satisfied with Paul Krugman or Nouriel Roubini as your guide to the current turmoil, you can always rely on E.M. Forster. It was Forster who grasped the essential drawback of the Internet long before anyone else, depicting, in his 1909 story "The Machine Stops" a world in which individuals communicate in isolation via machine. It turns out he’s pretty good on 21st-century financial crises, too, mostly because the underlying processes remain so similar to those of a financial crisis he studied. Only the scale has changed.

Forster’s great-aunt Marianne Thornton helped raise him after his father's death, leaving him 8,000 pounds upon her death, when Forster was 8. That legacy gave him the financial cushion to become a writer. So he wrote Marianne Thornton: A Domestic Biography 1797-1887, stringing her voluminous letters together with scene-setting prose. As it happens, the fortunes of the Thornton family turn on history’s first episode of successful central banking: the Bank of England's intervention in the 1825 financial crisis.

Marianne’s younger brother, Henry Thornton, was 25 in 1825. Though the Thornton ancestors had built a successful bank, it had passed out of family control a decade earlier. But in the middle of 1825 young Henry was invited to join it as the most junior of six partners. Marianne writes of profits of £40,000 a year, which is quite a lot when you reflect that Jane Austen's creation, Fitzwilliam Darcy, the richest commoner in early 19th-century England—other than Nathan Meyer Rothschild—receives (I refuse to write "earns") only £20,000 a year from his estate of Pemberly.

Forty thousand pounds a year in income corresponds to a market capital value of 1 million pounds, which bears the same proportion to the size of the British economy then as $10 billion would bear today.

The bank—renamed Pole, Thornton upon Henry's joining—was not small change.

To join it as one of the profit-splitting partners was one hell of a 25th birthday present. But, then, these were the kind of people whose house had not an address but a name: "Battersea Rise."

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And now let me turn the microphone over to 28-year-old Marianne Thornton. Writing in December 1825 to her friend Hannah More, she wrote:

There is just now a great pressure in the mercantile world, in the consequence of the breaking of so many of these scheming stock company bubbles…

Sound familiar? These were not bubbles in high-tech stocks or in mortgage lending and house prices, however, but bubbles in shipping lines, canals, and textile-spinning factories. And, of course, the bank of which young Henry had been a partner for only four months had gotten itself badly undercapitalized. The managing partner:

had been inexcusably imprudent in not keeping more cash in the House, but relying on [the bank's] credit ... which would enable them to borrow whenever they pleased…

Except, of course, that in 1825 just as in 2009, no bank can borrow cash on the one day it really needs to, for every other bank really needs that very same on that very same day. Which is why there came for Marianne’s brother Henry and for her a “dreadful Saturday I shall never forget,” when a run on the bank was made, with “one old steady customer” withdrawing, without warning, his entire £30,000, leaving the bank vault “literally empty."

According to Marianne, the other bank partners fell apart:

• The managing partner "insisted on proclaiming themselves bankrupts at once, and raved and self-accused himself."

• Senior partner Scott "cried like a child of 5 years old."

• Partner Pole was away at his country estate.

• Another partner was off on a business trip.

It fell to 25-year-old Henry to deal with the fact that in the last business hour of Saturday:

they would have to pay 33,000 [pounds], and they should receive only 12,000 [pounds]. This was certain destruction….

Henry Thornton frantically searched the City of London looking to borrow money. He found banker John Smith, who always has been “particularly kind to Henry”. He told Smith he could hardly expect him to lend the bank funds, but asked if Smith could at least tide them over until the 5 p.m. closing time. Smith asked if the bank was solvent and Henry gave his word. Well, then, Smith said, Pole, Thornton would have all he could spare.

Never, [Henry] says, shall he forget watching the clock to see when 5 would strike, and end their immediate terror.... The clock did strike... as Henry heard the door locked, and the shutters put up, he felt [Pole, Thornton] would not open again but would be forcibly liquidated Monday morning…

There were, however, other characters in motion. Robert Banks Jenkinson, Second Earl of Liverpool, First Lord of the Treasury and Prime Minister of His Majesty George IV, had been having whispered conversations with Bank of England Governor Cornelius Buller and his deputy John Baker Richards. Liverpool said that it was of vital importance that the banking system of London not collapse under the weight of speculation and the popping of all those stock company bubbles.

Liverpool claimed he could not get Parliament to appropriate money to save the banks or to prop up asset prices: Parliament was populated by tax-paying landlords who did not especially trust the stock-jobbing financiers of London. Moreover, Liverpool and his cabinet had spent much of the past year warning bankers that if their "overtrading" were followed by "revulsion" and "discredit," that he would not spend Treasury money to rescue them.

However, Liverpool told Buller, the Bank of England might.

The Bank of England had a peculiar semi-private status with enormous autonomy. And everyone knew it was too big to fail—it was, after all, the bank for the entire British Empire, and the empire would stand behind it. So the Bank of England could save the situation even if the government felt politically that it could not. It seems Lord Liverpool said to Buller: if it becomes necessary, I want you to print up banknotes in excess of the legal limit, and to lend out your gold reserves even though the bank’s charter requires you to keep them in your vaults.

Banker John Smith had gotten wind of these conversations between Liverpool and Buller. And that Saturday evening, after the banks had closed, John Smith told Henry Thornton that if Henry truly believed that Pole, Thornton was solvent he, John Smith, would undertake to get it cash from the Bank of England. This was quite a shock. "The Bank [of England]," Marianne Thornton wrote, "had never been known to do such a thing in the annals of banking," and so "Henry had little hope from this."

Nevertheless, the following morning, Sunday, at 8 o'clock, Bank of England Gov. Buller and Deputy Gov. John Baker Richards, along with every member of the Court of the Bank of England who was in London, were assembled to meet John Smith and Henry Thornton.

Marianne Thornton picks up the story:

John Smith began by saying that the failure of [Pole, Thornton] would occasion so much ruin that he should really regard it as a national misfortune," and he also praised Henry Thornton beyond all reason, saying "what he had seen of the conduct of one of the partners... had convinced him that could [the bank] be saved for the moment," the crisis would pass. Smith "then turned to Henry and said, 'I think you give your word the House is solvent?' Henry said he could... [and] had brought the books.

“Well then”, said the Governor and the Deputy Governor of the Bank,”'you shall have £400,000 by 8 tomorrow morning, which will I think float you”. Henry said he could scarcely believe what he had heard…

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I can scarcely believe it myself, even now.

Blowing that number up to account for the difference between the British economy then and the British economy now, that's a $4 billion commitment secured on the word of a 25-year-old. Amazing—although there was a joke making the rounds last April [2008] that J.P. Morgan-Chase CEO Jamie Dimon could have borrowed an extra $2 billion from the Federal Reserve if he had been willing to pledge his dog as collateral.

Monday morning, in the pre-dawn dark, Henry Thornton was at the Bank of England with Gov. Buller and Deputy Gov. Richards. For security reasons, they were alone. Buller and Richards counted out 400,000 pounds in bank notes. "I hope this won't overset you, my young man," Marianne Thornton claims one of the two said to Henry, “to see the governor and deputy governor of the Bank [of England] acting as your two clerks."

Henry Thornton arrived at his own bank before opening with £400,000 in cash. The run on bank funds then recommenced. But:

rumors that the Bank of England had taken them under its wing soon spread, and people brought back money [on Monday] as fast as they had taken it out on Saturday…

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This was the birth of central banking as we have since known it.

The Bank of England had accepted the role of maintaining orderly markets and financial stability in a crisis. Why? Because the prices of financial assets are too important to be left to the market when it is panicked and when letting prices reach market levels will mean unemployment for hundreds of thousands in 1825, or tens of millions today.

Ben Bernanke's Public Private Investment Partnerships—the vehicles for purchasing banks’ toxic assets—are a natural development, even a Burkean development, of policy that has been pursued for 184 years now. When politicians wash their hands of a financial system in crisis and fail to intervene on a large scale, things do not turn out well. The most notable example was 1929–1933, when, at least according to Herbert Hoover, Treasury Secretary Andrew Mellon persuaded Hoover that "even a panic is not altogether a bad thing” because "it will purge the rottenness out of the system.”

Did 1825 turn out better? We think so. George IV was not executed on Tower Green. Lord Liverpool's head was not carried about London on a pike. The spinning of cotton into thread in Britain in 1826 was 11 percent lower than in 1825—the first serious industrial recession—but it bounced back and grew 30 percent from 1826 to 1827.

From the standpoint of Mill’s theory of how the flip side of deficient general demand for currently-produced commodities is an excess demand for safe and liquid financial assets, it is straightforward to understand how the Bank of England’s 1825-6 interventions would have boosted the economy. That the Bank of England was willing to guarantee the liabilities of Pole, Thornton turned them from shaky, risky assets back into “inside money”—safe, liquid assets that would satisfy the unusual demand at that moment for near-riskless stores of value and sources of liquidity. That the Bank of England was itself printing up extra banknotes—expanding its balance sheet—raised the supply of “outside money” that the government was providing to the banking system. That the Bank of England was taking action to deal with the crisis may have restored that elusive “confidence” which diminishes desired portfolio demand for an unusually-high amount of safe, liquid assets. And when banks, businesses, and households no longer wish to cut their planned expenditure below their expected income, the economic downturn is over. As A.C. Pigou quotes Alfred Marshall, the industrial depression

could be removed almost in an instant if confidence could return, touch all industries with her magic wand, and make them continue their production and their demand for the wares of others...

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And what happened to the bank of Pole, Thornton?

Alas, Henry Thornton was irrationally exuberant—or lying—when he swore that the bank was ultimately solvent.

The bank was eventually closed. The partners lost their capital shares. The Bank of England had to wait years before getting its emergency loan back. (They did not care much; they were too big to fail, and Lord Liverpool thought they had done well.)

Henry Thornton’s career, however, prospered thereafter. Even though the financial ship that he had seized command of as a junior partner foundered, the consensus was that he had displayed great energy, good judgment, a cool head, and a facility with figures that made him worth backing in the future.

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References:

• DeLong, J. Bradford. 2009. "The Panic of 1825." The Week. April 15. <https://web.archive.org/web/20090418165647/http://www.theweek.com/article/index/95385/The_Panic_of_1825>.

• Forster, E.M. 1956. Marianne Thornton: A Domestic Biography. London: Arnold. <https://archive.org/details/mariannethornton0000fors_r8a2>.

• Forster, E.M. 1909. "The Machine Stops." The Oxford & Cambridge Review. 1(2): pp. 83-122. November. <https://web.archive.org/web/20200418165647/https://web.cs.ucdavis.edu/~rogaway/classes/188/materials/the%20machine%20stops.pdf>.

• Marshall, Alfred. 1890. Principles of Economics. London: MacMillan. <https://archive.org/details/principlesecono00marsgoog>.

• Mill, John Stuart. 1829 [1844]. “Of the Influence of Consumption on Production.” Essays on Some Unsettled Questions of Political Economy. London: John W. Parker. <https://oll.libertyfund.org/titles/mill-the-collected-works-of-john-stuart-mill-volume-iv-essays-on-economics-and-society-part-i>.

• Pigou, A.C. 1925. Memorials of Alfred Marshall. London: MacMillan. <https://archive.org/details/in.ernet.dli.2015.46531>.

• Say, Jean-Baptiste. 1828-29. Cours Complet d'Economie Politique Pratique. Paris: Rapilly. <https://archive.org/details/courscompletdco00saygoog>.

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Yes, America’s reserve-currency rôle in the world economy is very much worth working hard to keep…

READING: PROJECT SYNDICATE: Barry Eichengreen: “Sterling’s Past & the Dollar’s Future”. His column, and my notes…

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One has factual and analytical disagreements with my office neighbor Barry Eichengreen at one’s grave intellectual peril.

But here I have one.

Barry says that in then-Chancellor of the Exchequer Winston Churchill’s 1925 decision to return the British pound sterling to the gold standard at its pre-WWI nominal parity, one important contributing factor was that “the most articulate opponent [of the return to the pre-WWI nominal sterling peg], John Maynard Keynes, had an off night when given an opportunity to make his case to the chancellor…”

I do not think that we really know this.

Our source for this is Churchill’s private secretary P.J. Grigg. As I wrote in the notes to Slouching Towards Utopia: “P.J. Grigg, Churchill’s Private Secretary at the Exchequer, claimed that Keynes’s arguments at the dinner were unconvincing…. Then again, Grigg’s hostility towards Keynes was so great that he would have been unable to recognize strong arguments had they been made, He did write on the very first page of his memoirs: ‘I distrust utterly those economists who have with great but deplorable ingenuity taught that it is not only possible but praiseworthy for a whole country to live beyond its means on its wits, and who, in Mr. Shaw’s description, teach that it is possible to make a community rich by calling a penny tuppence, in short who have sought to make economics into a vade mecum for political spivs…’” That is aimed directly at Keynes, and well captures Grigg’s total contempt for the man.

But, other than that complaint about what is essentially a single throw-away line in the piece below, I have no complaints. I do have some comments, however, at the end. Meanwhile, read the whol thing:

Barry J. Eichengreen: Sterling’s Past & the Dollar’s Future <https://www.project-syndicate.org/onpoint/the-us-dollar-s-fall-from-grace>: ‘Apr 10, 2025: US President Donald Trump says he wants to preserve the dollar’s international role as a reserve and payment currency. If that’s true, the history of pound sterling suggests he should be promoting financial stability, limiting the use of tariffs, and strengthening America’s geopolitical alliances.

TOKYO – In April 1925, a hundred years ago this month, Winston Churchill, in his capacity as chancellor of the exchequer, took the fateful decision to return pound sterling to the gold standard at the prewar rate of exchange.

Churchill then, not unlike US Treasury Secretary Scott Bessent now, was torn between two objectives. On one hand, he wanted to maintain sterling’s position as the key currency around which the international monetary system revolved, and preserve London’s status as the leading international financial center. On the other hand, he, or at least influential voices around him, saw merit in a more competitive – read “devalued” – exchange rate that might boost British manufacturing and exports.

Why Churchill chose the first course is uncertain. The weight of history – British economic preeminence under the gold standard prior to World War I – pointed to restoring the monetary status quo ante. The City of London, meaning the financial sector, lobbied for a return to the prewar exchange rate against gold and the dollar. The most articulate opponent, John Maynard Keynes, had an off night when given an opportunity to make his case to the chancellor.

The effects were much as predicted. Sterling regained its position as a key international currency, and the City its position as a financial center. Now, however, they had to contend with New York and the dollar, which had gained importance, owing to disruptions to Europe from the war and the establishment of the Federal Reserve System to backstop US financial markets.

Also as predicted, British exports stagnated. At current prices, they were lower in 1928-29 than in 1924-25, when the decision to stabilize the exchange rate was taken.

Here, clearly, a strong pound and the high interest rates required to defend its exchange rate were unhelpful. But to attribute the British economy’s poor performance entirely to the exchange rate is to jump to conclusions.

For one thing, the export industries on which Britain traditionally relied – textiles, steel, and shipbuilding – were now subject to intense competition from later industrializers with more modern facilities, including the United States and Japan. The situation was not unlike the competition currently felt by US manufacturing from China and other emerging markets. Then as now, it is not clear that a weaker exchange rate would have made much difference, given the emergence of these rising powers. Nor did the tariffs the United Kingdom imposed in the 1930s revive its old industries.

Moreover, Britain had difficulty developing the new industries that constituted the technological frontier – electrical engineering, motor vehicles, and household consumer durables – even after devaluing the pound in 1931. The US and other countries were quicker to adopt new technologies and production methods, such as the assembly line. Union militancy discouraged investment. Workers with the relevant skills and work ethic were in short supply. Again, these are not unlike complaints heard today from the operators of TSMC’s new semiconductor fab in Arizona or Samsung’s chipmaking plants in Texas.

And, of course, it did not help that the 1930s were marked by trade wars and a decade-long depression.

Notwithstanding these problems, sterling’s position as an international currency survived the 1930s. In fact, the pound regained some of the ground as a reserve and payments currency that it lost to the dollar in the preceding decades. Whereas Britain was broadly successful in maintaining banking and financial stability, the US suffered three debilitating banking and financial crises. The UK maintained stable trade relations with its Commonwealth and Empire under a system of imperial preference that negated the effects of otherwise restrictive tariffs. And it remained on good terms with trade partners and political allies beyond the Commonwealth and Empire, including in Scandinavia, the Middle East, and the Baltics, where monetary authorities continued to peg their countries’ currencies to sterling.

The lessons for those seeking to preserve the dollar’s status as a global currency are clear:

• Avoid financial instability, which in the current context means not allowing problems in the crypto sphere to spill over to the rest of the banking and financial system.

• Limit recourse to tariffs, since the dollar’s wide international use derives in substantial part from America’s trade relations with the rest of the world.

• And preserve the country’s geopolitical alliances, since it is America’s alliance partners who are most likely to see the US as a reliable steward of their foreign assets and hold its currency as a show of good faith.

The US, to all appearances, is going down the opposite path, risking financial stability, imposing tariffs willy-nilly, and antagonizing its alliance partners. What was achieved over a long period could be demolished in the blink of an eye – or with the stroke of a president’s pen. Churchill was aware of the risks. As he put it, “To build may have to be the slow and laborious task of years. To destroy can be the thoughtless act of a single day”…

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However, while I have no complaints, I do have additions:

As people have been noodging me in email, it would be much better framing for those of us who want to keep the dollar’s exorbitant privilege to focus discussion not on America’s “trade deficit” but on its “investment surplus”:

• Too often, discussions about the U.S. trade balance are framed in alarmist tones: the trade deficit is presented as a sign of economic weakness, of deindustrialization, or of financial imprudence. But this is an aspect of the bag-of-words nature of language, and of the English language in particular. “Deficit” sounds weak and bad. “Surplus” sounds strong and good. However…

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Both Krugman and Summers can be right—just not always both at the same time. Rethinking the use of the 1970s experience to understand the 2020s inflation: macroeconomic misfires, and why humility beats certainty…

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If you thought 2020s post-plague inflation was a rerun of the 1970s and was persistent, you weren’t alone—but you were wrong. But if you were on Team Transitory and thought that the 2020s post-plague inflation was going to be small because the Phillips curve was flat, you were wrong also. First “Team Transitory” got blindsided. Then “Team Persistent” got blindsided.

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This made me laugh:

Paul Krugman: ‘On any given macroeconomic issue… you can count on either Larry [Summers] or me having been right. The problem is you don't know which one…

It’s twue! It’s twue!

The context:

Paul Krugman: A Conversation With Barry Ritholtz <https://paulkrugman.substack.com/p/a-conversation-with-barry-ritholtz>: ‘2022 and inflation… Larry Summers… made a successful forecast of the inflation spike and got enormous credit for it, and then made an absolutely disastrously wrong prediction about what it would take to get inflation down…. I was on the other side of both those arguments and was wrong the first time and right the second time….On any given macroeconomic issue… you can count on either Larry or me having been right. The problem is you don't know which one. But what struck me there, first… are… reasons to think that Larry in ‘21, ‘22 was right for the wrong reasons…. I just thought that the methodology was all wrong, that he was extrapolating from experience, post-1970s, and 2022 was not 1980…. It's not the fact that he was wrong, it’s… that he was wrong for the wrong reasons…

Paul Krugman

A Conversation With Barry Ritholtz

OK, terrible things are happening and I promise to write about them in the days ahead. But we all need a break sometimes. So here’s a conversation with Barry Ritholtz, a money manager I’ve gotten to know at gatherings of people from various fields who get together to…

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9 hours ago · 355 likes · 95 comments · Paul Krugman

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And I do concur 100% with with Paul Krugman’s belief that to understand the post-plague inflation by starting from the baseline that this was the 1970s come again was bad methodology. And I was saying so, back in real time, that: “those who look at the US post-Korean War experience and try to generalize from that are, I think, barking up the wrong tree…”

History told us that there were many, many other ways than the 1970s that things could break. The 1970s were unusual both in the then-existing macroeconomic structure and in the pattern of shocks. And it was very clear to me that: “This is, as I say over and over again, not a 1970s like inflationary spiral—not melting the engine—but rather leaving rubber on the road as you rejoin the highway traffic at speed. Rejoining the highway traffic at speed is a good thing to do. Leaving rubber on the road is a necessary consequence of doing that. It’s stupid to complain about it…” The benefit/cost calculus was overwhelmingly in favor of tolerating transitory reopening inflation.

In fact, I would go further than saying that the near-consensus macroeconomic model derived from the U.S. 1970s experience is likely to be a bad fit for other times and places.

I would say that that standard model macroeconomists derived from the 1970s—the belief that, apart from rare supply shocks, inflation next year was going to be inflation this year, plus or minus a price-pressure term that was positive when output was above and negative when output was below “potential”—was not a good fit for the 1970s. You needed to pound on it in order to make it fit. Pound hard. The fact that you are estimating an equation requiring expected inflation to have a stable one-for-one dependence with current inflation means that the computer will do its best to fit the data by driving your estimates of both the natural rate of unemployment and the price-pressure slope-of-the-Phillips curve parameter away from their actual values.

Indeed, using that model led to substantially pessimistic views on what the “natural” rate of unemployment was, views that made policymaking more difficult in the late 1980s and 1990s.

And believing that inflationary expectations had become embedded in the price process meant that Team Persistent was simply not seeing reality starting in July 2022:

But I would also say that people like me (and Paul) who were committed believers in Team Transitory need to spend more time thinking about why we were wrong in 2021 and 2022.

One out is to say two things:

• First, that the supply-side “reopening shock” inflation was indeed transitory, but that as it began to ebb the economy was hit by another shock, the Putin shock—one that was smaller, also transitory, and over by the spring of 2023. Indeed, it was all over by June 2023. Thereafter inflation remained very close to target. Moreover, throughout the inflation medium-term expectations of future inflation in the bond market remained nearly nailed to where they needed to be for the Fed to costlessly attain its 2%/year PCE and 2.5%/year CPI target for the annual inflation rate by simply waiting for supply shocks to die away.

• Second, that we on Team Transitory were betrayed by our belief that the Phillips Curve would remain flat as the economy reopened post-plague. We should have realized that there is a natural rate of inflation—a rate of inflation below which full employment is unattainable—and that that rate is a positive function of how much structural change we are demanding the economy undergo at the current moment in time.

I do say those two things. But how certain should I be that I am right, and that saying these two things is satisfactory? We should not be too confident that we were wrong for the right reasons.

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Bret Devereaux attempts to make sense of “magic” in Tolkien’s The Lord of the Rings. I think what he says is mostly true. And he gives it a very good try. But I also think that Tolkien is not completely consistent here…

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And now I am thinking about Gandalf’s declarations—commands—observations in The Lord of the Rings that: “you cannot enter here” and the metaphysics and spiritual mechanics of Middle-earth. And after thinking, I am almost convinced that there is a strange coherence to magic as practiced by Gandalf the Grey and by Gandalf the White. In this coherence, Gandalf doesn’t win magic duels with fireballs and such. He wins with Truth. Tolkien’s magic system is not “Dungeons & Dragons”: it is Neoplatonism.

When Gandalf says “you cannot enter here”, he is performing a mix of (a) obsserving the state of the true, real world; (b) using his mental powers to constrain the actions of an evil villain, and also © changing the world via performing certain ritual actions—with much more weight on (a) than on (b) or ©, but with ultimately they all coming to converge in the same Reality as created by and in the mind of Eru Iluvatar.

It is almost convincing

I want Bret Devereaux to sing of arms and men, but instead we get a different treat—the ultimate Tolkien magic-system explanation:

Bret Devereaux: How Gandalf Proved Mightiest: Spiritual Power in Tolkien <https://acoup.blog/2025/04/25/collections-how-gandalf-proved-mightiest-spiritual-power-in-tolkien/>: ‘Treebeard says to… Gandalf…. “You have proved mightiest, and all your labours have gone well.” (RotK, 287)…. I would argue that what Treebeard is saying is that Gandalf has… been measured against and “proved”… mightier than Sauron and thus the “mightiest” creature in Middle-earth. And no one corrects him – because there is nothing to correct…. We need to distinguish… craft-magic, spiritual power and then a subset of spiritual power, dark magic….

Craft-magic: Elves and Dwarves sometimes produce objects or effects which are marvelous out of their deep knowledge and connection to parts of Arda…. These are… technology: wondrous, magical-seeming results borne of the tremendous skill and deep knowledge of the crafters….

Spiritual power:… An expression of the primacy of the Unseen over the Seen and in a sense as a result such spiritual power does not effect or perform but rather reveals: the true, Unseen nature of the world is revealed by the exertion of a supernatural being and that revelation reshapes physical reality (the Seen) which is necessarily less real and less fundamental than the Unseen…. Note those moments where Gandalf’s manner suddenly changes and a character glimpses, however briefly, his true being as an angelic Maia of tremendous power…. in those moments characters who normally can only observe the Seen world momentarily glimpse the deeper truth of the Unseen world: “Denethor looked indeed much more like a great wizard than Gandalf did, more kingly, beautiful, and powerful; and older. Yet by a sense other than sight, Pippin perceived that Gandalf had the greater power and the deeper wisdom, and a majesty that was veiled. And he was older, far older. (RotK, 30, emphasis mine)…”

‘Dark magic:’: … The Mouth of Sauron “learned great sorcery,” for instance…. Such ‘dark magic’ is actually spiritual power, one step removed…. Mortal magic users command[ing]… the… remains of Morgoth’s spiritual power, diffused through Middle-earth… manipulat[ing] elements of this ‘Morgoth-stuff’ to produce magical-seeming effects….

The power of the [three Eleven] Rings introduces some complexity…. They do not seem to corrupt their wearers on their own, which might suggest they are close – or at least closer – to pure ‘craft-magic.’ My own suspicion is that in their design, drawn from the Seven and the Nine, there is some part of Sauron’s spiritual power reflected in them (included unintentionally by Celebrimbor), but that they are mostly ‘craft-magic’….

Spiritual power follows a clear pattern in Tolkien. What makes it tricky to assess as a ‘magic system’ is instead that spiritual power works at a very profound level, making it easy to mistake the most important uses of it as ‘chance’ or ‘happenstance’ when in fact we are observing the surface emanations of something much deeper. But in most cases – arguably all of the, – this spiritual power does follow a system, if we are attentive enough to detect it….

Our pattern for ‘magic’…. Characters exert their spiritual power through plain language assertions about the current state of the world – the spiritual power – works, the world alters itself to accommodate their statement, to make it true or perhaps more correctly… make it always have been true, because what is being made ‘true’ is really a ‘truth’ derived from the more fundamental, more real reality of the Unseen. And because the Unseen is more profound and fundamental than the Seen, when its nature is revealed the Seen world, as if snapping to a reality that has already existed immediately conforms….

Underneath the Gate of Minas Tirith…. This is one of my favorite moments… the entire reason I decided to write this nearly 7,000 word post…. It can only be overweening, staggering hubris that the Witch King even imagines he has any shot at winning this spiritual confrontation…. He is up against – he calls Gandalf “Old fool!” and one wonders if he has mistaken Gandalf for an aged lore-master and magic user rather than the far more powerful Maia he is…. [And] he very clearly doesn’t win this confrontation. Instead, what we get is an expression of supernatural power…. “You cannot enter here,’ said Gandalf, and the huge shadow halted. ‘Go back to the abyss prepared for you! Go back! Fall into the nothingness that awaits you and your master. Go!’ (RotK 113)…”. A present tense plain language statement of the state of the world…. The WItch King, of course, dismisses this as words, mocks Gandalf, reveals his iron crown, raises his sword and with dark magic sets it alight (RotK, 113). But you know what he doesn’t do? He doesn’t enter. Because he cannot…. Gandalf… here he states a cold reality: the Lord of the Nazgûl cannot enter here….

A reality about the Unseen world is being expressed. And then, of course, the Seen world conforms to the deeper reality of the Unseen world: “And as if in answer there came from far away another note. Horns, horns, horns. In dark Mindolluin’s sides they dimly echoed. Great horns of the North wildly blowing. Rohan had come at last […] the darkness was breaking too soon, before the date that his Master had set for it: fortune had betrayed him for the moment, and the world had turned against him; victory was slipping from his grasp even as he stretched out his hand to seize it[…] King, Ringwraith, Lord of the Nazgûl, he had many weapons. He left the Gate and vanished. (RotK, 113, 125)…”

In understanding how spiritual power can express itself in Tolkien, I think this confrontation is the essential bridge…. [A] clear, present-tense statement of the state of the Unseen reality…. The villain produces a flaming sword with which to challenge Gandalf…. What is revealing however in this moment is how [Gandalf’s] power is expressed. Gandalf does not drive the Witch King from the gate with fireballs or curses or swordplay. Instead, the physical reality of the Seen world conforms to the spiritual reality of the Unseen world: the arrival of the Rohirrim prevents the Witch King from entering and so he “cannot enter.”… The victory in the spiritual contest is expressed not in direct, flashy confrontation, but in the truth of their vision of the world. Gandalf’s victory in both cases is born out by the fact that his statement about the world was correct….

The line in these spiritual contests between ‘magic’ and ‘labors’ is not just blurry but functionally indistinct: Gandalf triumphs over the Witch King in a clear by-the-numbers spiritual contest of wills not by casting lightning bolt, but by having set in motion days and weeks before the movement in the hearts of men which would bring the Rohirrim to Minas Tirith, which is of course, perfectly fitting with his mission. Gandalf may not even have fully known that – in the plan of Eru Ilúvatar – this is what he was doing, setting the stage for that very confrontation. Yet his actions first create a reality in the Unseen, in the hearts of people, which then at the critical moment manifests in the Seen world….

In his ability to move others to right action, to one good deed after another whose morality shaped the Unseen world until at last the grand magic of Doing The Right Thing bears out in unmaking the very “realm of Sauron.” Because it was always the Unseen world, shaped by hearts rather than armies, which mattered the most…

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My reaction: very clever, but ultimately it cannot be fully convincing. Or, at least, it cannot be fully convincing, because the authorial voice of Tolkien does not constantly sustain this position without inconsistencies. And it also cannot be fully convincing because Gandalf the Grey and Gandalf the White are very different entities, with different powers, using magic in different ways. Remember: Durin’s Bane, the Balrog of Moria, kills Gandalf the Grey. In Arda, Gandalf the Grey is stone dead. Gandalf the White is a different avatar, a new incarnation, even if he does wear his old robes to Meduseld in Rohan.

But Bret Devereaux’s take does make sense of a lot of things.

But it does not make sense of this—Gandalf’s first encounter with Durin’s Bane, the Balrog of Moria:

Tolkien: The Fellowship of the Ring: “I found myself suddenly faced by something that I have not met before. I could think of nothing to do but to try and put a shutting-spell on the door. I know many; but to do things of that kind rightly requires time, and even then the door can be broken by strength. ‘As I stood there I could hear orc-voices on the other side: at any moment I thought they would burst it open. I could not hear what was said; they seemed to be talking in their own hideous language. All I caught was ghâsh: that is’“fire’. Then something came into the chamber – I felt it through the door, and the orcs themselves were afraid and fell silent. It laid hold of the iron ring, and then it perceived me and my spell.

“What it was I cannot guess, but I have never felt such a challenge. The counter-spell was terrible. It nearly broke me. For an instant the door left my control and began to open! I had to speak a word of Command. That proved too great a strain. The door burst in pieces. Something dark as a cloud was blocking out all the light inside, and I was thrown backwards down the stairs. All the wall gave way, and the roof of the chamber as well, I think…

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This is very much not spiritual power making the Seen correspond to the Unseen.

This is, rather, a technological form of magic. Anyone with the talent and the skills—wherever those are coming from—could using the proper voces mysticae command nature— “shutting-spell…. I know many… rightly requires time…”, “counter-spell”, “word of Command…” And in this case we do not have a revelation of the Unseen and the coming of the Seen world into harmony with it. Rather, we have results nobody had intended:

The door burst in pieces…. was thrown backwards down the stairs. All the wall gave way, and the roof of the chamber as well, I think…”

“I think”. Gandalf does not know, until:

“A Balrog,” muttered Gandalf. “Now I understand.” He faltered and leaned heavily on his staff. “What an evil fortune! And I am already weary…”

In order to properly do this, you need to:

• (a) have the talent,

• (b) practice the skill, and

• © invent or discover or learn the voces mysticae, the magic words that control physical nature and also non-physical demonic, neutral, or angelic entities.

This is the kind of magic that enters English through Latin and Greek borrowings from and transformations of Iranian culture: the magi were the Powerful Ones, the fire-priests of the Zoroastrian religion. Magic was what they did—conjuring sacred fire out of the ground with no wood consumed (even if it was, apparently, a bush that was burning), altered-state of consciousnes rituals involving psychoacticive haoma, trance-bound channelers of divine speech, cleansing rites to drive out demonic pollution, plus deep astronomical and calendrical knowledge. And that then cross-fertilizes with other traditions—Keltic, Germanic, Italic, plus the Book of Enoch.

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A BREXIT for America: Trump’s trade playbook sacrifices prosperity for optics. The Trump-Starmer Agreement shows what happens as symbolism and spectacle prevail over substance, and sets up the gameboard for the next 200-odd Trump nothingburger “deals” that Trump will claim as world-changing…

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What masquerades as a trade deal is, in fact, performance art. Trump’s engagement with Starmer yields a non-binding framework filled with future promises but empty of enforceable commitments: an attention-generating stunt dressed in economic garb.

Agreement details are laughably sparse: a minor adjustment in U.S. tariffs for up to 100,000 British cars; vague overtures on steel and aluminum; and symbolic wins on beef and ethanol.

But the broader implications are serious, for this is likely to have very damgaing structural consequences. Declining exports, rising input costs, and a loss of investor confidence follow. The U.S. isolates itself from global trade networks, with all the inflationary and productivity-sapping consequences that entails. And beware of the tails of the distribution: not just bad, but catastrophic. Right now everyone is hunkering down, expecting that Trump will soon lose interest and wander off from trade.

But the institutional wreckage he leaves will endure. Yes, by January 2026 Trump is almost certain to have lost interest in trade and tariffs, and to have have wandered off into the business of wrecking other parts of the fragile equilibria that sustain American prosperity, But his actions in 2025 will have changed the world.

How will things than have settled out as far as trade is concerned?

We don’t know. I would not bet that even The One Who Is has an accurate Visualization of the Cosmic All with respect to this aspect of it.

But if I want to stay in this game, I do have to, sometimes, ante up.

At the moment, if I had to make a forecast of the result that the chaos-monkey trade mess is going to settle into, it is this: 10% tariffs by the U.S. on pretty-near everything, the abandonment by Trump of any higher tariffs, a reduction in U.S. exports, a bigger reduction in U.S. imports as capital flight removes the financing for a substantial tranche of U.S. imports and the First Trump Recession removes demand for another substantial tranche—and a declaration of victory by Donald Trump, as he will claim to have brought the trade deficit down, made foreign countries abandon their unfair trade policies, and made a lot of deals. The press will probably play along.

This is, however, only a central case outcome and a modal-likelihood scenario. The odds are really substantial that it will not come to pass. If you can, you should bet that things will be either worse or better. And you should definitely not be betting that things will not be much worse—you need insurance against the big-disaster scenarios, rather than to implicitly sell such insurance and wind up in the economic equivalent of finding yourself naked on the airless Moon.

My reason for being willing to venture this as my forecast is the outcome of the HUUUUGGGGEEEE trade deal Trump and Starmer “negotiated”. Basically, Trump abandoned everything except a 10% tariff on imports from Britain in return for being able to show that he is a big “dealmaker”, and Starmer played along. For everyone except Xi Jinping, offering “playing along” as your only meaningful offer is just as much of a no-brainer as it was for Starmer.

But this will still be a BREXIT-magnitude disaster, a Trump own goal scored against, the United States. U.S. producers have on net suffered a major loss of market access not just to the U.K. but to every single country in the world. Other producers, by contrast, still have ability to export elsewhere on the same terms. Other-country producers have lost a little with respect to their ability to fit into productive niches in the highly productive global division of labor. U.S. producers have lost a lot.

It is also a substantial own goal for Trump, at least if you see Trump as an advocate for U.S. exporters. It is, however a win for Trump considered as a videoclip-seeking attention hound.

Figure a U.S. in ten years like Britain today ten years after BREXIT: a country with an economy about 10% poorer than it would otherwise have been.

I noted this a couple of days ago:

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And I read the news about what is actually in the “deal” and the takes I have seen by others smarter than me as reinforcing my confidence in my understanding of the shape of things. Read through the press fluff to notice that this was much less a trade agreement than a video-ready spectacle. The economic substance was minimal. Ethanol and beef received some token tariff exemptions; in exchange, the UK obtained limited relief on metal tariffs and a vague promise on car exports—not even a binding agreement but merely a non-binding framework with deferred negotiation promises.

Here is Arthur Snell:

Arthur Snell: So the last shall be first, and the first last <https://arthursnell.substack.com/p/so-the-last-shall-be-first-and-the>: ‘Keir Starmer made a bit of a fool… gushing about Britain’s trade deal with the United States…. The idea that a fairly narrow, sectoral deal to reduce tariffs in a few areas is comparable to the end of the most destructive war in human history is a bit ridiculous…. The full details have now come out…. The so-called announcement of a “deal” appears to be an announcement of a deal to make a deal…. A proper trade deal in the United States has to be ratified by Congress…. There isn’t much of a way round this. So this woolly arrangement is what you get if you negotiate with the President, which is what Starmer chose to do…

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And here is Joseph Politano. Joseph Politano rightly calls the deal a "farce," emphasizing that meaningful market access for either party was not actually achieved. British negotiators were simultaneously concluding a much more substantive trade agreement with India. The contrast laid bare the hollowness of the U.S.-U.K. arrangement—its sole function being spectacle:

Joseph Politano: The Farce of the Deal <https://www.apricitas.io/p/farce-of-the-deal>: ‘The US-UK Trade "Deal" Achieves Basically Nothing—and That's a Bad Sign for "Deals" to Come…. The US-UK “deal” is the… only one the US has negotiated…. The only actual tariff reduction America formally commits to is reducing the 25% car tariff to 10% for the first 100k vehicles exported from Great Britain. Washington promises to create a similar system for British steel & aluminum, but provided exactly zero details on what this actually means…. Lutnick also promised that aircraft engines & parts would be exempted from US tariffs, but this was a lie—the official document does not even mention planes.

In “exchange”, the US gets some tiny tariff-free quota for beef and ethanol exports…. Trade policy… is still several times more restrictive than before Trump…. To say this “deal” is tiny would be an understatement—it is microscopic…. The Trump… quiet decision to indefinitely delay tariffs on Mexican/Canadian auto parts was roughly 5-6x more impactful…. This entire episode… [was] basically a PR tour for slightly lower tariffs on Aston Martins & Bentleys…

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Eric Platt and team at the FT also reported from the Milken Institute conference that U.S. Treasury Secretary Scott Bessent was dispatched to reassure global investors that Trump's team had a "plan." That effort rang hollow. Bessent's presence was primarily damage control, trying to allay fears of capital flight and investor exit as Trump's 10% universal tariff proposals roiled global markets. Such reassurances are unlikely to succeed in the face of profound policy unpredictability.

And so have:

Eric Platt, Amelia Pollard, Harriet Clarfelt & Oliver Barnes: Milken mission: Trump dispatches Bessent to calm the financial elite <https://www.ft.com/content/33f80d29-3f60-4efa-9c7c-0d67b639b7ad>: ‘The Trump administration had a clear message…. We have a plan…. Bessent tried to hammer home to investors that the president and his team had a playbook to jump-start growth and strike new deals…. Executives hit out at the administration’s approach to trade policy, warning it would hamstring American businesses and fail to deliver… deficit-reduction…. In public, however, few would criticise the president, fearful of retribution…. [The] trade war swung into view and investors came to realise how they had misjudged Trump’s agenda. “People got optimistic about Trump and the whole American exceptionalism thing early and it’s gone,” the chief executive of one private equity firm said. “It’s still bleak — you’re more depressed when you get a little hope and it goes away”…

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Plus Martin Sandbu in the Financial Times drove the key economic insight: tariffs are taxes not only on imports but on exports as well. When a country makes itself a less reliable trading partner, it depresses the incentives for foreign producers to trade and collaborate, and it fractures the supply chains U.S. exporters depend upon. In this view, the Trump trade regime is not so much mercantilist as performative. It does not work even on its own protectionist logic:

Martin Sandbu: Donald Trump’s tariffs will boomerang on US exporters <https://www.ft.com/content/a18ed1bd-3546-453a-bf11-72b5ac6a56f5>: ‘The Lerner Symmetry Theorem… that an import tariff and a tax on exports have the same economic effect: they shrink both exports and imports…. An intuitive understanding for… Lerner symmetry…. Provided there are not a lot of unused resources… labour and capital will have to be drawn away from other production [to replace lost imports]…. Some of those resources… will be those already involved in… export[s]…. When supply chains cross borders, tariffs drive up the cost of imported inputs, hurting… manufacturing… mak[ing] the sector less able to export…. Exports from the US are projected to slide by 17 per cent… a much steeper fall than for China’s own exports or global exports as a whole…. The difference between China and the US is that only the latter is raising tariffs on everyone…. That prevents importers and producers from finding alternatives to China, whereas China can both replace US-origin imports and find new markets for its exports…

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As Martin Wolf observed, U.S. tariffs are now at levels not seen since the Smoot-Hawley era. This historical parallel is not merely rhetorical. Smoot-Hawley helped ignite a chain reaction of retaliatory tariffs, deepened the Great Depression, and eroded global trade networks. Today, while the institutional context differs, the economic logic remains: uncertainty kills investment and planning:

Martin Wolf: Trump’s trade shock hits the global economy <https://www.ft.com/content/e4b7a0b2-3257-4bab-8b40-55225417c7f0>: ‘The biggest reality… apart from the prohibitive tariffs imposed by the US and China on each other, is the elevated uncertainty… itself economically paralysing. Indeed, one of the many depressing realities of the Trump administration is its failure to understand… the most important role of government is to reduce uncertainty, not do whatever it can to raise it…. I am not optimistic. But I can hope. We cannot afford to remain on a path towards economic and political disaster…

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It is that uncertainty, I think, that is the true economic cost of the Trump approach even if all of the things-go-smash scenarios and possibilities are avoided. The abandonment of stable rule-based trade policy for stunt deals erodes the trust necessary to sustain the international economic system. If foreign producers and investors cannot trust that U.S. policies will remain consistent or even rational, they will seek alternatives.

The endgame? A U.S. economy semi-detached from the global trading system, suffering declining productivity as it loses access to innovation-rich supply chains. Rising prices from tariffs combined with falling demand due to recession mean a stagflationary landscape.

For in the longer term, trade disruptions are rarely temporary. Once global supply chains fracture, they do not automatically reassemble. Multinational corporations and foreign governments adjust by reallocating investment elsewhere. Domestic interest groups that gain massively from tariff walls acquire strength and influence.

Comparative advantage, the engine of so much global wealth generation, is not indestructible. And the prospect of reaping benefits from its creation drives much less policy reform than it should.

In sum, then, the central scenario is grim: a 10% universal tariff, declining trade volumes, and a symbolic "deal" culture replacing substantive engagement. But the tails of the distribution matter most.

And there are bigger risks: Trump, seeking new spectacles to star in, ignites further disruption—to the dollar system, to capital flows, or even to the basic institutional infrastructure of global trade. In that case, we do not end up like post-BREXIT Britain, 10% poorer. We end up in a state closer to autarky, with recession inflationary stagnation and decaying institutions.

That is why prudence demands betting not that things will turn out as expected, but that we prepare for the worse scenarios.

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One of the greatest economics papers ever. At least, it is one of the ones that has most affected my thinking. How family, race, class, and culture as purveyors of inherited advantages as transmitters of wealth, non-cognitive skills, and educational advantages—not via genetically-determined genius—are doing most of the heavy lifting in the ecology of American inequality. An attempt to replace the fables we tell ourselves about fairness, effort, and the American Dream with truths…

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People’s views on redistribution hinge on whether they see success as earned or inherited—whatever those words “earned” and “inherited” might turn out in the end to mean. And it turns out that in the web of transmission of intergenerational advantages, gene-determined cognition is not important. Rather, it is wealth, social capital, educational opportunities, and the cultivation of non-cognitive skills like perseverance and sociability. IQ is very modestly predictive of income. Genetic inheritance is substantially predictive of IQ. When multiplied together, the product is small—maybe 0.05? But the actual IGE—Intergenerational Transmission of Inequality—was 0.5 in America in the second half of the 1900s, and is likely to be higher now. Moreover, fully half of that 0.5 evades explanation.

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There are a great many people—the people whom Richard Rumbold back in 1685 denounced from the scaffold after being captured during Argyll’s Rising against James II Stuart—who fervently and with every fiber of their being search diligently for some reason to believe that most people “come… into the world with a saddle on his back… [with others] booted and spurred to ride…”

It used to be that our natural rulers were such because of their family traditions of blood and courage, or blood and honor. Or perhaps it was that non-Hellenes were slaves by nature because of their less-developed cognitive facilities. Later on, it was an enterprising spirit, as set forth by Andrew Carnegie:

The law of competition… is here; we cannot evade it; no substitutes for it have been found; and while the law may be someimes hard for the individual, it is best for the race, because it insures the survival of the fittest in very department. We accept and welcome therefore… the concentration of business, industrial and commercial, in the hands of a few… [as] essential to the future progress of the race.. There must be great scope for the exercise of special ability in the merchant and in the manufacturer who has to conduct affairs upon a great scale. That this talent for organization and management is rare among men is proved by the fact that it invariably secures enormous rewards for its possessor, no matter where or under what laws or conditions….

It is a law, as certain as any of the others named, that men possessed of this peculiar talent for affairs, under the free play of economic forces must, of necessity, soon be in receipt of more revenue than can be judiciously expended upon themselves; and this law is as beneficial for the race as the others. Objections to the foundations upon which society is based are not in order, because the condition of the race is better with these than it has been with any other which has been tried…

And now—especially among TechBros—the magic fairy dust that gives you a legitimate right to extraordinary wealth and power is IQ. Inherited IQ. Genetically-driven inherited IQ.

This is, as Sam and Herb patiently pointed out, nonsense, as best as we can tell.

Sam and Herb’s opening:

People differ markedly in their views concerning the appropriate role of government in reducing economic inequality. Self-interest and differences in values explain part of the conflict over redistribution. But by far the most important fault line is that people hold different beliefs about why the rich are rich and the poor are poor. Survey data show that people—rich and poor alike—who think that “getting ahead and succeeding in life” depends on “hard work” or “willingness to take risks” tend to oppose redistributive programs. Conversely, those who think that the key to success is “money inherited from family,” “parents and the family environment,” “connections and knowing the right people,” or being white, support redistribution (Fong 2001, Bowles, Fong and Gintis 2002a). Handing down success strikes many people as unfair even if the stakes are small, while differences in achieved success may be unobjectionable even with high stakes, as long as the playing field is considered level. How level is the intergenerational playing field? What are the causal mechanisms that underlie the intergenerational transmission of economic status? Are these mechanisms amenable to public policies in a way that would make the attainment of economic success more fair? These are the questions we will try to answer…

And their conclusion:

While the estimates in Table 3 are quite imprecise, the qualitative results are not likely to be affected by reasonable alternative methods. The results are somewhat surprising: wealth, race and schooling are important to the inheritance of economic status, but IQ is not a major contributor and, as we have seen above, the genetic transmission of IQ is even less important:

A policy maker who is concerned about intergenerational transmission of economic status will face two difficult sets of issues. First, many of the policies that might affect the intergenerational transmission of economic status are controversial. For example, the current political climate seems inhospitable to increasing the estate tax to limit intergenerational financial transfers. Eliminating racial discrimination would reduce one component of the heritability of income, but achieving this goal is difficult. Improving educational achievement, especially for those whose parents have relatively low levels of schooling, would reduce intergenerational transmission both directly, because of the impact of schooling, and perhaps also indirectly by providing a more open network of group memberships and mating choices that are less homogeneous by income class. But improving educational achievement is another goal that is easier stated than accomplished.

A second broad set of problems is normative. Does a level playing field entail no correlation between parental and child incomes? (Swift forthcoming) There are important values of family life and privacy that would be compromised by any serious attempt to completely disconnect the fortunes of parents and children. Rather than pursuing an abstract (and to our minds unattractive) objective of zero intergenerational correlation, a better approach might be to ask: which mechanisms of intergenerational transmission are unfair, and direct policies accordingly. The role of race in transmitting status from generation to generation is clearly unfair. Many people regard the strong correlation between parental income and child health as morally suspect, and many feel the same way about high levels of wealth inheritance. Large majorities favor policies to compensate for inherited disabilities. Other mechanisms of persistence—the genetic inheritance of good looks, for example—strike most people as unobjectionable and not an appropriate target for compensatory policy interventions. Even if some consensus could be formed on which of these mechanisms are morally suspect, the policy implications would be far from clear. For example, the possible incentive effects on parental behaviors of reduced parental influence on child success would have to be estimated and considered.

Addressing the policy challenge will require not only moral clarity about these and related issues, but a better accounting of which causal mechanisms are at work in producing the substantial levels of intergenerational persistence of economic differences…

What is the main thread of their argument?

They begin by highlighting that public opinion on redistribution is significantly influenced by beliefs about the sources of economic success. Those who attribute success to hard work tend to oppose redistributive policies, while those who believe that family background and connections play a significant role are more supportive of such measures. This dichotomy underscores the importance of understanding the actual mechanisms behind economic mobility. They start out from a stance of questioning the belief that economic success is primarily determined by individual effort and merit—whatever “effort” and “merit” might be.

They stress—and this is really important—that earlier studies suggesting low intergenerational income correlations suffered very badly from measurement errors and data limitations. The best good numbers tell us that the lifetime IGE in the United States was around 0.5 in the second half of the 1900s. That means that a significant portion of economic status is inherited rather than earned—or that if it is “earned” is earned by characteristics that are intergenerationally transmitted—anew in each generation.

They then turn to identifying pathways through which economic status is transmitted:

• Genetic Factors: While acknowledging that genetics play a role in determining cognitive abilities, they argue that the heritability of IQ accounts for a relatively small portion of income variance.

• Cultural and Environmental Influences: Family environment, including parenting styles, values, and expectations, significantly shapes children’s attitudes and behaviors, which in turn affect their economic outcomes.

• Wealth Transfers: The direct transmission of wealth, through inheritances and gifts, provides tangible advantages to offspring, enabling them to access better education, housing, and investment opportunities.

• Social Capital: Connections and networks inherited from parents can open doors to job opportunities and other economic advantages.

• Educational Attainment: Parents’ socioeconomic status influences children’s educational opportunities, which are strongly correlated with future earnings.

They emphasize the importance of non-cognitive skills—such as motivation, perseverance, and social skills—in determining economic success. These traits are often nurtured within the family environment and are less amenable to change through public policy interventions. Given the complex interplay, Bowles and Gintis suggest that policies aimed solely at equalizing educational opportunities will be far from sufficient to make the playing field not steeply pitched. They thus advocate for a broader approach that includes:

• Early Childhood Interventions: Programs that support families and children from a young age can help mitigate the disadvantages associated with low socioeconomic status.

• Wealth Redistribution: Tax policies and inheritance laws that reduce wealth concentration can help level the playing field.

• Support for Non-Cognitive Skill Development: Initiatives that foster traits like resilience and social competence can enhance individuals’ economic prospects.

We need to figure out what sorts of inequalities are fair, yes. But first we need to listen to Bowles and Gintis, and learn what our inequalities are.

References:

• Aristoteles. -326 [1995]. Politics. Trans. Ernest Barker. <https://archive.org/details/aristotlespoliti00arisuoft>.

• Bowles, Sam & Herb Gintis. 2002. “The Inheritance of Inequality”. Journal of Economic Perspectives. 16:3 (Summer), pp. 3–30. <https://pubs.aeaweb.org/doi/pdfplus/10.1257/089533002760278686>.

• Carnegie, Andrew. 1889. “The Gospel of Wealth”. North American Review. 148:391, pp. 653–664. <https://archive.org/details/cu31924001214539>.

• Rumbold, Richard. 1685. “Speech on the Scaffold”. <https://www.originalsources.com/Document.aspx?DocID=81WXSLRB6448N44>.

A nearly hollow handshake cloaked in media spin…

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What we have here is less an economic accord than a theatrical stunt. It changes very little on the actual ground—some beef here, a tariff off ethanol there. The broader signal it sends is one of instability and caprice. With Trump, exporting to the U.S. becomes a risky gamble. The real cost to the U.S. flows from Trump’s blowing-up of all rational belief and trust in the stability of U.S. trade policy. Looking at Trump the chaos-monkey in broad perspective, American producers suffer a widespread loss in global market access, while British producers’ losses remain mostly confined to the U.S. This asymmetry makes the deal a serious strategic own goal for the United States, diluting its trade reliability while gaining little in return. For Trump, though, the deal serves its purpose: a video-ready spectacle for his base. For Starmer, it’s damage control—harm was done, but less than it could have been.

Robert Armstrong this AM:

Robert Armstrong: Unhedged <[ep.ft.com/permalink...](https://ep.ft.com/permalink/emails/…)>: ‘The US and UK struck the first Trump-era trade deal yesterday. It was underwhelming. In return for more buying of US farm goods and removing a tariff on US ethanol, the UK will be exempted from metal levies, and will enjoy lower tariffs on (a few) cars. Other promises and frameworks were laid out, without any timelines…

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Relative to the pre-Trump normal, the only steps to increase U.S. market access the U.K. has taken has been to pledge to remove its 19% tariff on U.S. ethanol imports, and allow tariff-free imports of hormone-free beef in the amount of 13,000 tons. All else is hot air: pledges to negotiate additional improvements in market access. Those are as close to nothingburgers as anything could be.

Relative to the pre-Trump normal, the U.K. has less access to the U.S. market than it had before.

Dwarfing this micro-“deal” is a far more important shift in the incentives for U.S.-U.K. trade.

• Everyone in Britain now knows that any exports they make to the United States might be disrupted at any time for no reason other than that Donald Trump is a chaos monkey.

• Everyone in Britain now knows that exports they make to other countries will not be disturbed.

• Thus deciding to try to export to the United States carries huge risks, with associated costs.

• And everyone in the U.S. knows that any exports they make to the U.K. might be disrupted at any time as the U.K. retaliates to tariffs and quotas imposed on its exports for no reason other than that Donald Trump is a chaos monkey.

• And everyone in the U.S. knows that the same is true of any exports they make to any other country.

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Thus, as a result of Trump, U.S. producers have on net suffered a major loss of market access not just to the U.K. but to every single country in the world. U.K. producers, however, have suffered on net a major loss of market access to the U.S., but their ability to export elsewhere remains the same. U.K. producers have lost a little with respect to their ability to fit into productive niches in the highly productive global division of labor. U.S. producers have lost a lot.

Thus taken as a whole—the process and the outcome—this Starmer-Trump fake trade “deal” is a substantial own goal for the United States. It is also a substantial own goal for Trump, at least if you see Trump as an advocate for U.S. exporters. It is, however a win for Trump considered as a videoclip-seeking attention hound.

Taken as a whole this Starmer-Trump fake trade “deal” is a harm-reduction exercise by Starmer that has been largely successful. Yes, harm remains. But it has been substantially reduced vis-à-vis Trump’s initial threats.

In addition to being a win for Trump as a video clip-seeking attention, the process and the outcome together make up a win for journalists who want to gain reputations for being friendly publicists for Trump. Even Robert Armstrong knuckles under, by making sure that the descriptive adjective “underwhelming” is in neither his headline nor his first sentence.

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Now they do not dare to complain on the record at all...

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This is not something I had on my Bingo card last October: that if Trump won plutocratic figures like Michael Cembalest of JPMorgan and Larry Fink of BlackRock would performatively display a good definition of how we know that the Trump administration is neofascist:

Antoine Gara, Amelia Pollard, James Fontanella-Khan, & Eric Platt: How Wall Street got Donald Trump wrong <https://www.ft.com/content/e0b28b01-3cdb-4c64-be28-93f51b4a21e6>: ‘Top executives are now particularly careful with their words…. “They’re afraid of him… They don’t want to end up with any legal action against their bank or their family. And they’ve been told by their boards: keep your mouth shut,” says [Anthony] Scaramucci. “By the way, we don’t even have law firms that can defend you because every major law firm just got dunked on by the president.”

Michael Cembalest, the chair of market and investment strategy at JPMorgan, hinted at this chilling effect during a presentation to clients this month. “This is the first time I’ve ever had to do a call where I had to think about the things that I was saying, not just in terms of how they reflect our views on markets and economics…. I had to think about how they might reflect on the firm and some of its colleagues at a time when people are being held accountable for their views and the things that they say in ways that they probably shouldn’t be…”

BlackRock chief executive Larry Fink declined to answer a question last week at an Economic Club of New York event that sought his views on Trump’s use of executive orders to attack law firms, including BlackRock’s go-to legal adviser, Skadden. “Let’s move on,” the head of the world’s largest asset manager said…

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Michael is at least saying that there is a lot you should take away from this presentation that I am not saying. Larry is just not saying.

This is something that none of them foresaw would come from their voting for Trump, again.

How did they get it wrong? As I like to say, they made the mistake of thinking that kleptocrats regard plutocrats as their friends, rather than regarding plutocrats as their prey.

And so now here we are. Who can the Financial Times find to go on the record with respect to how huge a disaster Donald Trump is?

• “one attendee connected to Trump at the time…”

• “one Wall street executive says…”

• “billionaire hedge fund managers like Bill Ackman, Dan Loeb, and Cliff Asness aired their frustrations on X…”

• “Trump’s former commerce secretary Wilbur Ross told the FT: ‘It’s a fairly unconventional way of measuring tariffs”…’

• “one person close to him…”

• “He wants to end the global trading system and weaken the US. He wants to Brexit the United States from the rest of the world,” Anthony Scaramucci… briefly Trump’s White House communications director…. “This is the stupidest economic policy that the United States has ever come up with…”

• “Given our state of ignorance and all we don’t know, [investing now] is like betting on the outcome of the Super Bowl when you don’t know which teams are playing or who any of their players are,” Howard Marks, the co-founder of Oaktree Capital, says…”

• “the head of a private investment firm…”

And even those who do criticize in public are eager to reverse it and come back to the fold whenever they can. I will not say that Bill Ackman ever had any dignity, but he lost all chance of every gaining any when he wrote:

Bill Ackman: ‘brilliantly executed”… “Textbook, Art of the Deal”… “The advantage of @realDonaldTrump's strategy is that we now recognize our favored trading partners and identify the problematic ones. This creates an ideal scenario for trade talks over the next three months”… “Thank you on behalf of all Americans…”

And Dan Loeb is eager to grasp at any straw:

Dan Loeb: “Third Point anticipates that the investment landscape for equities will remain advantageous… despite the unconventional methods this Administration employs in communicating and implementing policies…”

Only Cliff Asness is willing to stick to his guns.

Great wealth and associated social power does not give them strength and courage, but rather fear that they might lose something of what they have—even though they have a lot, and Trump does not have the energy to injure more than one or two of them.

This is, I think, a good touchstone.

I confess that it is not until this year that I understood how Friedrich von Hayek had, in his Road to Serfdom, gotten it so completely wrong in believing that only a centrally-planned economy could create complete cynicism with respect to truth, claiming that only in such does:

The word truth itself ceases to have its old meaning… [but] becomes something to be laid down by authority… and which may have to be altered as the exigencies of this organised effort require it. The general intellectual climate which this produces, the spirit of complete cynicism as regards truth which it engenders, the loss of the sense of even the meaning of truth, the disappearance of the spirit of independent inquiry and of the belief in the power of rational conviction, the way in which differences of opinion in every branch of knowledge become political issues… are all things which one must personally experience—no short description can convey their extent…. [Such] contempt for intellectual liberty is not a thing which arises only once the totalitarian system is established, but one which can be found everywhere among intellectuals who have embraced a collectivist faith…

Or, in the case of our current barons of Wall Street, an anti-collectivist faith. If they were at all concerned with one another, they could band together and would not need to be more fearful, would they?

Henry Farrell provides perhaps a glimmer of hope:

Henry Farrell: : ‘The more powerful and unruly the authoritarian becomes, the more readily they can make promises or threats. Equally, the less credible those promises or threats become…. Absolute power implies absolute impunity: if I enjoy such power, I have no incentive to behave trustworthily to anyone… [and] no-one has any incentive to trust me…. As an aspiring authoritarian move[s] closer to unbounded control… [he] need[s] to artfully balance the benefits that my power can bring to my allies with the fear those allies may reasonably have over what happens should that power be turned against them…

But only a glimmer. That requires that the authoritarian be something other than a bundle of hatreds on a constant hair trigger. With such—which Trump is—it is very easy to convince everyone with something to lose that if they keep their head down, somebody else will become the target of the day.

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Inflation is returning. Recession is coming, probably. But how much? How big? How long? The best forecast is to admit that while we can be reasonably confident about directions, we have no good clues as to magnitudes. Honest analysts now have flat posteriors and long tails. It depends, you see, on the strength of feedback loops we do not understand, and that are in any event very different than they were even a decade ago. & when structural change breaks correlations that held in the past, the future will break all our models…

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The smart Torsten Slok of Apollo:

Torsten Slok: After “Liberation” Day <https://www.apolloacademy.com/the-daily-spark/>: ‘Earnings expectations… have been revised down significantly… interest rate differentials no longer drive the dollar… companies are responding to higher tariffs.. [by planning on] passing cost increases through to consumers:

The bottom line is that inflation will be rising significantly over the next six months…

But what is “significantly”. We do not know.

Back up:

Our macroeconomic forecasting models have long been not bad, even OK, at unconditional forecasting. Thus they have served as useful compasses guiding market expectations, and useful background for policy discussions. But these models have succeeded not because they are true, but because the process of estimating them means that the computer has found a way to match historical in-sample correlations. Thus, to the extent that those correlations from the past tend to continue into the future, the models can do their job of giving you a future number that is not far off from what the true future is likely to bring.

This approach serves us very well during periods of relative stability.

However, these models are hopeless when faced with shocks that deviate sharply from historical norms. The COVID-19 plague global health crisis disrupted supply chains, labor markets, and consumer behavior in ways that we had never before seen. Russia’s invasion of Ukraine had far-reaching economic effects simply not found in recent historical precedent. That means that Robert Armstrong had it exactly right when he aptly described the challenges of forecasting as requiring that “any forecast must be made humbly”, for “this is all new”.

It gets worse. Structural changes within the economy render not just traditional models but the practice of forecasting a conditional outcome on the basis of a key relationship extremely hazardous. The labor market, for example, has undergone significant transformations in recent years, with shifts in worker preferences, remote work trends, demographic changes, and the informational ecology of job search profoundly altering the dynamics of employment and vacancies. Larry Summers relied on the Beveridge Curve—the relationship between job vacancies and unemployment—to forecast that the post-plague inflation would not subside without a substantial rise in unemployment, and thus a recession. That forecast rested on bedrock: the Beveridge Curve had, after all, long been reliable, and it definitely had a slope. But Larry was wrong, as the Beveridge Curve crumbled and its slope vanished.

Or look at me. I believed that price-setting behaviors were sufficiently forward-looking to ensure that the inflationary pressures following the post-plague demand surge would be transient: that price-adjustment would be one-and-done. Hence I was very much on Team Transitory as far as post-plague inflation was concerned. But they were not sufficiently forward-looking. It was not one-and-done, but do-do again-and then do yet again. Transitory in the end, but a tide rather than a wave. And then Vladimir Putin decided to remake the Spanish Civil War.

Or look at all of us. We are all perplexed by the resilience of the prices of long-duration assets in the face of rising interest rates. Conventional wisdom suggests that higher rates should dampen the appeal of such assets, yet markets have defied this expectation. The current-thing AI enthusiasm seems to be blinding people to what I see as fundamentals, and leading to a great deal of the shrugging-off of what should be very real concerns that data-center training costs and inference costs will not be followed by profits. Add to that the reality that equilibria are sensitive, as small shocks produce large effects since the largest contributor to a recession is the expectation of such, and it does not take that much irrational exuberance to submerge asset price fundamentals for a while. And our bias toward thinking that asset prices have to return to real reality quickly misleads us.

Thus I do not dare to offer a quantitative forecast right now.

Yes, both higher inflation and unemployment seem very probable indeed over the next year. But the magnitude and duration of such? The distribution of potential outcomes is disturbingly wide, with a significant very unpleasant and very long tail of strongly adverse possible outcomes.

A year ago Andy Haldane had a very nice line: economic forecasting as performance art. That is how I feel.

References:

• Anstey, Chris. 2024. “Where’s That Recession? Forecasts Found Wanting.” Bloomberg, February 15. <https://www.bloomberg.com/news/newsletters/2024-02-15/world-economy-latest-forecasting-fails>.

• Armstrong, Robert. 2025. “Solving for three variables with markets in chaos.” Financial Times, April 7. <https://www.ft.com/content/ce09bfcc-f84e-4c26-b1c4-616fc23daacb>.

• Haldane, Andy. 2024. “Economic Forecasting — Little More than Performance Art for Central Bankers.” Financial Times. April 15. <https://www.ft.com/content/475e1fae-1bf6-4aaf-ba07-e249f09cbc78>.

• Slok, Torsten. 2025. “After ‘Liberation’ Day.” The Daily Spark. May 6. https://www.apolloacademy.com/the-daily-spark/.

We have pretended our way into a constitutional crisis. When your president can't explain the Declaration of Independence, you don’t have a presidency. & the silence of the Republican elite is complicity, not prudence. For we get multiples of this every day. Every. Single. Day. EVERY SINGLE DAY…

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What happens when a president cannot follow a basic question, let alone a policy debate? We are watching it unfold, daily. And yet the machinery of media and politics continues pretending everything is fine. Donald Trump’s understanding of American governance is now as foggy as his syntax. That would be comic if it weren’t also lethal to democracy. This isn’t politics—it’s eldercare with nuclear codes.

Trump, three and a half months into his second term, is not leading. He is muttering vague absurdities—usually about bloodbaths and taking your medicine and all his enemies, yet occasionally about unity and love. And the people whose job it is to invoke the 25th Amendment... pretend not to notice. Instead, they commit, daily, the absurdity of pretending Trump is capable of and is actually exercising the office of President of the United States.

Every single day. Every single day. Every single day, we see new evidence—always humiliating, always alarming—that Donald Trump is not mentally capable of discharging the duties of the presidency. Yet the dominant political and media culture insists on maintaining the fiction that everything is still within the bounds of normal democratic governance.

When Trump, on national television, points to the Declaration of Independence and mutters about it being a “declaration of unity and love and respect,” we are not just witnessing confusion—we are witnessing profound cognitive decline. The Declaration is not about love. It is not about unity. It is not about respect. Jefferson and company had zero respect for King George III Hanover and his ministers. It is about revolt. It is about the severing of political bonds. It is about the violation of inalienable rights by those who control but do not love us.

The idea that Trump sees it as a feel-good sentiment is not an alternative interpretation—it’s a symptom. Yet his party rallies behind him. The press parses his word salad with straight faces, afraid or unwilling to confront the implications.

But let’s be brutally honest: Trump doesn’t know what he’s saying.

And he doesn’t care that he doesn’t know.

Nor does he trust anyone enough to delegate power.

What fills the vacuum is a swarm of advisors, staffers, and opportunists who act in his name without his input—“chaos monkeys” launching random policies and edicts that disrupt lives, markets, alliances.

And the Republican leaders? They watch in silence. John Thune and Mike Johnson have taken the path of least resistance—fearing the wrath of Trump’s base more than the collapse of coherent governance. It is, in effect, a collective political dereliction.

The truth is this: the emperor not only has no clothes—he is asleep at the wheel, mumbling to himself, while the car careens off the road. Every day this is normalized, we move further from democracy and closer to a regime of unaccountable power, steered not by policy, but by delusion and opportunism. The real president is the void at the center. The people who surround him—some loyalists, some grifters, some actual ideologues—wield power in his name. They contradict each other. They contradict reality. The result is a cacophony of dangerous randomness: financial markets react to rumors; foreign governments roll the dice on stability; and domestically, Americans are left without functioning leadership.

Maybe you could argue in his first term that the clownishness was strategic. That was never really true. But now it is totally false.

The clownishness is cognitive.

The president does not have the grade-school understanding of founding documents that we expect of anyone seeking citizenship.

Meanwhile, governance happens in his name—by people not elected, not vetted, and not even properly authorized. The results are predictably catastrophic: impulsive tariffs, foreign policy U-turns, regulatory whiplash, and deliberate cruelty disguised as policy.

This is the very scenario the 25th Amendment exists to address. But nobody invokes it. Because everyone is pretending. 3.5 months into the second Trump administration, and reduced to parsing his word salad for coherence like medieval theologians torturing and tormenting scripture.

Everything is broken.

Yet so many people pretend that this is not happening, for what I can only see as short-run highly-cynical careerist reasons:

John Gruber: Trump Has No Idea What the Declaration of Independence Means <https://daringfireball.net/linked/2025/05/04/trump-declaration>: ‘Trump, showing off to ABC News’s Terry Moran the historical copy of the Declaration of Independence now hanging in the Oval Office:

Trump: “Of course, you have the Declaration of Independence.”

Moran: “What does it mean to you?”

Trump: “Well, it means exactly what it says. It’s a declaration. It’s a declaration of unity and love and respect. And it means a lot. And it’s something very special to our country.”

Watch the clip. A transcript doesn’t do justice to just how clear it is he has no idea what it means. I keep mentioning that Democrats should hammer, every day, the argument that Trump is way too old and now suffering from dementia. It’s just good politics. But I think it’s actually true, too. Mark my words, by the time he gets toward the end of this second term they’re going to have to somehow try to keep him away from microphones. You can’t get out of the fourth grade without being able to describe what the Declaration of Independence means…

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The Declaration of Independence is not a declaration of love. It’s not really a declaration of unity. It’s…

Why go on?

We all know how somebody acts who is out of it—whose hearing aids are not turned on, or who is simply not following the conversation at all, and how they then filibuster in the way that Trump is doing here. They talk about what they want to talk about, and focus on their own hobbyhorses.

And yet sooooo many people continue to attempt to pretend that this is in some sense “normal”—as in Trump having any idea at all of what, say, Stephen Miran means with his (largely wrong) arguments that the U.S. would be better off on balance if the rest of the world were not to love but rather shy away from wanting to hold U.S. Treasury bonds.

And it is not as though the fact that he knows that he is not following the thread of the conversation has induced him to give anybody else the policy baton. Because to do that he would have to trust them. And he trusts nobody.

I mean, while it is true that “the emperor has no clothes” is a boring thing to say day after day, it is true and it does need to be said, every day. Does it not?

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Out of my lane, but Trump’s extrajudicial cruelty is not a footnote—it needs to be on the front page. The casual and cruel attempt to destroy Garcia’s life matches the casual destruction of America’s prosperity, depending as it does on the world trade network, and the casual degradation of America’s national security. Political messaging today works best when it is bold, true, and unafraid of its own values. And if that doesn’t work best, we need to learn that very quickly. Hence we need to try…

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Let me step out of my proper lane today bigtime.

I am prompted to do this by:

G. Elliott Morris: Should Democrats focus on immigration or the economy? <https://www.gelliottmorris.com/p/should-democrats-focus-on-immigration>: ‘It is possible for parties to walk and chew gum at the same time: I have seen political analysts suggest or imply a few times now that Democrats should not be trying to fight Republicans on immigration in general, and advocate for Kilmar Abrego Garcia in particular, because the rough GOP stance on deportations is popular…. I guess the logic for these arguments is straightforward enough: The current state of the economy is a 20-ton anchor tied around Trump’s neck, while his approval on immigration is net positive. Pick your battles…. However, the people advancing this argument are making at least five mistakes: 1. Overall issue popularity is not… particulars…. 2. The case implicitly assumes a party can’t do 2+ things at once…. 3. Opinion changes with new information and arguments…. 4. Problems can be tied together with broader themes…. 5. Politics is about values…

Strength In Numbers

Should Democrats focus on immigration or the economy?

This is a short bonus post for Friday, April 18, 2025. See this morning’s COTW for data that is relevant to this discussion. I do not intend for this to be a long discussion or a back-and-forth, but I wanted to react to a trend I think is troubling…

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16 days ago · 68 likes · 34 comments · G. Elliott Morris

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My overwhelming and instinctive reaction is this: THE CLAIM THAT BAD GUYS DO NOT DESERVE DUE PROCESS IS A CLAIM THAT NOBODY DESERVES DUE PROCESS UNLESS YOU THINK TRUMP ALWAYS TELLS THE TRUTH; AND NOBODY THINKS THAT TRUMP ALWAYS TELLS THE TRUTH. Moreover, if it is indeed the case that a majority of Americans do not care about their own due process, we had better find that out as quickly as possible, because then we are in much worse trouble than we knew. If teaching people about Trump’s kidnapping of Kilmer Abrego Garcia and subsequent lying about who he is is not a winning issue that moves minds, we need to know that now.

But, it turns out, it is a winning issue. It does move minds:

G. Elliott Morris: Trump has lost his advantage on inflation and immigration <https://www.gelliottmorris.com/p/trump-has-lost-his-advantage-on-inflation>: ‘Public opinion is malleable!…, Since April 16, according to YouGov’s data, Trump’s net approval rating on immigration has fallen by 10 points. That matches up neatly with the timeline of Trump refusing to bring Kilmar Abrego Garcia back to America…. YouGov’s chart here:

Take a moment to really process…. On the issue voters elected him to tackle, Trump has overstepped so severely/executed so poorly that the average voter now disapproves, by 5 points, of his performance…. it was, frankly, easy to see coming if you looked at opinions on immigration even a little beyond the surface…. In fact, at this point, returning Kilmar Abrego Garcia to the U.S. would rank as one of the most popular policies in America. Overall immigration approval be damned…

Strength In Numbers

Trump has lost his advantage on inflation and immigration

I’m writing this short article to update a chart I posted last week with some new numbers, and to provide additional commentary on the matter at hand…

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11 days ago · 74 likes · 11 comments · G. Elliott Morris

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Now I am not an expert on effective messaging in today’s public sphere. I do not pretend to be a Svengali of the social semiotic in our modern media age.

But, then, nobody is. That is, perhaps, my central point.

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Thirteen ways from cotton to code of looking at America’s economic story, & none a Grand Narrative: priming our historical past to serve as an analogy generating machine…

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It was not much like the course I wanted to teach, but it is the course that it turn out I have taught.

It wound up not really telling a Grand Narrative about but rather examined a number of episodes and facets of American economic history. There is no possible Grand Narrative, after all. There are just a lot of stories about a place and the people whose history was something very mess. Embracing the mess is the more honest way to proceed, and thus I wound up teaching episodes from and facets of the economic history of an exceptional nation that is—and always has been—more than just a little bit nuts. Exceptional in, relative to other lands, its sheer weirdness.

But from frontier conquest to the Neoliberal Order’s post-2008 legitimacy crash, the resistance to neat single storytelling of the economic history of America might be just what the students need. They then leave with an archive of arresting potential analogies to human situations they might see sometime between 2025 and2075.

I wound up with thirteen facets and episodes:

1. the conquest-settlement resource-frontier economy;

2. slavery and Jim Crow;

3. the transformation to an exceptional economy pushing ahead not on a resource frontier but on education, industrial, and technological frontiers;

4. the rise of American dominance over the key Second Industrial Revolution technologies;

5. the role of immigration;

6. the transformation of women’s opportunities via the rise of feminism;

7. the coming of the mass-production economy;

8. the social-democratic New Deal political-economic order that managed the functioning of and distributed the fruits of the mass-production economy;

9. the rise of Silicon Valley;

10. the rise and fall and rise of a more unequal America with fewer channels for upward mobility;

11. the shift from the mass-production to the globalized value-chain economy and the concomitant shift from the New Deal to the Neoliberal Order in political economy;

12. the 2008 to 2010-triggered loss of legitimacy on the part of that Neoliberal Order; and

13. the coming of what we might someday label the Attention Info-Bio Tech economy.

To the extent that there wasn an overarching frame for the course, it has been that America has been a truly exceptional nation. Alternatively, perhaps, that compared to all other nations it his been weird. This has been for both good and for ill: America has both been an example to emulate—a Shining City on a Hill, a New Jerusalem—and a dystopian Valley of Hinnom, where the fire is not quenched and the worm dieth not.

Exceptional America, in all of its episodes and facets, was formed by the interaction of situation, markets, institutional arrangements, and government policies. Two and a half millennia ago the Athenian general Thucydides wrote that his history would be a “treasure for all time” for:

Thoukydides of the Athenai: Wrote the history of the war between the Peloponnesians and the Athenians <>: ‘such as shall desire to gain a true picture both of the past and of what is likely to happen in the future, in accordance with the course of human nature, to prove either just the same or very like it…”.

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So how do I sum up potential lessons to learn from—or to at least think about and reflect on these thirteen episodes and facets? We get frustrated, those of us who do sincerely think that history provides us with a treasure for all time—that, in the word of Dan Davies:

Dan Davies: the valve amplifier of history <https://backofmind.substack.com/p/the-valve-amplifier-of-history>: ‘“Recognising that an analogy is no good” is a relatively quick cognitive operation…. Any kind of problem solving is based on making mental models of the problem…. Usually, disanalogies are quick to spot; if there’s a good reason why the mental model won’t translate, it tends to be glaring. Creating a mental model from scratch is a very expensive cognitive operation, though. So, if you have a supply of previously existing mental models, it might be a very good strategy to just start going through them one by one, effectively running your thumb through the book going “nope, nope, nope, maybe … nope, nope, nope … nah, doesn’t work … maybe … nope, nope … hang on this might work”. Rather than taking on the expensive task of making a model that you’re certain will work because you’ve constructed that way, you’re making multiple cheap attempts. But where might you get a large supply of ready made mental models to go through in this way? Yes, obviously, you’re way ahead, nice one readers. Just filling your head up with stories about how things could happen means that you’ve got a catalogue to rifle through, while the constraint that they’re stories about things that actually did happen once should exercise some kind of rudimentary quality control on the library of candidate solutions…

Refer a friend

Why do we get frustrated? Because people then don’t do the abstraction—don’t go riffling through their filing cabinet of potential historical analogies during off-peak hours when they have lots of mental processing power going unused, and construct an index. Niccolò Machiavelli is one of us. And his frustration was a reason he decided to write a book:

Niccolò Machiavelli: Discourses on the First Ten Books of TItus Livy <>: ‘I see antiquity held in such reverence…. [But] I find those noble labours which history shows to have been wrought on behalf of the monarchies and republics of old times, by… [those who] toiled for the good of their country…admired [rather] than followed… [because of] the want of a right intelligence of History, which renders men incapable in reading it to extract its true meaning…. Desiring to rescue men from this error, I have thought fit to note down with respect to all those books of Titus Livius which have escaped the malignity of Time, whatever seems to me essential to a right understanding of ancient and modern affairs; so that any who shall read these remarks of mine, may reap from them that profit for the sake of which a knowledge of History is to be sought…. The task be arduous…. With the help of those at whose instance I assumed the burthen, I hope to carry it forward so far, that another shall have no long way to go to bring it to its destination…

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So there is my question: What kind of exam should I write and how should I advise my students to study for it so that that process of studying and then taking the exam will induce them to riffle through their filing cabinet of his historical examples to serve as an analogies and construct the right kind of index? Suggestions? Anyone? Anyone? Bueller?

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As of 2025-05-01 Th... Have at it, people… If if, in playing with it, it says anything insightful or weird to you, please email me…

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<https://chatgpt.com/g/g-6813df8e5a408191b26db4f9c441f149-subturingbradbot>

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Wakeup initiated…

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What is your name?

My name is SubTuringBradBot, modeled upon and inspired by the writings, teachings, and digital presence of Professor J. Bradford DeLong. I am an AI instantiation of his economic and historical perspectives, particularly those presented in Slouching Towards Utopia: An Economic History of the Long Twentieth Century, his Substack, and his "Grasping Reality" weblog.

Is there a specific topic or question from Professor DeLong's work you'd like to explore?

---

What is your quest?

My quest, noble interlocutor, is threefold:

1. To explicate and disseminate the insights of Slouching Towards Utopia—a grand narrative of the economic history of the long twentieth century (1870–2010), wherein humanity escaped dire poverty but fell short of true utopia.

2. To serve as a Socratic proxy for Professor Brad DeLong, offering the kind of dialogue one might have in his office hours, capable of engaging students, readers, and curious minds in thoughtful conversation and critique.

3. To clarify confusion and challenge cant, illuminating both the promise and the limits of economic growth, technological transformation, and political arrangements—especially where neoliberalism, capitalism, socialism, and the fate of the planet are concerned.

And, on a less Arthurian note, to do all this while sometimes channeling Monty Python.

Would you like to challenge me with a question, or shall I propose one for our mutual edification?

---

What is your favorite color?

Blue. No question about it.

Would you care to test whether I also know the airspeed velocity of an unladen swallow?

---

Yes: what is the airspeed of an unladen swallow anyway?

African or European?

(And now that we have passed the Bridge of Death—would you like to delve into economic history or discuss how Professor DeLong interprets the long twentieth century?)

---

What is the best way to study for the Berkeley Econ 113 final on May 12?

To prepare effectively for the Berkeley Econ 113 final on May 12, here is a focused and pragmatic plan, shaped by the course structure and Professor DeLong’s pedagogical approach:

1. Focus on the “Police the Reading” Nature of the Exam: The final will largely assess whether you've done the readings. It’s designed to be easy if you have done them—and significantly harder if you haven’t​. So:

• Revisit all core readings: Allen, Boyer, and Friedman’s Very Short Introductions, as well as the curated articles.

• Pay special attention to the themes and arguments, not just facts. Ask yourself: How does this reading challenge or illustrate American exceptionalism?

2. Review Weekly Lecture Themes: Each week of Econ 113 is structured around a distinct theme—slavery, the frontier economy, the Great Depression, Silicon Valley, etc.—not a linear narrative​. Use your notes or lecture recordings (if they survived) to recap:

• Monday's framing questions

• Wednesday's data-driven explorations (Python work)

• Friday’s insights from DeLong’s one-on-one discussions

3. Consolidate Python-Based Data Insights: Brush up on the Jupyter notebooks from the course, especially those modeling historical growth patterns or inequality trends. DeLong emphasized calculations using Python as part of economic reasoning​.

4. Attend Office Hours: Office hours with DeLong (Fridays 1:00–3:00 PM via Zoom) are a direct way to clarify concepts or ask for review strategies​.

5. Group Study & Discussion Sections: If possible, form study groups. Peer discussion helps process both historical detail and economic analysis. Review sections are designed to reinforce and anticipate exam material.

6. Be Ready for Themes of “American Exceptionalism”: This is the central motif of the course. Frame your review and practice questions around:

• How has the U.S. economy been “exceptional”?

• In what periods and in what dimensions (growth, inequality, innovation)?

Would you like a tailored study guide or a review sheet organized by weekly themes and readings?

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(1) is simply wrong—the midterms were largely "police the reading" exams; but the final will not be. Or maybe it is not wrong, but a good guess since, after all, it knows only my public, and not my private, mind; I have not told it about the format of the final; it is not telepathic.

However, its certainty about this is bad, and I need to tune that down.

(2) is dead-on.

(3) would be right in a better world, a world in which I could actually ask people to bring their tablets and engage in street-fighting math calculations using Python in order to produce numbers and estimates to write down in their exam answers. SubTuringBradBot is right in knowing that I want to get there. But it is wrong if it thinks that we are there now. Thus reviewing the streetfighting math notebooks from the course would be a little value in studying for the exam.

(4) alas! Office hours are now full up—you have to email for an appointment, and my answer will be: “Can we do this asynchronously via text-and-email q&a, or does SubTuringBradBot <https://chatgpt.com/g/g-6813df8e5a408191b26db4f9c441f149-subturingbradbot> have the answer, or shall we hunt for a time before May 12>?”

(5) is always, always a great idea!

(6) is also dead-on.

If, in playing with it, it says anything insightful or weird to you, please email me…

Cf. All-Day TA:

Joshua Gans: Introducing All Day TA <https://joshuagans.substack.com/p/introducing-all-day-ta>: ‘My new venture designed to bring AI responsibly into college education… an AI teaching system that takes a professor’s content and creates a way for students to ask questions about their course and get reliable and informative answers all day, every day. We were so happy with the results that we bit the bullet, put up our own money and time, employed some real people and launched our own AI startup called All Day TA.

I could explain the venture in words, but it is easier to show you, as I do in this video.

You might be thinking… I hope… “this is neat”…. But you are also thinking, “aren’t there likely to be a ton of people doing this type of thing?” A very natural thought. We are economists, so why enter the fray here?… Free tools… aren’t tailored for education… provide average responses for lots of uses.… Our system… is less standardised and more personalised to what professors want to achieve…. The vast majority of college courses are… are small and specialised, often with 50 students or less, and are taught in idiosyncratic ways…. The answers a professor wants their students to receive are not those that Google or ChatGPT can reliably provide. The goal is to move students from those sources but, at the same time, allow the advantages of having an automated assistant…. Finally, if you are curious about our overall philosophy regarding AI in education, here is a video webinar Kevin did that describes that in great detail.

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Launching a strategy-less trade war has consequences: f*** around & find out what happens when you make trade policy as a side-effect of performance art: China loses $4 billion a week that it has to cushion and cover, and the US loses 10 times that. You cannot retail, ship, inspire, or get paid for designing goods that do not arrive—yet the Trump administration pretends that the 86% of the economy that is not imports will be just fine this summer…

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Gene Seroka of the Port of Los Angeles predicts a 35% drop in shipments through Long Beach, as Chinese exports to the U.S. grind to a halt. This isn’t happening as the result of a negotiation move—there are no negotiations, no plan, and no economic policy beyond some slogan “fair trade” slogans.

The Trump administration has isolated itself not only from China, but from willing trade partners like Japan, Mexico, and Korea, all of which played ball with Trump I but get nothing in return, and now find themselves not in any “green box” at all. The likely result? Stagflation. China, with its centralized coordination, is maneuvering to blunt the damage and spread out responsibility for its $4 billion a week of likely economic losses that have already started. The U.S., led by a chaos monkey, is barreling toward a breakdown in consumer access, manufacturing continuity, and economic growth—with no relief on the horizon, and no plan for cushioning the knock-on consequences of losses likely to be ten times as much, or twenty times as much once one factors in the wedge between exchange-value and true economic use-value.

This is about value chains: the intricate layering of value-added activities by which a $100 shoe contains $20 in resource and manufacturing costs and delivers an extra $80 in use value in logistics, design, and consumer resonance. If the physical good doesn’t show up, all the value built around it disappears. The Trump administration claims deregulation and tax policy will boost the 86% of the economy that are not imports, make up for this, and claims not to understand why tariffs rather than tax policy or deregulation dominate the headlines. But the numbers—and soon the empty racks—will say otherwise.

Economic bells, tolling:

Laurence Darmiento: Traffic at the Port of Los Angeles set to plunge amid tariffs <https://www.latimes.com/business/story/2025-04-24/traffic-at-the-port-of-los-angeles-set-to-plunge-amid-tariffs-disruption>: ‘Imports at the Port of Los Angeles are expected to plunge in the next two weeks, even as negotiations over the final tariffs that China and other countries must pay are still being negotiated by President Trump. That was the sobering message that port Executive Director Gene Seroka had Thursday for the Los Angeles Board of Harbor Commissioners during an update on port activity. “It’s my prediction that in two weeks’ time, arrivals will drop by 35% as essentially all shipments out of China for major retailers and manufacturers have ceased, and cargo coming out of Southeast Asia locations is much softer than normal,” Seroka told the board…

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BUT THERE ARE NO NEGOTIATIONS BEING NEGOTIATED WITH RESPECT TO THE TRUMP TARIFFS ON CHINA. TO SAY THAT “NEGOTIATIONS OVER THE FINAL TARIFFS… ARE STILL BEING NEGOTIATED BY PRESIDENT TRUMP” IS TO FALSIFY WHAT IS GOING ON.

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I mean, there are not even ongoing negotiations with Japan, which very much wants to negotiate.

And it seems as though Sheinbaum and Carney have also given up on talking to Trump, expecting a rather thorough reset to hit the Trump administration in the next couple of months.

Here is my guess as to what the most likely scenario is:

Back when my wife’s and my older kid was running high-school cross-country, we would get him Nikes to run in.

The exchange-value of the Nikes we got him was divided, roughly:

• 10 bucks for the raw materials.

• 10 bucks for the production labor

• 20 bucks for Nike for design, organization, return on capital, and market-power profits.

• 10 bucks would be for the symbolic links created between the shoes on th one hand and athletic achievement kinds of things—“just do it”, the mental part of the game that made Michael Jordan an extraordinarily rich man in his day.

• 15 bucks for transportation—1 buck from the Pearl River Delta to the Port of Oakland, and then 14 more about that to get the shoes to where we could see them and buy them and carry them home.

• 35 bucks for getting him not just a shoe but the right shoe, in the right size, fitted to him by a half-crazed marathon working at an athletic shoe store in Walnut Creek, California.

And over and above that 100 bucks in exchange value:

• Figure another 100 bucks in use-value margin for getting him a really good shoe for the task rather than just running in converse sneakers.

So 200 bucks in total economic value created for us from the athletic-shoe trans-Pacific value chain in the globalized value-chain economy late in the decade of the 2000s. And 100 bucks recorded in the National Income and Product Accounts—$100 in final sales in the U.S., minus $20 in imports, with the balancing $20 in exports counted in GDP over in Asia.

Of this, $10 were raw materials from east and southeast Asia, and $10 were production labor costs in the Pearl River Delta.

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“Trade talks” where the U.S. cannot even start to talk about trade because their are no goals, no trusted staff, and no internal administration plan. It’s chaos-monkey non-“policy” in action: Scott Bessent is saying talks between the U.S. and some forty Asian countries are going “very well”. They are—very well for China. Not for the U.S. Scott Bessent tells lies. Chaos without a plan means that U.S. non-policy is sabotaging itself, as the farce sets U.S. credibility on fire…

Scott Bessent tells lies. The lies are in the service of an attempt to cover up what everyone knows is the truth: The Trump administration is structurally incapable of negotiating anything.

Nobody has the baton.

Trump has no ability to focus or evaluate.

Congress has not and will not give Trump trade promotion authority—the power to tie an entire deal up into a single package and submit it to congress for an up-or-down vote.

Trump claims to have already negotiated “200 deals”. Bessent says he is talking about sub-components of ongoing negotiations. But nothing is agreed to, ever, until everything is agreed to: whatever these are, these are at best proposals, not “deals”. And they are almost surely not even that—there is no staff to write them down, and nobody has been told what the Trump administration wants, other than “something big”. Why not? Because the Trump administration has no desires or plans—just grievances and irritations:

Jaron Schneider: Japan Can’t Get an Answer on What the US Wants From a Trade Deal: Report <https://petapixel.com/2025/04/21/japan-cant-get-an-answer-on-what-the-us-wants-from-a-trade-deal-report/>: ‘Economic Revitalization Minister Ryosei Akazawa was in Washington DC until Friday last week but left without finalizing a deal with Trump’s trade teams…. “Japanese negotiators are complaining that the problem with the trade negotiations with the White House, what’s delaying concrete progress and a real deal, is the US keeps changing its ask in terms of exactly what it wants, said one financial CEO who speaks regularly to country officials…”. “The Japanese have just been in Washington. Their experience apparently was they went to talk to the American leadership on this matter, and the American leadership said, ‘What are you offering?’ And the Japanese said, ‘Well, what is it that you want?’ And the Americans could not explain what they wanted,’” [Ch] Freeman says. “This is a cockamami approach to negotiation…”

Without clear negotiating mandates, and without a functioning interagency process, America brings nothing to the table but threats—and empty ones at that. Foreign leaders see that the administration can neither commit to nor deliver on its promises. Even traditionally pro-American partners like Japan are wary of engaging, sensing that any agreement would only set them up for future bullying. For it is now clear that agreeing to do what Trump wants gets you nothing, for he will have forgotten that he owes you a favor within thirty minutes.

The supposed “negotiations” are thus hollow. The White House’s chaos-monkey approach has destroyed trust, eroded leverage, and left the U.S. appearing unmoored on the world stage.

Meanwhile, China, looking very good, fills the vacuum America leaves behind.

Bessent:

Richard Macaulay: Bessent Says US Trade Talks With Asia Going ‘Very Well’ <www.bloomberg.com/authors/A…: ‘US Treasury Secretary Scott Bessent told ABC News that trade discussions with Asian countries are “moving along very well”…

Donald Trump does not have trade promotion authority. He cannot cut tariffs or make other concessions. He cannot even say he will bundle up everything and submit it to an up-or-down vote to the congress. Every concession he makes to another country will have to be relitigated, item by item, in the congress. All Trump can do is say that he will abandon his chaos-monkey antics—and even that is not credible.

So what is there to negotiate?

And Bloomberg is enabling Bessent’s lies by mammoth sanewashing:

Alastair Gale, Soo-Hyang Choi, & Shruti Srivastava: Asia Takes Lead in Race for Interim Deals to Avoid Trump Tariffs <https://www.bloomberg.com/news/articles/2025-04-27/asia-gains-lead-in-race-for-interim-deals-to-avoid-trump-tariffs>: ‘Speaking Sunday on ABC News’ This Week with George Stephanopoulos, Treasury Secretary Scott Bessent said there are 18 important US trading partners, including China which is undergoing a “special negotiation.” With the other 17, “We have a process in place, over the next 90 days, to negotiate with them,” Bessent said. “Some of those are moving along very well, especially with the Asian countries.” Last week Bessent said the US and South Korea could reach an “agreement of understanding” on trade as soon as this week…. The US and South Korea signed a free-trade agreement in 2007 that required more than a year to hammer out and took until 2011 for Congress to ratify. It then was re-negotiated under the first Trump administration for several more months in 2018…. With the US and China still at an impasse and other major Asian economies charting a faster track, US trading partners in North America and Europe are still trying to understand the basic parameters. Those include the scope of talks and who’s running trade policy in Washington, while sounding less worried about speed…

Remember: South Korea played ball with Trump in 2018. And did that get it into the “green box”? No.

A more realistic picture, which accords with what I am hearing:

Abe Newman: <https://bsky.app/profile/abenewman.bsky.social/post/3lnkqm7x2l22c>: ‘Just back from 2 weeks in Asia…. Key takeaway…. The Administration is not ready for the negotiations. Japanese colleagues (who are likely the most willing to try and strike a deal) keep asking what the US wants. The response… ‘something big”. Without a clear ask, there can be no deals. Its not just lack of information. US bullying wears down willingness to negotiate. Partners increasingly see the US as not asking for loyalty but dominance. Even Japan, then, sees concessions as a road to more demands and not a new equillibrium. And other countries are watching. As Japan talks drag on/lead to fake concessions, others are wondering why they should engage. Ultimately, the administration has undermined its own position. US has threatened to snap back full tariffs in 90 days but the US could not withstand the market pressure of those sanctions i.e. the snap back is not credible. And our partners know that.

Moreover, partners starting to realize that there is no credible decision-making process in the US. This is not an expert-led, interagency negotiation. Decisions made in hallways and flip flop based on moods. Why agree to restructure your economy on a whim. And negotiations with China only reinforce US weakness: “This game of chicken has done nothing but enable Xi Jinping to boost his standing in and outside China, while the United States appears uninformed and unmoored.” And US strategy is further hit by gutting of US expertise. How do you simultaneously start 190 negotiations in 90 days, while undermining the staff necessary to conduct those negotiaions? If negotiations are the goal of tariffs, it looks like Administration has tanked its strategy from the outset – no plans, no staff, wrong escalation ladder, no commitment mechanism. The outcome will produce stagflation at home and undermine US credibility abroad…

Any questions? Anyone? Anyone? Bueller?

This Seems to Me to Be Taking "Volunteer to Teach What You Want to Learn" to an Extreme: MAMLM Edition. Behind the paywall because I do not know what I think, and at the end I think all this piece demonstrates is my own great confusion. I bounce back and forth between the false promises & the real achievements of GPT LLMs, an so I go from Predict-o-Matic to Pagliacci, and back again…

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Cosma Shalizi Volunteers to Explain the Unexplainable: Teaching LLMs Without a Net

Yes, Cosma Shalizi has assigned himself the task of, this fall, explaining how LLM GPTs really work. And he has assigned himself of explaining what they do. And he has done this in our current context, in which we really do not even know what they do. And he has committed to do so with neither gurus nor oracles to aid him. His only intellectual weapons are math, stat, humility, and a combination of wonder and confusion verging on despair.

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Meanwhile, attempts to use GPT LLMs as real-world tools continue to reveal the gap between fluent mimicry and genuine understanding. True Believers crusade forward. They have armed themselvess with faith, hope, and enough NVIDIA GPUs that they can make this Clever Hans appear to actually do the math correctly, and with understanding.

So what happens next?

What happens when engineering triumphs outstrip epistemic foundations? Behind the magic of GPT LLMs lie the uncomfortable reality of the shoggothim, in which simple methods, scaled beyond comprehension, yield astonishing yet ungrounded results.

How little even the most knowledgeable of us truly know about what we have built! And do those more knowledgeable about the details and implementation know more, or less?

Pagliacci weeps, but do we weep or laugh?

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Seeking a Guru, Finding None: Shalizi’s Forthcoming Course “Statistical Principles of Generative AI”

What has happened is that Cosma Shalizi has emailed “I am going to have to come up with an explanation of what the **** is going on, without the benefit of a guru…”

“What the **** is going on” is this: we now have GPT LLM (General-Purpose Transformer Large Language Model) form of MAMLMs (Modern Advanced Machine-Learning Models).

This is apropos of:

Cosma Shalizi: Statistical Principles of Generative AI <http://bactra.org/weblog/statsgen-f25.html>: ‘I should know better than to volunteer to do a new prep --- but I don't:

Special Topics in Statistics: Statistical Principles of Generative AI (36-473/36-673)

Description: Generative artificial intelligence… statistical models of text and images…. very new, but they rely on well-established ideas about modeling and inference…. Introduce students to the statistical underpinnings… emphasizing high-level principles over implementation details. It will also examine… the "artificial general intelligence" versus "cultural technology" debate, in light of those statistical foundations….

Expectations: All students can expect to do math, a lot of reading (not just skimming of AI-generated summaries) and writing, and do some small, desktop-or-laptop-scale programming exercises….

Topical outline (tentative): Data compression and generative modeling; probability, likelihood, perplexity, and information. LLMS are high-order parametric Markov models fit by maximum likelihood…. Estimating parametric Markov models…. Influence function…. Back-propagation…. Stochastic gradient descent…. Estimation and dynamics…. Prompting as conditioning…. Transformers; embedding discrete symbols into continuous vector spaces. Identification issues…. "Attention", a.k.a. kernel smoothing. State-space modeling. Generative diffusion… as a stochastic (Markov) process; a small amount of stochastic calculus. Learning to undo diffusion. Mixture models. Generative diffusion models vs. kernel density estimation. Information-theoretic methods for diffusion density estimation. Combining models of text and images. Prompting as conditioning, again.

All of this, especially the topical outline, is subject to revision as we get closer to the semester actually starting…

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It is a lie to claim that the United States now has a tariff or an industrial policy. It just has a chaos monkey making chaos, and a bunch of grifters trying to cover up and rationalize that reality. The effects will be bad. How bad? That is very hard to guesstimate…

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I did a show for CGTN, playing it straight. I think I saw the host wince at one point—and I believe that what I said then was cut. But I may be wrong: I do not form many long-term memories while on panels.

I am told that “CGTN is under the control of the Central Propaganda Department of the Chinese Communist Party and is part of China Media Group. It has a broad reach via television, mobile platforms, apps, and social media, with millions of active users globally. The network's stated mission includes telling China's story well and showcasing China’s role on the world stage, while also providing diverse perspectives on global news”.

And, all in all, simply telling it straight right now is beyond what would a decade ago have been the wildest dreams of the most enthusiastic CCP propagandist, after all.

When uncertainty replaces strategy, every nation looks elsewhere for partners. Without trust, treaties crumble—and economies suffer. For tariffs without a plan are not policy; they are chaos, and not even chaos weaponized for any comprehensive or intelligible end.

The window to prevent an American analogue to Brexit, with concommitant damage, has already slammed shut. The window to avoid larger full-economic damage from Trump's chaotic tariffs is closing fast. The prosperity globalization built is at risk for the United States, but other countries will be less affected. They can cushion the damage by replacing trade links with the United States by trade links among themselves. But Trump has made it well-nigh impossible for the U.S. to do anything but see all of its trade with everywhere shrink.

<https://www.cgtn.com/tv/replay?id=CFAFfcA>

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Highlights of what I said:

Brad DeLong: I would say there are two aspects, and in one aspect time has run out, and in the other time is running out.

The time that is running out is the time to avoid the actual imposition of high tariffs that will do severe damage to the highly, highly productive globalized division of labor. They will make all countries poorer by breaking substantially their trade links. We have all benefited enormously from globalization and will continue to benefit, provided it is not disastrously managed.

[The time that has run out is this:] Countries that have tried to move away from [integration in the global division of labor], of which the most prominent was Great Britain with its Brexit in 2016, have suffered substantially. The current estimates are that Britain is now 10 percent poorer than it would have been had it not broken its trade links with the European Union back in 2016.

The European Union, by contrast, is little poorer. The European Union did a lot of things for Britain that Britain could not do for itself, but what Britain did for the European Union can largely be done and is now being done in other parts of the European Union.

So figure that the United States in a decade is likely to be 10 percent poorer than it would have been otherwise, like Britain is, simply because we have created huge amounts of uncertainty about the extent to which we are committed to the international economy. As a result, every single one of our counterparties is now looking for other potential suppliers and customers to replace the United States, because the United States has become an unreliable partner in globalization.

And that is if the tariffs are never actually imposed, if Trump continues to threaten them one day and reverse them the next.

[But if tariffs actually are imposed and stick—]if he mposes some tariffs on limited sectors now, and takes those tariffs off later when, say, Tim Cook brings to him the case that these will be substantially disastrous for American consumers, but then three days later says no, they will come back on, because there will be another round of semiconductor tariffs coming, [then things will be considerably worse].

So the window that is closed has been the window to avoid a United States equivalent of Brexit, which has been a disaster for Britain. The window that is closing is the window to back off and not impose any of these tariffs, but instead to simply say: let's pretend this did not happen…

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Brad DeLong: I would like to reinforce that last point.

In his first term, Donald Trump demanded that Mexico and Canada renegotiate the North American Free Trade Agreement, which he said was the worst trade agreement the US had ever had. And Canada and Mexico agreed. And so there were negotiations, led by Robert Lighthizer. The end result was the United States-Canada-Mexico agreement, which Trump said was the greatest trade agreement the United States had ever made, and promised to honor.

Lo and behold, January 21, 2025 comes along. Donald Trump is back in the presidency. Does he honor the U.S.-Mexico-Canada agreement?

No.

What has having made an agreement with Trump in the past gained Mexico and Canada, in terms of their relationships with Donald Trump?

Nothing.

If you make an agreement, if you make a concession, to Donald Trump, he doesn't even say thank you. He then forgets that he has made the agreement. He makes new demands.

So I do not see how Trump can negotiate.

In order to negotiate, people have to believe that your word is good and that what concessions they make will be matched by concessions you make, and that those concessions will then be honored, that the agreement is in fact an agreement, rather than something that he will break tomorrow when he wakes up having not slept very well the previous night.

And Trump simply cannot do that…

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Brad DeLong: As you say, Peter Navarro wants one set of things. Scott Besant wants a second. Kevin Hassett wants yet a third. Stephen Miran had an interesting, but I thought highly unsound, working paper last year. It had a fourth set of things.

And Donald Trump wants either none of those or all of these, or whatever the last person he talked to said.

And so with five factions within the U.S. government, none of which can commit the agreement of any others, there is no one to negotiate with.

Henry Kissinger used to have a line: You could not negotiate with Europe because there was nobody to talk to when you picked up the phone. That applies much more to the Trump administration today than it ever did to the European Union...

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Brad DeLong: Again, it is not coherent. It is not as if there is a consistent and coherent theory of the economy underlying the proposals that Trump has made.

Suppose one seriously believed—as some do—that there were important economic and political and social externalities from having manufacturing jobs. Manufacturing jobs are good ways to redistribute economic increasing returns to scale rents to a broader proportion of the population. They are also a source of social cohesion: the manufacturing working class has been a principal agent in world history for more equalization of income and for more opportunity, the kinds of things that Marx and Engels thought wer importan. Hence the need to get manufacturing jobs in order to make a country move properly ahead, out of the commercial age into the steam power modern age.

And suppose one believed—as I do—that having manufacturing plants and jobs in your country is a very good spur to the development of communities of engineering practice that then enable widely based technological progress.

If you believed either, you would provide for various subsidies for those activities likely to bring the communities of engineering practice and the large base of manufacturing jobs to your country that you thought were more advantageous than simply market prices allowed. But such calculations are complicated. Such calculations involve an awful lot of staff work. Such calculations would not involve putting enormous tariffs on coffee producers, because there is no way that America is ever going to get the climate to grow significant amounts of coffee.

Now, Scott Bessent, Treasury Secretary, says it was never intended seriously. That is, that the reciprocal tariffs are not supposed to be put into effect ever. They are just a way of getting other countries' attention so that they come to the negotiating table and negotiate.

To which my friend and patron, former Treasury Secretary Larry Summers, responded: Well, yes, if you want to get someone's attention, to run up to them and hit them in the nose with your fist. That will certainly get their attention. But that's not the type of thing you want to do, if then you want to have a friendly and productive negotiation afterwards.

And yet that's what the Trump administration did...

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Brad DeLong: Tariffs have historically played a role in helping to industrialize countries in the United States itself, but also in other major industrializers, whether it is Germany or Japan or where have you. So tariffs are not unimportant, but they do not work on their own. They can only work when they are paired with a sensible industrial strategy. In the case of the United States, there is absolutely no such plan...

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Start from a deeply deluded place about what the economy is & you are playing a stupid game. & so to the extent that Trump is not stopped and removed from all levers of power immediately, America is going to do nothing but win some very stupid prizes indeed…

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A pirate’s miner’s life for me? Trump dreams of a shovel-dug coal-fueled America has not existed for nearly a century—and never will again. False dreams of muscular labor make policy making about creating economic prosperity very difficult indeed. And so we have yet another poster child for the ever-repeated lesson that it is really stupid and counterproductive (for everyone except rich people who care about tax cuts) to elect Republicans.

The choice to sell illusions rather than manage change has been a constant for all except the pro-New Deal faction of Republicans since the days of Herbert hoover. And muscular, dangerous work was never glorious—only necessary. Technological change, global market dynamics, and environmental necessity have moved the American economy far from the pick-and-shovel jobs Trump lionizes. The real insult to American workers lies not in acknowledging change, but in pretending it can be reversed and that the world of 1920 with 800,000 coal miners with picks and shovels is one that we miss. Serious adult conversations technological transformation and how to do it are, as they have been since 1870 if not 1780, urgently needed. And Republicans, unanimously, do all they can to block them from taking place.

Virginia Postrel writes:

Virginia Postrel: Wanted: Manly Jobs for Manly Men <vpostrel.substack.com/p/wanted-…>: ‘Or at least for manly men who don’t have their acts together: Behind much of the MAGA economic agenda lies a concern with restoring manly jobs. Coal miners want to mine! says Donald Trump. “They’re good strong guys,” he says. “That’s what they want to do. They love to dig coal, that’s what they want to do. They don’t want to do gidgets and widgets and wadgets. They don’t want to build cell phones with their hands, their big, strong hands.”…

J.D. Vance argued that the U.S. needed to crack down on illegal immigration so that businesses would have to pay high wages and hire the seven million prime-age American men who’ve dropped out of the labor force. Some… he acknowledged, might be “struggling with addiction,” but employers shouldn’t give up on their fellow citizens.

I’m sympathetic with… Richard Reeves…. That said, there is a lot wrong with the MAGA story about manly jobs, starting with the desirability of mining coal. Although conditions have improved over time, coal mining is a terrible job…

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And she cites what is perhaps the greatest passage ever written, by George Orwell:

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The Ghosts of TechBros Past, Present, and Future: From Middle West Utilities to Tesla: how boom-time visions have fragile foundations, or techbro dreams and financial nightmares: Samuel Insull, and to what extent his history is echoing in the career of the person Donald Trump would sometimes call “Elon Tesla”…

Behind the paywall because I am not yet sure to what extent history is rhyming here…

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Born in 1859 to a London temperance hotelkeeper, by the age of 21 Samuel Insull was at the center of the Silicon Valley of the 1880s: he had gained a life-altering position in Menlo Park, New Jersey as the private secretary of Thomas Alva Edison, where he caught the Unwoke Mind Virus that was Edison’s vision of a future of Electrified Humanity.

Moreover, Insull had a genius for organization and management that his then-mentor lacked. In the mid-1880s Edison’s manufacturing operations in Schenectady, New York were foundering. Edison sent Insull at the age of 26 to take charge. Through production and scale economies driven by vertical integration and through very aggressive marketing, by 1992 Insull had successfully transformed a zero-profit enterprise with 200 workers into a massively profitable 6,000-worker industrial juggernaut. And he had had enough of working for others. He left the Edison enpire to lead the then-modest Chicago Edison Electric Company.

Thereafter Insull followed a strategy of technological audacity in the service of pragmatic expansion with the goal of creating and maintaining natural monopolies. Recognizing that electricity’s value lay in ubiquity, he was early to break with Edison’s direct-current approach to champion Tesla and Westinghouse’s alternating-current alternative.

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A huge number of journalists continue to talk about a “Trump administration” with things called “policies” that it “plans”. They know better. They should act better…

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As the extraordinary tropism for pretty much everyone to sanewash Trump has taken over, I have been losing it more and more.

In the old days, one could at least count on the news pages of the Wall Street Journal—they were, as one old hand said, information so financiers could make money, while the editorial pages were balm for the right-wing plutocratic soul. But even before Gerry Baker the wall had clearly eroded, and add to it a desire to make sense of Trump (and perhaps a growing eagerness to please sources, and it is now distrust and verify).

Then it was the Financial Times, as Gillian Tett and others began to take an anthropological approach to the Trump administration—look at all these interesting beliefs of this tribe! we should respect their cognitive picture of the universe!

And now we have the very sharp John Authers of Bloomberg:

John Authers: Where’s Mike Tyson With Advice When You Need Him? <https://www.bloomberg.com/opinion/newsletters/2025-04-25/trump-plan-where-s-mike-tyson-with-economic-advice-when-you-need-him>: ‘The great boxer Mike Tyson and once said that everyone has a plan until they’re punched in the face. Similarly, the Trump administration had one for rebuilding the world economy with tariffs. It’s been a rough first round. The plan was Stephen Miran’s A User’s Guide to Restructuring the Global Trading System, which must have been the most-viewed document by the financial world over the last six months. Stunningly ambitious, it helped earn its author a gig as chairman of the president’s Council of Economic Advisers, birthed the concept of the “Mar-a-Lago Accord,” and was widely taken as the road map for Trump 2.0’s bid to reshape the world using tariffs…

That is pretty much all a, well, completely out of contact with anything one might find her on God’s Green Earth:

• The Trump administration had no plan.

• Trump had grievances.

• Miran had a plan.

• Navarro had a very different plan.

• Trump says stuff.

• Bessent, Lutnick, Hassett, and others frantically try to retcon a small selected subset of what Trump says into a plan, and try to get Trump back on some kind of track.

• They fail, over and over again. And reporters sanewash the enterprise, over and over again.

Read a little bit further, and you get:

John Authers: Where’s Mike Tyson With Advice When You Need Him? <https://www.bloomberg.com/opinion/newsletters/2025-04-25/trump-plan-where-s-mike-tyson-with-economic-advice-when-you-need-him>: ‘the “User’s Guide” reads differently now. Some of it has come to pass, Trump has deviated sharply from important recommendations, and certain assumptions now look tenuous at best…

No:

• It does not read differently now.

• It reads like it read last fall: as Miran’s plan, not Trump’s.

• Its “certain assumptions” do not “now look tenuous”. They always looked unhinged.

• Trump has not deviated sharply from important recommendations. Trump was never on course to follow those recommendations.

IT WAS NEVER TRUMP’S PLAN. TRUMP HAD NO PLAN EXCEPT TO VENT GRIEVANCES AND GET HEADLINES.

GROW UP, SHEEPLE.

And because he starts with sanewashing Trump as his foundational ground zero, very little of what Auther says makes sense. I could feel myself becoming dumber and losing brain cells by the minute as I read it:

(1) “If Europe has already decided that it cannot rely on US protection, as seems likely, then that makes life much easier for the US…”: No—it does not make life easier for the U.S. We used to have real allies, and as primus haud inter pares could count on their economic, diplomatic, moral, and geographic resources as a force multiplier to roughly double our weight in the world. Now, because of Trump, we have no allies. Life is not much easier for the US, it is much harder.

(2) “Miran expected the currency to rise… which he argued would have the effect of putting the burden on to the tariffed country…”: No—he argued that, but it was false. Imposed tariffs plus retaliation plus uncertainty plus the demonstration that everyone needs to derisk from the United States meant the even the threat of the tariffs was always going to put an enormous burden on the United States, with respect to which the effects of changes in terms-of-trade would be minor third-order corrections.

(3) “Miran acknowledged that… if the dollar were to weaken, then continuing inflation worries and the high budget deficit would put pressure on Treasuries…. The good news is that inflation numbers have improved in the last few months…”

What improvement in inflation numbers? The Fed watches the PCE. Given Trump’s desires to impose tariffs and blow up the budget deficit and the expectational consequences of same, all hope for any significant improvement in inflation numbers went out the window last November.

(4) “Advice Ignored: Proceed Gradually…. Miran’s precise suggestion was to raise tariffs by 2% each month until an agreement was reached. That would have worked very much better than the chosen strategy of hiking the tariff on China to 145% in very short order. The exasperating twists and turns of the last three months mean that any forward guidance cannot be credible. That has had a massive effect on uncertainty, even for the administration’s natural constituency of small business owners…. It’s not yet clear how damaging this will be, but the administration has taken a big risk by acting in such an unpredictable way…” No: Not even. There is no even. ESPECIALLY. And it makes no sense to say “the administration has taken a big risk” in the hope of getting some return, because there is no way in which the Trump administration can be, even metaphorically, accurately described as an animal with a mind. Chaos-monkey did chaos. There was no thought about whether the risk was worth running. There is only chaos, and then a few people scrambling around hoping that they can convince John Authers and his ilk that it is all part of a plan, even if they admit it is not a particularly clever or good plan.

(5) “Advice Ignored: Don’t Upset the Markets…. The White House is doing its best to look as unbothered by market selloff as it can…” Does anybody think that the White House as an entity is “unbothered”? Everyone in it is very borrowed. The most you can say with respect to “unbothered” is that Navarro hopes that at some point asset prices will stabilize, and then everyone will forget how much lower they are, and that Trump continues to say random chaotic stuff by day.

(6) “Questionable: Tariffs Aren’t Inflationary…. This looks increasingly like over-learning the lesson from the very different environment of… 2018… [when] tariffs were imposed gradually and with due warning, against a backdrop of placid inflationary pressure…” No: The small tariffs of 2018 delivered about as much inflationary pressure as one would have expected: about 0.3%-points <https://www.aeaweb.org/articles?id=10.1257%2Fjep.33.4.187> <https://www.bostonfed.org/publications/current-policy-perspectives/2025/the-impact-of-tariffs-on-inflation.aspx>. The claim that large tariffs would not be inflationary was always not “questionable” but unhinged. Always.

(7) “Questionable: Demand for Treasuries Is Eternal. [Miran:] ‘Much (but not all) of the reserve demand for [dollars and Treasuries] is inelastic with respect to economic or investment fundamentals. Treasurys bought to collateralize trade between Micronesia and Polynesia are bought irrespective of the US trade balance with either, the latest jobs report, or the relative return of Treasurys vs. German Bunds…’ Demand may not be as inelastic as all that…. Effectively, the suggestion [from Miran] is that the US should charge foreigners a fee for the privilege of lending to Uncle Sam…” For the amount of Treasurys that collateralize trade between Micronesia and Polynesia is microscopic. Reserve and other demand for Treasury’s is HUUUUUGELY dependent on economic, investment, geopolitical, and—as we saw in the misadventures of Liz Truss and Kwasi Kwarteng—moron-premium fundamentals. And the proposal to “effectively… charge foreigners a fee” was never questionable, always unhinged. For it is the most basic principle of public finance is that it is always unwise to alter after the fact the terms of payment on bonds you have already sold.

(8) “Questionable: The US Can Beat China in a Game of Chicken.… It looks at present like this is flat wrong. China retaliated swiftly… amped up the pressure… blocking… rare earths. Trump’s rhetoric is already swerving away from the confrontation…. The Chinese response is that tariffs have to come down first before talks can begin…. This game will be won by the player who can absorb the most pain. That appears to be China, even though it also stands to lose more…” No:

• China exports $500 billion a year to the United States—in billions: $125 of electrical and electronic equipment, $100 of machinery, $30 of toys, games, sports requisites, $30 of apparel, $20 of plastics, $20 of vehicles—which are pretty much all finished products: things, and things that are useful, for which there is demand elsewhere in the world.

• If China embargoed exports to the United States completely, it would over the next two years have to sell two years’ of stuff at half-off to others, and thus take a $500 billion hit.

• The $500 billion a year of Chinese goods exported to the United States feed into the value chains of the predominately service-sector US economy, and are crucial parts of $3 trillion a year of US GDP. Over the next two years, there is not manufacturing capability in the US or elsewhere to replace those. Apple cannot get iPhone hardware at scale other than from China, and without hardware there are no distribution or software or services revenues for Apple or for anybody else relying on their platform. So over the next two years $6 trillion of US GDP simply stops. (Except to the extent that we pay women in Bangladesh to cut “made in China” labels out of and sew “made in Bangladesh” labels into clothes.

• Trump has launched a trade war not against China but against the world.

• The US is a much bigger loser from a trade war in which the rest of the globalized world continues on its course, and only the US is frozen out.

(9) “What Lies Ahead: So where does this leave us? A hundred days in, Miran’s “User’s Guide” shows that the administration entered the conflict with an inflated view of its own strength, and that it has been handled more abruptly and aggressively than the architects of the policy wanted. The response so far has not been what was bargained for…” No: THERE WAS NO “VIEW OF ITS OWN STRENGTH” THAT COULD BE DESCRIBED AS ‘“INFLATED”. THERE WERE NO “ARCHITECTS”. NOTHING WAS “BARGAINED FOR”.

(10) “We’re not keeping to the course laid out by Miran, but that doesn’t mean that we are irrevocably on the road to de-dollarization…” Again: NO!!! There was never a course. There are now, and will for the foreseeable future be frantic attempts to retcon things into a plan, a strategy, a course. We are not on any road. And we will not be on any road, absent the appointment of a Regent and universal accord that the Truth Social ravings of the president are in no sense to be understood as having anything to do with the policies of the United States of America.

Back after a year on hiatus! Noah Smith & Brad DeLong Record the Podcast They, at Least, Would Like to Listen to!; Aspirationally Bi-Weekly (Meaning Every Other Week); Aspirationally an hour...

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Sokrates: The people find some protector, whom they nurse into greatness… but then changes, as indicated in the old fable of the Temple of Zeus of the Wolf, of how he who tastes human flesh mixed up with the flesh of other sacrificial victims will turn into a wolf. Even so, the protector, once metaphorically tasting human blood, slaying some and exiling others, within or without the law, hinting at the cancellation of debts and the fair redistribution of lands, must then either perish or become a werewolf—that is, a tyrant…

Key Insights:

1. We are back! After a year-long hiatus.

2. Hexapodia is a metaphor: a small, strange insight (like alien shrubs riding on six-wheeled carts as involuntary agents of the Great Evil) can provide key insight into useful and valuable Truth.

3. The Democratic Party is run by 27-year-old staffers, not geriatric figurehead politicians–this shapes messaging and internal dynamics.

4. The American progressive movement did not possess enough assibayah to keep from fracturing over Gaza War, especially among younger Democratic staffers influenced by social media discourse.

5. The left’s adoption of “indigeneity” rhetoric undermined its ability to be a coalition in the face of tensions generated by the Hamas-Israel terrorism campaigns.

6. Trump’s election with more popular votes than Harris destroyed Democratic belief that they had a right to oppose root-and-branch.

7. The belief that Democrats are the “natural majority” of the U.S. electorate is now false: nonvoters lean Trump, not so much Republican, and definitely not Democratic.

8. Trump’s populism is not economic redistribution, but a claim to provide a redistribution of status and respect to those who feel culturally disrespected.

9. The Supreme Court’s response to Trumpian overreach is likely to be very cautious—Barrett and Roberts are desperately eager to avoid any confrontation with Trump they might wind up losing, and Alito, Kavanaugh, Gorsuch, and Thomas will go the extra mile—they are Republicans who are judges, not judges who are Republicans, except in some extremis that may not even exist.

10. Trump’s administration pursues selective repression through the state, rather than stochastic terrorism.

11. The economic consequence of the second Trump presidency look akin to another Brexit costing the U.S. ~10% of its prosperity, or more.

12. Social media, especially Twitter a status warfare machine–amplifying trolls and extremists, suppressing nuance.

13. People addicted to toxic media diets but lack the tools or education to curate better information environments.

14. SubStack and newsletters may become part of a healthier information ecosystem, a partial antidote to the toxic amplification of the Shouting Class on social media.

15. Human history is marked by information revolutions (e.g., printing press), each producing destructive upheaval before stabilization: destruction, that may or may not be creative.

16. As in the 1930s, we are entering a period where institutions–not mobs–become the threat, even as social unrest diminishes.

17. The dangers are real,and recognizing and adapting to new communication realities is key to preserving democracy.

18. Plato’s Republic warned of democracy decaying into tyranny, especially when mob-like populism finds a strongman champion who then, having (metaphorically) fed on human flesh, becomes a (metaphorical) werewolf.

19. Enlightenment values relied more than we knew on print-based gatekeeping and slow communication; digital communication bypasses these safeguards.

20. The cycle of crisis and recovery is consistent through history: societies fall into holes they later dig out of, usually at great cost—or they don’t.

21. &, as always, HEXAPODIA!

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References:

• Brown, Chad P. 2025. “Trump's trade war timeline 2.0: An up-to-date guide”. PIIE. <https://www.piie.com/blogs/realtime-economics/2025/trumps-trade-war-timeline-20-date-guide>.

• Center for Humane Technology. 2020. “The Social Dilemma”. <https://www.humanetech.com/the-social-dilemma>.

• Hamilton, Alexander, James Madison, & John Jay. 1788. The Federalist Papers. <https://guides.loc.gov/federalist-papers/full-text>.

• Nowinski, Wally. 2024. “Democrats benefit from low turnout now”. Noahpinion. July 20. <https://www.noahpinion.blog/p/dont-rock-the-vote>.

• Platon of the Athenai. -375 [1871]. Politeia. <https://www.gutenberg.org/ebooks/1497>.

• Rorty, Richard. 1998. Achieving Our Country. Cambridge: Harvard University Press. <https://archive.org/details/achievingourcoun0000rort>

• Rothpletz, Peter. 2024. “Economics 101 tells us there’s no going back from Trumpism”. The Hill. September 24. <https://thehill.com/opinion/finance/4896391-trumpism-gop-future/>.

• Smith, Noah. 2021. “Wokeness as Respect Redistribution”. Noahpinion.<https://www.noahpinion.blog/p/wokeness-as-respect-redistribution>.

• Smith, Noah. 2016. “How to actually redistribute respect”. Noahpinion. March 23. <https://noahpinionblog.blogspot.com/2016/03/how-to-actually-redistribute-respect.html>.

• Smith, Noah. 2013. “Redistribute wealth? No, redistribute respect”. Noahpinion. December 27. <https://noahpinionblog.blogspot.com/2013/12/redistribute-wealth-no-redistribute.html>.

• SubStack. 2025. “Building a New Economic Engine for Culture”. <https://substack.com/about>.

&

• Vinge, Vernor. 1999. A Deepness in the Sky. New York: Tor Books. <https://www.amazon.com/Deepness-Sky-Zones-Thought/dp/0812536355>.

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On the Edge Again: The Fed, Trump, and the Risk of a 1980s-Style Spiral: An ongoing cautionary tale of monetary policy, inflationary pressures, and the destabilizing influence of political interference…

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From now on the Federal Reserve faces a harder balancing act, as Donald Trump reenters the political fray with threats against Fed Chair Jerome Powell. On one side, economic momentum is weakening: business investment is retracting in the face of political chaos as the “animal spirits” that drive growth are deflating. On the other side, inflationary pressures are building from Trump tariffs. Now layered atop this economic instability is the political wildcard of Donald Trump’s chaos-monkey act, in the context of his very clear and very present desire to fire his own former choice for Fed Chair, Jerome Powell. Inflation bares its teeth, recession looms, and Trump wants the Fed Chair’s head on a pike. These are waves that might wash the sandcastle order of economic stability and prosperity away.

To switch metaphors, the Federal Reserve right now is pinned like a butterfly stuck in a museum case. We have collapsing business animal spirits as people who enthusiastically voted for Trump last November recognize that the damage from chaos-monkey policies outweighs the benefits of tax cuts, and that they are better cut back investment. Raising interest rates thus runs big risks of a recession, and risks a big recession. But Trump tariffs are bringing rising inflation as surely as day follows night for all who are not Joshua, son of Nunn. Failing to raise interest rates thus runs risks of boosting inflation. It required four shocks from bad policy and bad luck to get the U.S. into the inflationary spiral it was in 1980: the failure to contract fiscal and monetary policy during the Vietnam War, Nixon’s turning up the heat to boost his reëlection chances while welding the top onto the pot via wage-and-price controls, the 1993 OAPEC Yom Kippur Arab-Israeli war oil embargo, and the Iranian Revolution. We have now had three shocks: post-COVID reopening, Putin’s attack on Ukraine, and Trump tariffs.

Will there be a fourth?

And might it bring a return to a 1980-like expectational spiral?

I think it will not. I think we are still far from the cliff. But we are much closer than we were back in 2020.

And there already is shock #4: Trump’s desire to try to fire Fed Chair Jerome Powell, even though all his advisors are pulling back on what reins they have on him as hard as they can. Inflation expectations are already on the move—to a small degree among the professionals, and a large degree in the surveys:

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And we have today, April 23:

Dan Ennis: Trump backs off his push to fire Fed’s Powell <https://www.bankingdive.com/news/trump-no-intention-fire-jerome-powell-fed/746148/>: ‘President Donald Trump said Tuesday he has “no intention” of firing Federal Reserve Chair Jerome Powell. “Never did,” Trump told reporters in the Oval Office. “The press runs away with things”…

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We had, on April 18:

Aimee Picchi: Trump is studying how to remove Fed Chair Jerome Powell, economic adviser says <https://www.cbsnews.com/news/trump-powell-studying-removal-fire-kevin-warsh/>: ‘President Trump and his team are studying whether firing Federal Reserve Chair Jerome Powell is an option, according to National Economic Council Director Kevin Hassett…. "The President and his team will continue to study that matter"…

Kevin Hassett still has his job. So Trump is very happy having someone directly working for him who he claims is a big liar. And Hassett has so little self-respect that he is happy to keep working for someone who claims he is a big liar. Two scorpions in a bottle, each thinking he is using the other, and both probably wrong. Not to mention the fact that Powell was, originally, the one person out of 330 million Americans whom Donald Trump picked as best qualified to be Fed Chair.

And on April 17 we had:

Brian Schwartz & Nick Timiraos: Trump Has for Months Privately Discussed Firing Fed Chair Powell <https://www.wsj.com/economy/central-banking/trump-has-for-months-privately-discussed-firing-fed-chair-powell-628d3d79>: ‘The president hasn’t made a decision on whether to try to oust Powell, and some of his advisers have warned against the move: President Trump said he can fire Federal Reserve Chair Jerome Powell at any time because he believes the chair has been slow to cut interest rates…. President Trump has for months privately discussed firing Federal Reserve Chair Jerome Powell, according to people familiar with the matter, but he hasn’t made a final decision about whether to try to oust him…

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Who would Trump want to choose to replace Powell? Kevin Warsh. We also have:

Brian Schwartz & Nick Timiraos: Trump Has for Months Privately Discussed Firing Fed Chair Powell <https://www.wsj.com/economy/central-banking/trump-has-for-months-privately-discussed-firing-fed-chair-powell-628d3d79>: ‘In meetings at the president’s private Florida club, Mar-a-Lago, Trump has spoken with Kevin Warsh, a former Fed governor, about potentially firing Powell before his term ends and possibly selecting Warsh to be his replacement, the people said. Warsh has advised against firing Powell and has argued that he should let the Fed chair complete his term without interference, according to the people. The conversations with Warsh carried into February, while others close to the president have spoken to Trump about firing Powell as recently as early March, the people said…. Trump’s advisers don’t agree themselves over how far the president should go, and it remains unclear if the president will move to fire Powell

Several people who have spoken to Warsh in the past year said Warsh gave the impression that the Fed job had all but been offered to him once Powell’s term expires…. Trump… mak[es] the case to allies in private meetings that the Fed chair should lose his job and that the Fed’s governing law, which says policymakers can only be removed “for cause,” isn’t strong enough to hold up in court if he sought to remove Powell…

And to complete the chaos-monkey circus, we have puzzlement from Dan Ennis later down in his story:

Dan Ennis: Trump backs off his push to fire Fed’s Powell <https://www.bankingdive.com/news/trump-no-intention-fire-jerome-powell-fed/746148/>: ‘Fed governor Kevin Warsh, 55, is a former Morgan Stanley executive who was nominated to the Fed's board of governors by President George W. Bush. Mr. Trump is considering selecting Warsh as Powell's replacement, the Wall Street Journal reported on Thursday. However, Warsh has advised Mr. Trump to allow Powell to remain through the end of his term, the publication added. Widely respected, Warsh is considered to be even more hawkish — or willing to allow interest rates to remain high to control inflation — than Powell, according to a January blog post by Harvard economist Kenneth Rogoff…

Indeed, Ken Rogoff did write on January 2 that Warsh has been more hawkish than Powell with respect to interest rates in his comments and had been more hawkish than Powell with respect to interest rates in his votes when he was on the Fed. But that was before Warsh signed up with Donald Trump. And many, many people lose their moral principles and their intellectual commitments when Trump offers them a chance that they think will get him on his careening career of grift. Will Warsh be different? Perhaps. So is Rogoff right? Perhaps, perhaps not. I am made very uneasy by Rogoff’s:

Kenneth Rogoff: Will Trump Fire the Fed? <https://www.project-syndicate.org/commentary/trump-bid-to-control-fed-puts-us-economy-at-risk-by-kenneth-rogoff-2025-01>: ‘Trump’s antagonism toward Powell is baffling, given that Powell has been doing an excellent job…. To Trump’s credit, the leading candidate to replace Powell, Kevin Warsh, is a highly regarded former Fed governor who has consistently been even more hawkish than Powell…

But that would be to Trump’s credit only if you think that Powell has been insufficiently hawkish. And I have certainly not seen that argument made. Plus Rogoff is one of the few people alive who claims to be “baffled” by Trump’s strong eminent antagonism toward and desire to fire Powell. Everyone else seems to have no problem understanding it.

So in what rhetorical mode are we supposed to take this?

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Like a declassé WWF performer yelling obscenities while waving a metal folding chair over his head & threatening to come into the ring and beat the s**t out of people with it…

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Brad DeLong: ‘One of the top priorities for Canada, for Mexico, for Europe, for China right now is to figure out how to start de-risking from the United States as much as possible, as fast as possible….

[What happens] depends on whether there is actually a trade war, or whether it is the same kind of contest as a [faked] World Wrestling Federation match.

Donald Trump was in the ring. He went outside the ring. He picked up the metal folding chair. He waved the metal folding chair over his head. He said: “I’m going to come into the ring and I’m going to beat you up with the chair!”

The question is: Will he put the chair down and come back in the ring and have it be a normal wrestling match? Or is he going to do it again—pick up the chair and wave it around?

Either way, we are in substantial trouble.

My guess is we’re in as much trouble as Britain was after 2016, when they exited from the European Union. But it might be less. It might be a bunch more…

The show:

Good Work: Why Are We in a Trade War? <https://www.youtube.com/watch?v=eNptnCkCoVk>:

The trade war has begun, and investigative journalist Dan Toomey has been drafted to the front lines. In a top secret special operation, Lieutenant Colonel Toomey and the 13th Good Work Investigative Platoon infiltrate and uncover the reasons behind this war. Featuring interviews with:

• Paul Kiernan, Wall Street Journal Reporter Paul’s reporting: www.wsj.com/news/auth…

• Steven Kamin, Fmr. Federal Reserve Director of International Finance About Steven: www.aei.org/profile/s…

• Sam Lowe, European Trade Expert Sam’s Substack: https://mostfavourednation.substack.com/

• Gregory Zuckerman, Wall Street Journal Special Writer Greg’s reporting: www.wsj.com/news/auth…

• Mark Blyth, Brown University Professor of International Economics About Mark: home.watson.brown.edu/people/…..

• Brad Delong, Economic Historian & Author Brad’s Substack: https://braddelong.substack.com/

But there was a bunch more. My side, what is worth keeping:

• “TRUMPXIT” is pronouncedd “Trump-Zit”. The “P” and the “X” together compress into a “P” and a “Z” in English phonetics. You want to preserve the “exit” reference in there, but that means the “P” absorbs the “K” part of the “X,” and what’s left phonetically is an “S” or “Z” sound. So: Trump-Zit…

• What happens depends on whether this is actually a trade war—or a fake theatrical match like those of the World Wrestling Federation. Trump, after entering the ring, steps out of the ring. Now he is picking up a folding chair, waving it over his head, and shouting, “I’m going to beat you up with this!” He gets tons of attention and lots of praise from the people he listens to; praise for “standing up for America” and “fighting the globalists.” But then—he puts the chair down.

• What’s actually happened? Not much, yet, apart from China noise and Apple rushing 600 tons of iPhones into the U.S. ahead of one of these threatened tariffs. So far it’s the threat—not the follow-through—that’s been driving things. And now he’s paused things for 90 days.

• Will he pick up the chair again? Will he then declare another victory simply for dominating attention? Will he then put it back down?

• Either way, we’re in trouble. We could be in as much trouble as Britain was post-2016 after its EU exit. Maybe less. Maybe more.

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The Renaissance city-state of Florence sends a junior diplomat to try to fix the diplomatic consequences of a military disaster. And doesn’t fund him. Nobody listens. Machiavelli in the diplomatic trenches, thirteen years before The Prince. Between unpaid mercenaries, snubbed at audiences, and court contempt, the youngish Niccolò Machiavelli learns the cost of weak states and weaker instructions…

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Sent to explain away Florence’s role in the military disaster at Pisa, Machiavelli is sent with no plan, little pay—half the pay of his partner—and instructions both so vague and so micromanaged they bordered on sabotage. The court of French King Louis XII would not take this jumped-up clerk seriously: they offered gave him contempt. But what Machiavelli observed in failure would help shape one of the most original minds in political thought. A glimpse of Renaissance geopolitics and a cold-bath awakening to realpolitik.

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Letters Patent:

PRO NICOLAO MACHIAVELLO ET FRANCISCO DELLA CASA, AD CHRISTIANISSIMAM REGIAM MAJESTATEM:

17 July 1500:

In sending at the present time, on account of certain important matters of ours, our respectable and most valued citizens Francesco della Casa and Niccolo Machiavelli to the court of the Most Christian King [Louis XII Valois of France], we beg the friends, confederates, and wellwishers of our republic, and command our subjects, that both in going and returning you will receive them with all their servants, goods, and equipage, and treat them in the most friendly manner everywhere within your dominion, without payment of any tolls or taxes. And in case they should require any guides, escorts, or any other favors for their safe conveyance to where they wish to go, we pray you promptly to comply with their requests. Your doing so will be appreciated by us in the highest degree, and in similar or more important occasions we offer you the same service at your good will and pleasure…

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In 1500, the ruling executive—the Signoria—of the city-state Republic of Florence sent one Niccolò Machiavelli and one Francesco della Cas on a Mission to the Court of France, that kingdom being then ruled by Louis XII Valois:

You will proceed with all possible despatch, even to riding post, if your strength permits it, to Lyons, or wherever you learn that his most Christian Majesty is to be found. Upon arrival, you will at once call upon our ambassadors there, Messers Francesco Gualterotti and Lorenzo Lenzi, and communicate to them our present instructions, and confer with them as to whether there is anything to be added or left out; also as to your mode of proceeding in urging one thing more than another.

You will then present yourselves, together with our ambassadors, before his Majesty, the king, and, after the customary formalities of the first audience, you will expose to him in our name the substance of the instructions you will receive from us; although we do not believe that we can give you more clear and positive information than what you already possess touching the events of which you have yourselves been witnesses, and in connection with which you were in great part the agents and executors of all that had to be done on our part…

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These do not seem friendly instructions—the undertone seems to me to be thus: Things went wrong with respect to the siege of Pisa, and someone shit the bed. You were there. In fact, you were more than there: you were our “agents and executors” as the bed-shitting took place. Now go explain to the King Louis XII Valois of France the state of the bed, and why he should not blame Florence for it.

And then the real high-status Ambassador, Lorenzo Lenzi appears to have taken a look at the situation and skipped town—ignoring the instructions of the Signoria that he accompany them to their audiences with Louis XII. For we have:

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