The Rise of the GOP “Common Good” Socialists

02 Wednesday Sep 2026

Posted by Nuetzel in Capitalism, Socialism

Tags

central planning, China Shock, Common Good Capitalism, Covenant Capitalism, Data Centers, Democratic Socialists of America, Don Boudreaux, Donald Trump, Financialization, Government Equity Stakes, Industrial Policy, Interventionism, J.D. Vance, Josh Hawley, Lindsay Craig, Living Wage, MAGA, Marco Rubio, National Review Institute, Nationalism, NIMBYism, Oren Cass, Protectionism, Share Buybacks, Stakeholder Capitalism, Veronique de Rugy

Socialism has gained ground among democrats at a feverish pitch, and “mere socialism” and “democratic socialism” do not convey the tenor of the movement. The Democratic Socialists of America (DSA) wants not just bigger government: the majority of its governing board would like to completely dismantle our governing institutions and replace them with a communist state. While the DSA is formally independent, it doesn’t field candidates as a party. Instead, it essentially operates as a faction of the Democrats, who have long given cover to the far left. There are still plenty of moderate democrats who see the DSA as anathema and a threat to their electoral hopes.

New Ground On the Right

While the socialists’ ascendance among democrats is getting all the media coverage, a different trend is more remarkable: the outright embrace of socialist policies by an influential wing of the Republican Party. This despite the GOP’s rhetorical tradition as the party of “small government”, which of course it has failed to live up to. Pay no attention to the House resolution condemning socialism “in all its forms”, which was narrowly passed this week. The bill does put opposing representatives on record as having failed to condemn socialism. Otherwise it’s fairly meaningless, especially in the context of “GOP socialism”, which has gone largely unrecognized or willfully ignored by most republicans. In any case, the resolution is more focused on calling for the enactment of the SAVE America Act (Voter ID) than on socialism itself.

The government equity stakes launched by the Trump Administration are but one manifestation of this statist philosophical trap into which republicans began to stumble several years ago: “Common Good Capitalism” (CGC). Vice President Marco Rubio is widely credited with coining the name in a 2019 speech at Catholic University. In policy terms, it overlaps with MAGA dogma in several areas, but not all. Oren Cass, who is the “chief economist” of American Compass (and he is not an economist), was probably most instrumental in the development of CGC. It’s not all socialism, of course. Every ideological offshoot has its nuances. While often cited for its compatibility with religious policy motives, it’s nevertheless a mishmash of populist-nationalist, postliberal “DO SOMETHING” ideas that would grant a far greater role for the state in economic and social affairs. There are variations of CGC: Senator Josh Hawley calls his own version “covenant capitalism”, which suggests an even heavier emphasis on themes of family and faith.

Burned At the Equity Stake

Veronique de Rugy calls out GOP hypocrisy regarding socialism and state ownership of the means of production in a recent article “The GOP Is Warning About Socialism While Quietly Embracing It”. Trump’s aggressive effort to acquire equity stakes is now at 30 companies plus a giant Venezuelan oil development interest held by … the Pentagon? (A defense bill pending in the Senate would authorize the Department of War to take equity stakes in key contractors, but this deal seems to have happened without it.) I’m passionately opposed to all these government equity stakes and a federal sovereign wealth fund. I’ve discussed it on this blog several times (here and here, for example).

De Rugy covers several failings of state ownership in private companies:

Concentrated power over economic decisions in the hands of shifting partisan interests. Influence here extends well beyond the government’s share of ownership;
Every government policy tool influences the value of its equity stake, creating conflicts of interest between government, private shareholders, and taxpayers;
Irresponsible use of public funding in a time of severe fiscal imbalance;
Inefficient allocation of capital to politically-favored and often boneheaded uses; efficient uses tend not to require public money;
These firms might well be too state-invested and state-controlled to fail, so taxpayer bailouts become a much greater possibility.

Government equity stakes ultimately provide a subsidy to select firms and penalize others based on political considerations. They offer some of the worst shortfalls of central planning. And if there is spare change rattling around at the Treasury, which is unlikely, it would be better deployed in paying down the existing federal debt. That gets you an immediate and ongoing reduction in now burgeoning interest costs, less rate risk as debt rolls over, and it avoids reliance on the tenuous equity returns on shares of companies subject to heavy government control.

Cloaked Collectivism

Trump’s equity stakes fit seamlessly with the policy agenda of CGC. The following is taken from the web site of the Common Good Capitalism Movement:

“Common Good Capitalism is when in a free market economy individuals and organizations freely choose to give priority to the common good and second priority to profit or mission. They can act alone. Or they can join in an association with competitors to reach agreements to voluntarily raise the level labor, environmental, and social playing field beyond what governments have demanded of them while continuing to compete as a secondary priority.”

That sounds so nice! Be very, very good and generous to everyone, at your owners’ expense, and then join hands with your competitors. Then we’ll either buy-in or simply leave you alone. Sure they will!

The GOP is enamored with the vacuous concept of “common good” for electoral purposes. It’s certainly alluring to populist instincts. Thus, many republicans have come to believe in an array of policies that incorporate practices involving more than a small degree of statism. It’s partly based on the myth of a shrinking middle class and that the affordability of the American dream is out of reach for many Americans.

Pieces of a Platform

So let‘s review a few positions and tenets now associated with CGC. These appear in no particular order, but several are intended by their advocates to encourage American self-sufficiency and national security:

Industrial policy is promoted by CGC devotees as a tool for achieving the common good. They favor interventions that would favor small businesses, and they believe active industrial policy can promote job growth, national self-reliance, and national security. Equity stakes in private companies fall under this heading, which may include coercive reviews or approvals for certain business activities. Industrial policy is a form of central economic planning, and it often boils down to the picking of winners and losers by the state.
Protectionism, including tariffs, presumed to encourage reindustrialization and high-wage job growth, self-sufficiency, and national security. This is the wrong approach, and it too is a form of statist central economic planning. Its proponents don’t seem to realize that Trump’s tariffs represent a huge tax increase on consumers as well as firms that rely on imported inputs.
“Stakeholder capitalism“, they say, is necessary to ensure that businesses weigh not only the interests of their owners, but more importantly their workers and “communities”, broadly defined. No one should expect firms pursuing such ends to maximize value, and buyers should not expect them to produce superior products. Codified stakeholder capitalism would represent an abrogation of the property rights of actual shareholders. The identification of “stakeholders” has no limiting principle, so it’s an open invitation to loot.
Data center derangement has crept into the talking points made by many republicans and the CGC faithful. This is mostly run-of-the mill anti-development activism, not socialism per se. Plain old NIMBYism can be a visceral response to almost any development, and an honest aesthetic revulsion, but data center developers are more than willing to negotiate compromises that bring massive benefits to communities. Almost everything you hear about the external costs inflicted by data center is fictitious. Should data center opponents prevail in slowing the buildout of information infrastructure, it would be a blow to prospects for U.S. leadership in AI, economic growth, competitiveness, and national security. I think more moderate voices within the CGC movement recognize these dangers.
Price controls just might be put to broader use in the hope of serving the “common good”: living wage arguments have been welcomed into the CGC intellectual milieu, despite the unproductive and often destructive results of minimum wage legislation. Trump has been railing against the oil companies for supposedly profiting off American consumers. Probably just jawboning, but price ceilings might not be out of the question. Commodity price ceilings seem to be only a mild flirtation of CGC, so let’s hope Trump doesn’t normalize the idea. However, Trump and Josh Hawley have proposed capping credit card interest rates, a sure path to limiting the availability of credit to the most credit-challenged consumers. You can quibble here, but the revocation of pricing authority is every bit as much a taking as a levy on asset values.
CGC is union-friendly, which is unusual for a movement dominated by republicans. It insists that broad-based collective bargaining will promote more prosperous and stable families. I support the right to collective bargaining for all except public employees, and with the qualification that workers should have complete freedom of representation. However, unions raise business costs and introduce rigidities that ultimately make unionized firms less competitive and less innovative, so the hoped-for stability is likely to be short-lived for many workers.
Another tenet of CGC is to restrict legal immigration, despite the aging U.S. population, an insolvent pay–as-you-go public retirement system, and birth rates below replacement levels. Imposing sharp limits on immigration is a nationalist position, or even nativist, though some notorious socialists were and are both nativistic and nationalistic. Either way, this is an intrusive, statist position, and it is often xenophobic. But to be clear, I am not arguing for open borders or any form of illegal entry. Rather, I advocate for liberalized legal immigration based on merit.
To its credit, CGC is more oriented toward “sound money” and an independent Federal Reserve than is the Trump Administration. Trump almost seems to prefer replacing Fed authority with money printing at the whim of the executive, and in support of a far broader economic role for the state.
CGC calls for restrictions on certain private financial decisions, such as outlawing share buybacks and private equity. This would represent another intrusion into private affairs. This is connected to CGC’s disdain for the “financialization” of the American economy. The ban would come on top of Trump’s 1% tax of share repurchases and prohibition of buybacks by defense contractors. However, there is evidence that legalizing share repurchases tends to stimulate corporate investment by redirecting investor funds from “mature firms” to newer, relatively cash-strapped firms having unfunded growth opportunities. An implication is that prohibiting buybacks is more like shooting yourself in the foot. It would be another coercive intrusion into the private sphere, a “taking” of private decision-making authority and a form of social control.
The CGC movement would like to use the tax code to achieve social objectives such as family formation. These steps would include higher per-child tax credits, subsidies (family income supports), and private business mandates (e.g., required paid parental leave). I‘m all for family formation, but whether you call this socialist or authoritarian, these incentives should remain private, not subject to the whims of the state.
Investment incentives: I’m loath to criticize policies that improve investment incentives, such as immediate expensing of investments of physical capital. On the other hand, were it not for the existence of a distortionary tax system that double-taxes corporate income, business tax breaks would be wholly unnecessary. So let’s start with the root problem by reforming business taxation, not doubling down on distortions. Furthermore, the reliance on so-called tax subsidies represents another avenue through which government manipulates the character of economic activity, with impacts that persist for years. Central planning!
Perceptions of the “national interest” are always in flux, shaped by current politics and those holding power. But among CGC adherents, their view of today’s national interest must always take priority over market efficiency. This is used to justify a wide range of policies: tariffs, equity stakes, manufacturing subsidies, often based on claims that a fictitious “China Shock” has hollowed out American manufacturing. Please… this is a weak excuse for state intervention. And though the argument might not be uniquely inspired by socialism, the “national interest” makes a convenient talking point for any socialist.
Finally, MAGA and CGC have somewhat divergent views on regulation and intervention. MAGA, despite its embrace of government planning and its apparent rejection of fiscal conservatism, at least continues its efforts to reduce regulatory burdens on the private sector. In some cases, CGC might do that too, but CGC embraces a variety of interventions under a variety of circumstances to change business incentives or safeguard against what they judge to be violations against public welfare. CGC’s approach to managing the business environment might include antitrust actions, efforts to discourage plant or office closures, and restrictions on certain business practices such as H-1B visas and non-compete agreements. This is in addition to items discussed above, like discouraging “financialization”, strict oversight of private equity, enforcing a balanced labor bargaining environment, and fostering representation of stakeholders in corporate decision-making.

But here’s a fundamental truth, courtesy of Don Boudreaux in a 2024 letter to the National Review Institute’s then-President Lindsay Craig, regarding Oren Cass‘ advocacy for CGC:

“… one of the merits of the liberal market order is that it allows each of us to pursue our individual ends absent any need to agree on, or to aim for, anything called the ‘common good.’ …

“… Because of the diversity of individuals’ particular interests, ends, and understandings of ‘the good,’ to impose any specific ‘common good’ goal of the sort that Mr. Cass favors necessarily requires coercing the majority of people to abandon their own ends in order to assist in the pursuit of the particular ends enforced by those who currently hold political power.”

If not socialism, many of the positions listed above are at odds with the ideals of small government, individual liberty, and free market capitalism. But it’s not the least unfair to say many of them veer into socialism. The extent to which the collectivist mindset, often disguised as mere populism, has permeated republican circles is rather astonishing. I should be happy they haven’t proposed anything as socially suicidal as a wealth tax… yet!

Vance and Rubio

In leadership circles, Trump has areas of agreement as well as departures from CGC, but it’s a different story among his most likely successors to the helm of the party and the presidency. Vice President J.D. Vance is an ardent critic of capitalism, and strongly believes that the state must intervene to correct the “failures” of the market economy. I empathize with his outrage over the plant closures and economic decline that have afflicted certain communities. He experienced the effects himself growing up, but his current diagnosis assigns blame to the market order. He does not acknowledge that buyer preferences and high costs made operating those plants unviable in the first place. Market competition can both reward and punish, but it is a process that ultimately improves the general welfare. Government planning is wholly incapable of replacing the market process, and government (and taxpayers) cannot be called upon to preserve former income levels or even a former way of life.

Vance has a beef with the pursuit of measured economic growth. In his view, it comes at the expense of the traditional values he most cherishes. For example, unpaid household work is not counted in official GDP statistics, nor is elder care at home. Therefore, says Vance, the statistics themselves contain a bias against single-income and multi-generational households. Those measurement issues have long been acknowledged by economists, but he goes so far as to suggest that policy should ignore the official statistics. He has slammed holiday shifts for retail workers as exploitive. And he believes that trade deficits represent a threat to the nation (complete nonsense) and strongly supports tariffs on imports of foreign goods.

Marco Rubio is another potential CGC contender for the presidency in 2028, and he’s given credit for bringing CGC into broad discussion within the GOP. His version strikes me as hewing closer to MAGA principles than Vance does. Rubio’s take on GCG is quite focused on national security and Sino-American trade and relations. He is strongly for tight control of immigration. He supports deregulation and free market principles, with qualifications. But he also says free markets must guarantee “dignified work” to all working or job-seeking Americans at decent wages. What exactly does “dignified work” mean? And how does one simply wave away frictions in the job market that will always persist. What does “decent wages” mean? Is Rubio suggesting a mandated living wage?

Rubio statements are riddled with misconceptions about economic and technological issues. For example, his anti-trade arguments are just as moronic as Trump’s; his emphasis on redirecting activity toward production in the “physical economy” is vapid (except perhaps in markets with implications for national security); he supports more industrial policy despite a history of central planning failures; his comparison of stock buybacks to dividend income for shareholders is daft; he holds a childish view of internet development as a social media phenomenon; and far too broadly, he characterizes U.S. innovation as historically driven by defense and public-private partnerships. On the whole, Rubio might seem to have a healthier market orientation than Vance, but he still talks like an interventionist in many respects.

Conclusion

The whole CGC attack on free markets reflects a poor understanding of basic economics. It requires massive value judgements that stand in contrast to the values that emerge from the impersonal, voluntary interactions of many participants in free markets. Just as damning is CGC’s failure to recognize the many opportunities for rent seeking and corruption are enabled by government intervention. But to drive all this home, I’ll close with another quote from Don Boudreaux, which I took from a 2023 post on his blog:

“In reality, the best economic system for promoting the common good is what I, in these discussions, call ‘capitalism unprefixed’ – that is, capitalism as understood and championed by people such as Hayek and Friedman. Not only is there no need for government to interfere with capitalism unprefixed in order to ensure that the common good is served, such interference is far too likely to bestow unearned benefits on politically favored groups, or to satisfy the particular ideological preferences of politically influential intellectuals, all at the larger expense – material and nonmaterial – of the people as a whole.

“If ‘common good capitalism’ means anything other than capitalism unprefixed, its pursuit necessarily requires government to elevate the particular preferences of some individuals over those of other individuals – a move that mocks the meaning of ‘common good’ as understood by true liberals.

“In short, ‘common good capitalism’ implies the ability of ‘common good capitalists’ to determine which particular ends are, and which aren’t, consistent with the common good, and the right of these ‘capitalists’ to commandeer the state to impose their determination on everyone.“

Trial Lawyers Reveal Preference For Less Safety

09 Sunday Aug 2026

Posted by Nuetzel in Litigation, Road Safety, Technology

≈ Leave a comment

Tags

Alex Tabarrok, Ambulance Chasers, American Institute For Justice, autonomous vehicles, Federalism, Grok, Liability Coverage, Marginal Revolution, Product Liability, Road Safety, Robotaxis, Software Glitches, Technophobia, Tesla, Trial Lawyers, Waymo

Trial attorneys often play a valuable role in bringing litigation on behalf of victims of negligence or other wrongdoings. Sure, even so-called “ambulance chasers” create social value by standing ready to help real victims mitigate damages. However, trial lawyers often give themselves a bad name with aggressive tactics in trolling for alleged victims, assigning tenuous blame, and pressing for inflated damages.

In an act of hypocrisy (not to mention greed and bad faith), The American Institute for Justice (AIJ), which is the trial attorney’s lobby, has taken a stand against autonomous vehicles (AVs). The link goes to a hair-raising post on the topic by Alex Tabarrok on the Marginal Revolution blog. Well, it frizzed my hair a bit anyway. Hence my coverage here.

Through AIJ, trial attorneys have opposed federal legislation that would prohibit state and local governments from imposing “unreasonable restrictions” on AVs, and that would create a more uniform legal environment for AVs. Of course, it’s reasonable to ask whether the proposed legislation is consistent with federalist principles. Some might argue that regulation of AVs is best left to voters at the local or state levels. After all, decisions about who can and cannot drive a vehicle are generally made at the state level. However, as a practical matter, the issues of vehicle/road safety transcend state boundaries.

But what of AVs and safety? A certain level of phobia surrounds AVs, partly due to their novelty. AVs are often the focus of media stories when they behave in haphazard ways. This was the case during a recent power outage in San Francisco, when a few intersections became clogged with “confused” robotaxis. Those kinds of episodes are uncommon and are getting even less common.

Tabarrok notes that AVs have a proven track record of dramatically greater safety than human drivers:

“Roughly 37,000–40,000 Americans die in auto accidents every year. We now have large‑scale, real‑world evidence—from Waymo and a joint analysis with Swiss Re—that driverless operations can be substantially safer than matched human driving within their current operating domains. The latest data show that over 220 million miles driven, Waymo vehicles–in Los Angeles, San Francisco, Phoenix, Austin and Atlanta–have 94% fewer serious injuries, 82% fewer air bag deployments, and 93% fewer pedestrian injuries. The evidence is not fully independent, but it is unusually transparent, large‑scale evidence.”

So it’s appalling to hear that trial attorneys are taking a formal stand against less restrictive regulation of a technology already shown to dramatically reduce harms on roadways in trial cities. More broadly, this also applies to personal vehicles with a self-driving option, like Teslas.

What do trial attorneys stand to lose from more liberalized regulation of AVs? Tabarrok says:

“The trial lawyers earn a huge amount litigating ordinary auto accidents–Annual U.S. auto insurance payouts (liability + PIP/MedPay) are on the order of $180–220B and trial lawyers are very eager to retain the right to sue car manufacturers for product liability. “

He should probably have qualified that statement. Not all payouts spring from litigation or even legal representation. In fact, Grok cites sources indicating that attorney fees amount to somewhere between 25% – 40% of all payouts to plaintiffs. Personal injury lawyers collect annual revenue of between $58 – $62 billion in the U.S., and most of that is related to auto accidents. Narrowing it down, data from 2023 suggests that auto-related attorney fees totaled somewhere between $20 – $30 billion. Based on other industry sources, Grok gives a broader range for current fees of $15 – $35+ billion. If auto claims and awards were reduced by 80%, which is a fairly conservative estimate of the impact of widespread use of AVs, the potential loss to trial attorneys could range from $12 – $28 billion. They’d probably like to protect those fees without coming off like uncaring bastards. They might fail on both counts, but perhaps populist technophobia will allow the hypocrisy to go unnoticed.

Beyond a more liberalized approach to the use of AVs, an interesting policy prescription is offered by Tabarrok:

“In my view, product liability isn’t useful as a safety device in this field. Instead, the solution is simple. Every car should be required to be insured, regardless of driver. Indeed, Waymo vehicles are already insured at $5 million liability coverage per vehicle, far higher levels than most human drivers are covered.”

Does requiring greater liability coverage represent an infringement of liberties? If so, the cost likely pales in comparison to the social benefits of compensating victims of unquestionably harmful externalities.

From a legal perspective, driving is not a right, but a privilege that can be revoked. That privilege carries obligations to obey traffic laws, and liability coverage is already required of drivers in most states (though not all). In this context, requiring coverage, or a greater level of coverage, would promote efficiency by relying on direct settlement of claims by insurers without attorneys in the middle. Then, insurers have recourse to negotiated settlements with manufacturers who might be responsible for a product defect (including software). As Tabarrok says:

“… messy manufacturer-versus-victim litigation is replaced by insurer-versus-manufacturer bargaining between repeat players who settle efficiently.”

Of course, AVs are trained to comply with all traffic laws and to be deliberate and cautious on the roads. They communicate with each other and have 360 degree vision. Certainly a “software glitch”, as Tabarrok puts it, can lead to tragedy. Nevertheless, despite widespread phobia regarding “robot cars”, faulty or dangerous human actions and reactions behind the wheel are no more forgivable and are far more frequent. And AV reliability continues to improve while evidence on their relative safety accumulates.

Trial lawyers can and often do provide socially valuable services. However, even if you’ve never cast a jaundiced eye at attempts to collect outsized damages from arguably innocent defendants, and on behalf of classes of plaintiffs that are speciously fabricated on occasion, the trial attorneys’ attempt to hamstring AV deployment should leave you agape. For all their righteous claims as bulwarks against the injustices of victimhood, the industry does not seem interested in preventing victimhood if it harms the bottom line.

Funding Private Social Security Accounts

02 Sunday Aug 2026

Posted by Nuetzel in Privatization, Social Security

≈ Leave a comment

Tags

Cash Offer, CATO Institute, COLA Indexing, Covid-19, David Beckworth, Donald Trump, Equity Returns, Eric Leeper, FICA Taxes, Fiscal Theory of Price Level, Francesco Bianchi, Government Budget Constraint, Heritability, John Cochrane, Means Testing, Michael Woodford, NBER, Old Age and Survivors Insuurance, Privatization, Sebastian Merkel, Social Security Administration, Spousal Benefits, TrumpIRA, Trust Fund

The 2026 report of the Board of Trustees of the Social Security Administration (SSA) says the retirement system’s official insolvency’s will occur in 2032Q4. This is the time at which the Old Age and Survivors Insurance (OASI) trust fund will be depleted, and it is a year earlier than SSA last projected. The disability income (DI) trust fund will last until 2034. The chart at the top combines the OASI and DI programs, so it shows a slightly later overall insolvency than OASI alone. Likewise, the theoretical benefit cuts shown in the chart are at the time of the combined insolvency, and they differ from mandated reductions in retirement benefits alone (22%).

Of course, the OASI and DI trust funds don’t really hold true “assets” for the federal government. Holdings consist of government bonds, which the SSA redeems with the Treasury Department to meet benefit obligations. In turn, Treasury must sell new bonds (borrow) to cover the SSA’s redemption. So the trust funds really only constitute additional Treasury “borrowing authority” on behalf of SSA.

Do Something!

Again, by law, depletion of the OASI trust fund will trigger an automatic 22% reduction in benefits. Needless to say, no one wants to see that happen, but no one wants to face up to the problem through reforms, either. Still, the issue will have to be confronted soon enough. By then, of course, President Trump will be off the hook. However, it would certainly be better to get the ball rolling sooner rather than later. An earlier fix would probably require somewhat less draconian reforms. It also would avoid a last-minute, heated political debate, the outcome of which is likely to be a bad policy choice.

Here’s a good summary of possible reforms from the CATO Institute. These options could shore-up the social security system. They span raising the retirement age, tax increases, cuts to benefits/spousal benefits, adjusted benefit “bend points”, adjustments to COLA indexing, means testing, and even flat benefit levels. But even CATO doesn’t broach the topic of the deeper reform required by privatization or even self-directed investment choices.

Make Me An Offer

In this section I discuss the potential willingness of current and future beneficiaries to accept a lump sum cash offer. I’ll defer discussion of how those cash offers might be funded until a section below. In late 2024, I argued that many future beneficiaries would willingly accept a cash deposit today, all tax-deferred, of less than the actuarial value of their future benefits earned to-date (as calculated by SSA):

“Given that the balance remaining at death would be heritable, some individuals might be willing to accept an initial deposit less than the actuarial PV of the future SS benefits they’ve accumulated to-date (discounted at an internal rate of return equating future benefits “earned” to-date and contributions to-date). I also believe many individuals would willingly accept a lower initial deposit because they would gain some control over investment direction.

There is a long history of economic research investigating the reasons for low demand for annuities (akin to OASI benefits). Control over investment direction brings the opportunity to earn greater returns on “contributions” (FICA payroll taxes). While equity returns have their ups and downs, they generally exceed the returns “earned” by workers on Social Security. It’s pretty much a given that most people investing in 401(k)s would rather have their savings there than governed by SSA benefit formulas!

How can such a discounted cash offer be estimated? The actuarial PV of benefits at an appropriate discount rate geared to equity returns would be straightforward to calculate. Alternatively, trials on sample populations of retirees and active workers could be used to gauge uptake at various discounts. Later, trial participants could be given the option to keep their choice, to opt into whatever structure is finally adopted, or to revert to traditional benefits. The cash offer would almost certainly be worth more to future retirees, who have more time to earn superior returns at lower risk, than to current retirees.

Realistic Offers

A discount averaging 22% is well within the range of possibility in the aggregate, which would match the benefit cuts due in 2032 barring reform. This NBER paper found that many participants would accept a lump-sum at a 25% discount from actuarial value, while this paper found that non-retirees value their future benefits at a discount of 30%.

It’s likely that a number of beneficiaries will decline the cash offer out of conservatism, fear, or ignorance. Perhaps some will opt-in over time. But all indications are, from the annuity research, that most future retirees would accept an offer. So too might a significant number of current retirees, perhaps early in their retirement years, or who might highly value a chance to leave a bequest, or who might fear that poor health will limit the value of taking traditional SS benefits.

How To Fund Up-Front Payments

The upshot is that the availability of such a cash option would sharply reduce future benefit outlays. The rub is that the cash must be funded up-front. It would represent a huge addition to the government’s current borrowing needs, which sounds like an insurmountable obstacle to the success of the initiative. The fear is that immediate pressure on capital markets and interest rates could create an economic upheaval the likes of which we’ve never seen. More than anything else, the funding problem has led many to dismiss the possibility of privatization.

There is, however, an alternative view: the very reduction in the flow of future benefit obligations makes the plan more than feasible. That is because, in present value terms, the value of the reduction in future benefits would exceed the immediate borrowing necessary to pay the cash offers.

This reasoning is based on the government’s long-term budget constraint, which forces equality between the real value of government debt outstanding and the real present value of expected future government surpluses. Capital markets must value government debt on that basis, lest the debt’s value must be justified by a fiction.

The long-term budget constraint is central to the fiscal theory of the price level (FTPL). John Cochrane has written extensively on FTPL, and its adherents range from Eric Leeper, Michael Woodford, Sebastian Merkel, Francesco Bianchi, and to some degree David Beckworth.

Under the government budget constraint, a large increase in borrowing unaccompanied by any increase in future surpluses must leave the real value of debt outstanding unchanged. This happens because the real amount of debt is inflated away sufficiently or revalued as interest rates are bid upward.

In the case of a Social Security cash offer at a discount from actuarial present value, immediate borrowing should be more than offset by reductions in future SS benefit obligations. If financial markets find the future benefit reductions credible, there should be no upward pressure on interest rates or the price level. In fact, perhaps the opposite.

Of course, all this assumes that politicians possess fiscal discipline. Assuming they understand the gain in the government’s fiscal position, they cannot rush to commit to new programs, spending initiatives, or tax cuts that would sop up the increase in future surpluses (reduction in future deficits).

Trump Accounts

The Trump Administration has assiduously avoided serious discussion of SS reform. Instead, never missing a chance to stamp the Trump brand everywhere, the president has championed a “new” saving vehicle called TrumpIRA. It allows private workers without an employer-sponsored savings plan to establish an IRA account through the TrumpIRA web site. Qualified savers who establish such an account will be eligible for a $1,000 government matching contribution. So Trump has found another way to commit taxpayer resources that do not exist. Given our ongoing massive fiscal imbalance, you’d think his economic team might clue him in on a key lever that should be employed to increase national savings: deficit reduction! Instead, he’s busy subsidizing TrumpIRAs, Trump Baby Bonds, and plowing billions into government stakes in private companies.

The SS system itself, as it now exists, represents a huge disincentive to save. Privatization would sweep away those bad incentives, especially if the private accounts could be used for additional savings beyond existing FICA “contributions”. And access to those additional amounts saved should be open at any time, subject to a normal tax on withdrawal.

Summary

My earlier post on this topic contains much more detail on a voluntary privatization plan for Social Security, including potential risks. This is the sort of initiative that should be under discussion in policy-making circles. Sadly, the Administration doesn’t see any advantage in addressing SS reform at all, and other parties have dismissed privatization as a fiscal boondoggle. However, a substantial reduction in future benefit obligations would be more than sufficient to offset the short-term borrowing needed to offer cash to fund heritable, self-directed, private accounts at a discount from the actuarial present value of future benefits.

Chinese State, CCP, Cronies Exploit Wage Earners

12 Sunday Jul 2026

Posted by Nuetzel in Corruption, Labor Markets

≈ Leave a comment

Tags

Absolute Advantage, CCP, Chinese Labor Laws, Chinese Labor Protests, Comparative advantage, Cronyism, David Ricardo, Labor Productivity, Li Qiang, Lily Zhao, The Diplomat, Wage Arrears, Wage Suppression, World Socialist Web Site, Yasheng Huang

In a free economy there are strong tendencies for wages to correspond closely to worker productivity. Shortfalls in wages below marginal productivities are exploited by firms competing for workers, pushing wages upward. Likewise, workers compete for jobs, so an excess of wages over productivity levels will likewise be competed away. The close connection between wages and productivity ensures that labor resources are allocated to their most productive and remunerative uses.

That seemingly miraculous tendency is a natural outcome of free markets and capitalism. Its force is strong in most sectors, but not when an employer has monopsony power, where powerful frictions prevent worker mobility, or where unions prevent competition between workers. A more ubiquitous threat to the correspondence between wages and productivity is from interventionists seeking to use the coercive power of government to capture rents at the expense of others. For example, minimum wages benefit many workers, but they distort the allocation of labor and punish the least productive members of the workforce. Likewise, DEI mandates via law or arbitrated settlement involve discrimination and disrupt natural, merit-based allocations of labor. Laws requiring union shops (or mandated arbitration) give unions monopoly power and raise union wages. They also restrict the freedom of non-union workers to choose their own representation and to compete for work with the employer of their choice. These distortions drive a wedge between wages and productivity, thus restraining trade and hampering economic growth.

But there are far more coercive forms of intervention in the labor market. China’s labor laws ostensibly protect worker rights. Like anywhere else, if enforced, it’s minimum wage laws (which vary across regions and are expressed monthly for full-time workers) would not protect workers from the normal unintended consequences. But it’s worse than that in China, almost as if those labor laws don’t exist. As Li Qiang states in The Diplomat, Chinese employers extract a labor cost discount via:

“… a labor system that systematically lowers costs through lax enforcement, extended working hours, and wage suppression. The result is a structural cost gap that reflects not superior productivity, but a different set of rules governing how labor is treated and how much it is allowed to bear.“

In fact, Qiang says workers are often required to be on the job for 12-hour shifts (or more) six days a week, and they often must live in company dormitories.

Another practice that is far too common in China is the delay and often nonpayment of wages. This has been an issue since 1978, according to Lily Zhao, writing on the World Socialist Web Site. Protests over wage arrears have become quite common across all of China, especially among manufacturing and construction workers. Furthermore, this has been exacerbated with decisions rendered by Chinese courts that workers do not have recourse to payment by general contractors, but only from the “intermediaries” or subcontractors who actually hire them for a job. In practice, this often means workers have no recourse at all.

These abuses are particularly common in the treatment of workers who have migrated from the hinterlands to industrial cities. Protests over arrears have been condemned by the Chinese media. Police have sometimes brutally intervened, and some local governments maintain blacklists of workers whose behavior is deemed “abnormal”.

Zhao summarizes the situation early in her article:

“In reality, the CCP regime has, in recent years, been deepening its attacks on the democratic rights of workers and using all means to prevent them from demanding their unpaid wages—through legislation, vilification and arrests.“

And where does the money go? Certainly company owners and construction project contractors benefit, but only by virtue of cronyism, not capitalism. Others like the police, media, and even the judicial system may get a cut, but Zhou implicates the “CCP state apparatus”, and she is surely correct.

Years ago I scoffed at allegations that China was “dumping” goods on international markets below their true cost, but I’m afraid it’s true to a greater or lesser extent across many goods. However, it’s tough to find supporting data when you can hardly believe a thing a country reports. Nevertheless, there is credible evidence of wage suppression in China arising from facts that are probably looked upon with pride by the Chinese regime. Yasheng Huang, writing on his Substack, calls China an “absolute advantage economy”, by which he means that it has both lower capital costs and lower labor costs than most of its trading partners. The country does what it must to be more than competitive across all tradeable goods.

To do this, China must find ways to ignore its comparative disadvantages in certain products. By that, I mean there are goods produced which entail a larger, true sacrifice of lost output in other goods. Huang notes that “Comparative advantage is a theory about dividing up the work, not about competing for it“, but he does a disservice to David Ricardo by failing to acknowledge, up front, that a country ignores its comparative disadvantages only at a high cost. Someone must pay for the sacrifice that entails. And guess who pays in China!

Huang does a simple comparison of Chinese exports and imports across a diverse set of 98 categories of goods. He looks at the individual categories and finds that the ratio of exports to imports is well above one for advanced as well as simple goods. Huang asserts that Chinese output per worker is low by international standards, so competitive pricing must be the driver, not productive efficiency. His conclusion is reinforced by China’s labor share of income in manufacturing, which is lower than many developed, developing, and emerging countries, which tend to specialize in different categories of goods in which they possess comparative advantages.

On the services side of the Chinese economy, there is little to be gleaned regarding wage suppression from trade data, as exports and inputs of services are a small proportion of Chinese trade. However, for many years productivity in Chinese services (including consumer services and the gig economy) grew at a torrid pace. Meanwhile, wages have been stagnant in the labor-intensive service sector, which includes many consumer services.

In a free economy, wages typically follow trends in labor productivity. However, in China that is not the case due to its abusive labor practices. These include suppression of wages, tolerance of non-payment of wages, crackdowns on protests, and coercive tactics like arrests of workers and blacklists for “abnormal behavior”. This has been especially acute among migrant factory workers, but wage suppression, including nonpayment, is a fact of life in the provision of many services as well. Ostensibly, the Chinese bureaucracy, courts, and police do not take the country’s labor laws seriously. Instead, they wink at deals that surely benefit party cronies or the CCP itself. Wage suppression has allowed the Chinese to compete across a broad range of tradeable goods, making large and persistent trade surpluses possible. In this case, the cost falls squarely on workers.

Some Dimensions Of the AI/Data Center Freakout

25 Thursday Jun 2026

Posted by Nuetzel in Artificial Intelligence, Government Failure

≈ 1 Comment

Tags

AI, AI Alignment, AI Land Use, AI Power Consumption, AI Regulation, Andy Masley, Anthropic, Bernie Sanders, Brian Albrecht, Capital Deepening, Chinese Communist Party, Comparative advantage, Dario Amodei, Data Centers, Dean Ball, Donald Trump, Elon Musk, Fable, Friedrich Hayek, Google, Luddites, Mythos, National Security, NIMBY, OpenAI, Rebecca Lowe, Sam Altman, Sam Altman (OpenAI), Sovereign Wealth Fund, Sundar Pichai, Superabundance, The Fatal Conceit, Timnit Gebru, Water Cooling, xAI

Bad policy ideas are circulating that have been conceived amid hysteria over AI. These are interventionist approaches to the development and deployment of AI models, ranging from direct confiscation of AI capital, taxes on the flow of compute, various forms of regulation, and state and local efforts to forbid the construction of data centers. All of these actions would unnecessarily inhibit achievement of AI’s enormous potential benefits and present unnecessary national security challenges as well.

Land Use and Displacement

Emotionally I’m probably just as NIMBY as the next guy when it comes to developments in my vicinity that might offend my personal aesthetics or intrude on my privacy. But at a more rational level, I object to developments that will inflict external costs on me. I happen to live in a private community that provides some buffer against incursions of those kinds, but I deeply sympathize with anyone who finds their property will soon be next door to a large or obnoxious industrial, commercial or government facility, and I despise the use of eminent domain for almost any purpose.

But let’s step back and consider the case in which an owner of private property receives what they feel is just compensation on the sale of their land to a data center developer. This property might be in your close proximity, but you can’t prevent your neighbor from selling unless it’s by way of a larger political process to revoke his property rights. Of course, you can help organize or join a resistance group in an attempt to stop the development. That’s perfectly reasonable if you fear the prospect of having your property stranded in the middle of a new industrial or commercial development.

Ultimately, such efforts are likely to influence negotiations between communities and developers. In fact, developers of data centers can often be persuaded to work with communities in addressing public concerns, and some developers are eager to do so.

Water and Power Consumption

Aside from land use, potential displacement, and aesthetic issues (including plain-old NIMBYism), other underlying concerns exciting local opposition to data centers have to do with predicted strains on water and power supplies. These are no doubt critical issues in certain localities. However, on the whole these concerns are vastly overblown, as elucidated by Andy Masley at this link. In particular, water use by data centers is on the same order of magnitude as other industrial uses. Contrary to some claims, any water pollution by data centers is usually confined to the construction phase, if at all, and in that respect is very much like any other construction project. And as Masley points out, a data center can generate tax revenue for use in reducing water scarcity.

It should also be noted that data centers house the computational power of the entire internet. As the chart (from Masley) at the top of this post shows, AI represents an incremental need that is still relatively small relative to total data center power use. Incidentally, water cooling rather than air cooling reduces a data center’s power consumption.

Nevertheless, the power consumption of data centers is indeed a matter of critical importance and controversy. Referring again to the chart at the top, it’s evident that data center power usage is growing rapidly. However, developers are increasingly planning to produce their own power off-grid, often colocating with their power sources to minimize transmission costs. This includes locating alongside natural gas basins, installing wind and solar collection facilities nearby, and coming soon, incorporating modular nuclear reactors. The latter would provide base-load, dispatchable, zero-carbon power for data centers. Of course, modular reactors will be costly and might eat into returns from developing data centers, but other power sources are costly as well, and it is the one sure dispatchable, zero-carbon, off-grid solution.

Water and energy supplies for data centers are key to enabling broad contributions of AI to consumer welfare, productivity growth, and national security. Local interests should weigh other benefits that construction of data centers will bring to a community. Construction jobs and permanent data center jobs are obviously important considerations, as well as the aforementioned increases in local tax revenue.

State Regulation and Litigation

Of course, AI controversies are playing out at the national and state levels as well. First, there is the issue of AI regulation. AI legislation in all 50 states attempts to regulate various “threatening” aspects of AI. These bills address topics such as fraud prevention (e.g., deep fakes), chatbot safety, and restrictions on automated AI decisioning (e.g., hiring, insurance coverage and claims adjudication).

There is litigation and potential litigation at the state level related to alleged abuses by Open AI’s ChatGPT. These concern the use of customer data and alleged encouragement of self-harm, among other matters. And the New York legislature has passed a bill calling for a one-year moratorium on AI data center development.

These regulatory and legal efforts at the state and local level raise the prospect of fragmented treatment of AI in different jurisdictions that would be disruptive and costly for both AI companies and users. Federalist principles aside, economic efficiency argues for a more uniform approach to many concerns about AI. But whether it’s at the federal, state, or local level, tight regulatory control of AI risks compromising the healthy competitive development of AI technology and the industry. That’s because politicians and bureaucrats cannot possess the knowledge of evolving competition, scarcity, and market incentives only revealed by free market processes.

Rooting for Regulation

Unfortunately, modern-day Luddites at the national level are calling for a moratorium on AI development. In fact, in 2023, fears of AI misalignment with human interests brought even Elon Musk to call for a six-month “pause” on development. Today, a number of industry insiders call for a “slowdown”, if only other countries go along with it (fat chance!).

Yes, AI is improving… fast, but the most consequential threats have to do with security protocols. Anthropic, in particular, almost begged for government control over its Mythos product, which recently gripped the AI and cybersecurity communities with its advanced ability to identify software vulnerabilities. The Fable version is said to incorporate “guardrails”, but reportedly Fable is vulnerable to “jailbreaks”. In what should not have surprised Anthropic after its own warnings, the federal government imposed export controls, restricting access by foreign nationals. And now, Anthropic has withdrawn availability of the models worldwide..

Be Careful What You Ask For

Perhaps Anthropic got what it deserved, but sadly, the Trump Administration seems to have crossed a threshold from a “light touch” approach to regulating AI to something more severe. Let’s hope the Mythos/Fable affair doesn’t presage a permanent transition from private governance to state control. That would inhibit development and present risks likely to rattle some of AI’s most important customers, .

The last link cites Timnit Gebru’s critique that AI labs have made a huge miscalculation:

“She argues that AI labs have consistently used ‘dangerous AI’ narratives for marketing, investor appeal, and competitive advantage, only for the narrative to backfire when actual state power intervenes. (on X)”

It’s possible that Anthropic and a few of its competitors have fallen for the same mistaken notion that central planning by government bureaucrats can improve upon market processes. Statists on the right and the left have been eager to join the chorus for regulatory control.

Fatal Conceit

Dean Ball channels Friedrich Hayek in the following tweet on the mistaken impression that government must impose a “strategy” and “plan” AI.

“I think part of it, at least vis a vis US/China competition, is that US and western chattering classes find it hard to believe that the market-driven outcome of frontier AI could possibly be right. They basically believe, in their hearts, that the Chinese system, with its ‘industrial strategy,’ has eclipsed capitalism. So they harbor the same inferiority complex toward the Chinese system that many Americans once harbored toward the EU’s system. Their heuristic is that the industrial strategists of China have grasped the whole picture of the technological competition in a way that US industrialists, with their ‘profit maximizing incentives,’ could not possibly have matched. And so any outcome in the economy that is not the result of ‘strategy’ is therefore prima facie worse than what the ‘strategists’ have concocted. They also believe the Chinese strategists possess awesome powers of foresight and the ability to evade all tendencies of financial and economic gravity, due of course to ‘strategy,’ really it’s almost a kind of orientalism.”

National security is an important consideration, of course, but AI development should not be hamstrung for fear of the ever-present need for improved encryption or by the prospect of threats from autonomous weapons systems. Indeed, AI can and should be put to use defending against all such threats to national security without compromising its promise as a revolutionary technology with a wide range of applications. Again, Trump’s purported intent to encourage U.S. AI development is undercut by his fixations on controlling trade and “taking stakes”. And do foreign customers want to deal with this confusing state of affairs? Or simply go to China?

AI and Capital Redistribution

Another nest of controversies has to do with the widespread presumption that AI will be negative for labor markets. Prescriptions from the populist left and right include various kinds of AI taxation, redistribution, and even nationalization.

Bernie Sanders and Donald Trump both want a sovereign wealth fund, and Sanders wants to fund it with a one-time 50% tax on AI stock. Sanders, the High Prince of Economic Parasites, is sponsoring a bill he claims would allow the American public to take a role in determining the future of AI, whatever that means. What he hopes to create is a mechanism for wealth redistribution, since the fashionable view is that AI will be a catastrophe for labor. While the AI industry is far from profitable at the moment, many AI stocks have soared in value. And Sanders’ target “AI industry” might fairly broad, including chip manufacturers and other producers of AI infrastructure.

If the public wants to kill AI investment in the U.S., tank equity markets, and give politicians an excuse for more profligate spending, then Sander’s bill is a grand idea. It would be an outright expropriation of wealth. The impacts on economic growth, productivity, American competitiveness, and national security would be unambiguously negative. And lest you think such a redistribution is necessary to compensate for job losses caused by AI, that issue is far from settled. In fact, it’s highly likely that the job realignment certain to take place will result in growth from a variety of occupations previously unimagined, just as technological advances have in the past.

The Compute Tax

Others (including Sanders) have also broached the idea of a “compute tax”, or as Brian Albrecht explains:

“… a levy on computational resources. Think GPU hours, processing power, data center electricity, or some similar proxy for AI work.”

Albrecht believes the real intent is to tax the stock of physical AI capital, as opposed to a flow of input services rendered for AI. But consider the number of goods and services whose values are likely to be enhanced by the use of AI as an input. And also consider the innovation and discovery that will be made possible by AI. Albrecht wisely questions the logic of adding to the cost and discouraging this value added via taxation. In the context of killing the golden goose, he cites two rules of optimal taxation: don’t tax intermediate goods and don’t tax capital. When the supply of capital is elastic, he notes, taxing it is more likely to harm workers than to help them. And one can reasonably argue that the external benefits expected to flow from AI would justify a compute subsidy rather than a tax. Finally, Albrecht cautions that a compute tax, unless it is very broad and at a very high rate, won’t raise much revenue.

Trump’s Confusion

Bernie Sanders deserves plenty of condemnation for his infantile, class-warfare rhetoric and interventionist approach to economic policy, including state ownership of the means of production. But in practice Donald Trump isn’t much better. He’s been busy partially nationalizing several different industries, including steel, semiconductors, nuclear energy, rocket motors, quantum computing, and critical mineral supplies, often with direct reins on business decisions (e.g., the “Golden Share” in U.S. Steel). Now, he’s angling to acquire equity stakes in AI companies. The Senate Armed Services Committee is ready to help him out with a bill that would establish a Department of Defense Equity Investment Account at the Treasury.

These are all part of the sovereign wealth fund Trump has decided is in the fiscal and national security interests of the U.S. Again, government ownership stakes in private companies invite cronyism, political interference, and regulatory capture. In the case of AI, it is an invitation to censorship and government surveillance. Moreover, spare government funds would be better spent paying down our burgeoning public debt, reducing government obligations and interest expense at zero risk. In contrast, the value of private equity stakes and their returns are fully at risk, while leaving government debt, interest expenses, and interest rate rollover risks in place.

Trump is now inveigling the likes of Sam Altman (OpenAI), Dario Amodei (Anthropic), Sundar Pichai (Google), and even Elon Musk (xAI) to accept his vision of public ownership of AI stock. It’s effectively a trap and a prescription for competitive failure, but Trump doesn’t get it.

Superabundance?

Many AI industry leaders have indeed bought into some version of an AI wealth transfer, primarily because they accept the notion of superabundance along with heavy losses of remunerative work for humans. But in fact they don’t understand the economics of capital deepening and the contradictions implied by their position.

First, savings and funds available for capex are scarce, and any given project for AI buildout must compete with many other valued uses. The working world will not be monopolized by AI robots any time soon, even given dramatic cost reductions. AI may well increase the productivity of human workers (along with their wages) in greater proportion than other forms of physical capital. But some forms of labor are likely to be in surplus, and that will cause the wages in those occupations to become more competitive relative to the cost of potential AI-augmented substitutes. In fact, occupations in which humans are more competitive than machines will persist. Here is Albrecht on this point:

“And comparative advantage always pops up fighting against [human job losses]. When automation makes some things cheap, the things that remain expensive tend to be the things that are hard to automate. And the things that are hard to automate are, almost by definition, the things where humans still have comparative advantage. The saved dollar drifts toward where humans are still worth paying. That’s not optimism. That’s what comparative advantage means.“

A second contradiction of the superabundance job-loss narrative is, as I’ve said, that there will be many inventive new occupations available for humans. At worst, job losses will be a transitional phenomenon. Third, superabundance itself implies drastically lower prices, which would ultimately benefit wage earners and consumers, obviating the need for government intervention on their behalf.

I had to laugh when I read this quote of Rebecca Lowe, who has an amusing and sensible reaction to the “AI will take all the jobs” narrative:

“I think a large part of this is you don’t really get experts in their particular domains writing about AI. Instead, you get ‘the AI expert’, and they want to reinvent the wheel. You see this when they write about economics, or when they write about philosophy. You talk to an AI person and suddenly they’re like, ‘I’ve just discovered this thing!’ And it turns out they’re talking about, like, supply and demand. And you’re like, oh my God.”

CCP Interference

I’ll briefly touch on one other controversy: whether the anti-AI/data center furor is being instigated by the Chinese in an attempt to undermine U.S. leadership in AI. The House Energy and Commerce Committee claims to have evidence that strongly suggests the CCPs involvement in attempts to hamstring substantial U.S. leadership in AI. Apparently no details on that evidence have been made public, however. It would not be surprising or uncharacteristic of the CCP, and if true would constitute another tension in the attempt to safeguard national security while avoiding government obstruction in AI development.

Summary

Artificial intelligence is animating economic controversies at the local, state and federal levels. Like other forms of industrial development, opponents are roused by claims of strains on local resources as well as displacement of property owners. Some of these claims are exaggerated or can be resolved via negotiation or technological solutions.

There are also fears that AI can be used in a variety of nefarious ways. There may be legitimate dangers, and AI companies themselves are actively working to address so called “alignment” issues. Nevertheless, there are increasing calls for state and/or federal regulation of AI. These proposals must be approached cautiously or they could easily derail U.S. progress on perhaps the most promising technologies to ever come down the line. That would indeed represent an economic and national security failure.

Finally, fear that AI will lead to large-scale job losses and widening inequality has prompted calls for taxes on AI capital, or even partial nationalization, with redistribution of future profits to the public. This would be a colossal mistake. Nothing could stanch AI development more effectively than such a policy. Unfortunately, even Donald Trump has called for the government to take equity stakes in AI companies pursuant to “national priorities” and supposedly for the benefit of American taxpayers. In fact, this partial nationalization has already begun. This is a prescription for destructive regulation, planning failures, and corruption.

The key lesson in all this is that we’ll all be better off if government stays out of the way of AI development.

Warsh and Fed Confront a Crossroads On Policies

01 Monday Jun 2026

Posted by Nuetzel in Federal Reserve, Monetary Policy

≈ Leave a comment

Tags

Ample Reserves, David Beckworth, Fed Balance Sheet, FOMC, Inflation Expectations, Interest on Bank Reserves, Iran Conflict, Jai Kadia, Jerome Powell, Judy Shelton, Kevin Warsh, Milton Friedman, Monetization, Nominal GDP Growth, Norbert Michel, Oil Prices, Overton Window, PCE Deflator, Quantitative Easing, Quantitative Tightening, Rules vs. Discretion, Scarce Reserves, Sound Money, Strait of Hormuz, Treasury-Fed Accord

A lot has changed since Kevin Warsh was nominated by President Trump to replace Jerome Powell as chairman of the Federal Reserve Board. Most notably that includes the war in Iran, the run-up in oil prices, and a bond market increasingly nervous about inflation as it attempts to digest massive supplies of new Treasury debt. Tariffs have also contributed to the updraft in measured inflation since then, which (in addition to oil prices) represents another impingement on the economy’s supply side.

Change and Change Itself

By the time Warsh was sworn in as chairman, expectations for Fed rate cuts had swung to expectations of a quarter-point increase in the federal funds rate target, if not at the mid-June meeting of the Federal Open Market Committee (FOMC) then in July. It’s not clear that Warsh is on board with that, and the status of the Iranian conflict, oil supplies, and the bond market could change dramatically before the June meeting.

Short-term inflation expectations have risen, so a rate hike by the Fed might seem reasonable if not for the possibility that current inflation is transitory (but I use that term guardedly). In terms of money growth, policy seems roughly neutral to slightly restrictive. M2 growth from a year earlier was 4.7% in April. Nominal (current dollar) GDP grew at a slightly faster 5.1% clip in the first quarter, and it might accelerate in Q2. Real GDP advanced 1.6% from a year ago in the first quarter, but the Atlanta Fed’s forecast for real GDP in Q2 is a stronger 3.2%. Meanwhile, core PCE inflation (the Fed’s preferred gauge) was 3.1% in the first quarter and 3.3% in April. If the numbers roughly follow the same track going forward, nominal GDP in Q2 could be up by about 6% – 6.5% from a year ago. Slowing the rate of M2 growth much from its recent pace might be an overreaction.

Moreover, it might be premature to raise the funds rate when a peaceful resolution to the Iran conflict is still possible. Again, we might know by the time the FOMC convenes in June. In that case, market rates could ease quickly. I am skeptical, however, that Iran will prove to be a reliable partner to any peace agreement. I’ll be surprised if the blockade on the Strait of Hormuz ends any time soon, and a few air strikes have already been renewed. Still, I expect the FOMC to defer any rate hike until at least the July meeting. In fact, I’ll be surprised to see one at all.

Sound Money or Monetary Madness

Many describe Warsh as a “sound money” guy, having been greatly influenced by Milton Friedman. He’s been critical of quantitative easing (QE): the Fed’s purchases of securities for its own balance sheet to provide liquidity to the markets and banking system. If the hostilities continue in Iran, Warsh is more likely to favor quantitative tightening (QT) in the short-term than rate hikes. QT would involve reductions holdings of securities on the Fed’s balance sheet, which Warsh has long advocated.

On the other hand, Warsh has been undaunted in insisting that the AI revolution will be a dramatic deflationary force. That’s a longer-term proposition, but it reinforces his preference for lower rates. So Warsh is for “sound money” and would like to see QT, but he also prefers lower rates and apparently believes that AI might justify a more expansionary monetary posture. So where does that leave us?

Squaring the Circle

A few months ago I described a coherent policy agenda for the Fed under Kevin Warsh, given his policy preferences. It might have lacked realism in terms of Fed politics, but it was motivated by the question of whether lower rates are compatible with QT. The discussion did not anticipate the Iran conflict and its economic and financial consequences.

Lower rates and QT would be compatible if the Fed enables and incentivizes commercial banks to hold more securities and lend more aggressively. This would require regulatory changes as well as reductions in interest on bank reserves (IOR) held at the Fed.

Judy Shelton in the Wall Street Journal has made the same point, characterizing such a policy shift as “pro-market”. That’s because it would allow banks to invest in relatively safe assets, would eliminate a subsidy masquerading as a price (IOR – though fully administered), and would mean a transition from the Fed’s emphasis on maintaining ample bank reserves to scarce bank reserves. The latter would restore activity in the market for overnight loans of reserves (federal funds), which would then trade at a price corresponding to their degree of scarcity. That would provide an important signal to other markets, not to mention the Fed itself. Today, that signal is distorted by the Fed’s provision of ample reserves (repo rates notwithstanding). Jai Kadia and Norbert Michel have made a similar argument, along with advocating for rules-based monetary policy, rather than frequently destabilizing discretionary actions.

Momentum

In April, David Beckworth noted that momentum is building in influential circles for this change, which he describes as a “demand driven” approach, as opposed to the “supply driven”, ample reserve operating procedure now in force. This is the more common at many foreign central banks, and it has received prominent mention in recent speeches and statements by Fed officials. As Beckworth puts it in the title of his post, “The Fed’s Overton Window Is Shifting”.

Beckworth also mentions Warsh’s desire to establish a new Treasury-Fed Accord. The original 1951 Accord established the Fed’s independence from Treasury financing operations. Today’s ample reserves approach has made it far too easy for the Fed to succumb to pressures to monetize deficits and intervene in capital markets to manipulate longer rates. Warsh would surely like to re-establish the Fed’s monetary authority as a separate and independent function from Treasury financing.

The Fed Board of Governors (BoG) must approve changes in interest on reserves (IOR). (Better yet, an act of Congress would be required to prohibit IOR.) But Warsh, who is said to have good relations with the Fed staff and other Fed governors, is less likely to get a majority on the BoG than even the FOMC. For now, he’ll have to be persuasive to gain the support of a majority of either body.

Summary

Kevin Warsh is likely to argue strenuously for reductions in the size of the Fed’s balance sheet, and would almost certainly be happy for the FOMC to defer any rate hikes pending more clarity on a resolution to the Iran conflict. He will also argue for creating greater incentives for banks themselves to invest in Treasury debt, including reformed regulations on bank asset holdings and reduced interest on reserves held at the Fed. Ultimately, that would pave the way for lower rates on a variety of assets. But the Fed should be probably be cautious and gradual in the implementation: the changes to IOR and bank regulations must be well coordinated with QT and money growth must be calibrated to meet the Fed’s inflation target (or better yet, a nominal GDP target — see Part 2 of this post).

Isotopes Point To Natural CO2 Origins

21 Thursday May 2026

Posted by Nuetzel in Climate science, Global Warming

≈ Leave a comment

Tags

Anthropogenic Global Warming, Bio-Decay, Carbon Isotopes, Climate Change, Cloud Cover, Drought, Forest Fires, Fossil fuels, Geothermal Activity, Global Greening, Global Temperature, Heather Graven, International Panel on Climate Change, IPCC, Jonathan Cohler, Little Ice Age, Ocean PH, Plant Respiration, RCP8.5, Roger Pielke Jr., Sea Levels, Severe Storms, Solar Radiance, United Nations, Willie Soon

Evidence is piling up that claims of anthropogenic global warming (AGW) and an incipient climate apocalypse have constituted vast exaggerations if not outright falsehoods. And for several years it’s been hard to miss indications that the social mood has shifted away from climate alarmism. That’s true inside and outside the climate science community, where so-called “consensus” has given way to growing skepticism and dissent.

Backing Away From Crazy Town

The most prominent shift in the climate “vibe” involves the Intergovernmental Panel on Climate Change (IPCC), which has grown to be the chief climate-change propaganda arm of the United Nations and the environmental left. The IPCC has now received new climate change scenarios from an upstream committee to be used in the IPCC’s upcoming Seventh Assessment Report (AR7). Roger Pielke Jr. reviewed the changes, which are noteworthy due to their scaled-back projections of atmospheric CO2 concentrations and global warming.

The three most extreme scenarios for CO2 forcings have been eliminated: RCP8.5, SSP5-8.5, and SSP3-7.0. These scenarios have become “implausible”, according to this paper, which credits renewable energy and climate policy for the changed outlook. “Implausible” is the right word, but this narrative is a preposterous attempt to save face. The extreme scenarios were never realistic, and that should be obvious to even the climate-change orthodoxy.

Given the IPCC’s track record, it might be surprising that the extreme scenarios were so influential. The most extreme, RCP8.5, was used in over 17,000 papers as the basis of climate change and various damage calculations. It’s not been unusual for documents to go so far as to describe RCP8.5 as “Business as Usual”.

The best argument I’ve heard in favor of the extreme scenarios is that they represented stress tests that could be used to interpolate many less extreme scenarios without the substantial cost of additional model simulations. A key quote is that “It’s easier to interpolate than extrapolate.” That’s fine, though my own experience in running model simulations informs me that the comment cited at the link likely exaggerates the cost of model runs. Furthermore, “interpolating” complex models over decades is not a simple business, or non-controversial for that matter. And perhaps most importantly, it would have been incumbent on the IPCC and other climate authorities to make clear to the press, the public, educators, and policymakers that the most extreme scenario did NOT represent BAU, and were not to be interpreted as plausible outcomes. That critical disclaimer simply fell through the cracks.

Models, Reality, and Data

That such extreme scenarios should prove influential as key inputs to other models speaks to the confusion between empirical evidence and a narrative treated as consensus by the left, including much of the press. It’s bad enough that so many observers unknowingly take model outputs as empirics. That is all too common in discussions of climate change, but these extreme model outputs go well beyond that sort of confusion, and their promotion seems quite intentional.

Challenging “Consensus”

In my last post I discussed Jonathan Cohler’s take-down of so-called “global temperature” measurements, particularly the Global Mean Surface Temperature. As Cohler notes, this metric is no more valid as a representation of physical reality than an infinite array of other calculations. Cohler has made several other noteworthy contributions to the growing canon of climate realism.

Here I wish to discuss another important Cohler paper, this one with coauthor Willie Soon, debunking the widely-held belief that rising atmospheric CO2 concentrations are attributable to human activity, and more specifically the burning of fossil fuels. Below, I try my best to explain the logic and empirics underlying the Cohler-Soon (CS) conclusions in nontechnical language. Any mistakes are mine.

Isotopic Signatures

CS take advantage of the isotopic “signature” of net carbon additions to the atmosphere. This refers to the atomic makeup (number of neutrons) of different carbon sources. They find that the isotopic signature of the aggregate source flow has been quite stable for decades, even centuries based on proxy measures. But fossil fuels have a more extreme isotopic signature than natural carbon sources. These signatures are illustrated in the graphic at the top of this post, taken from a paper by Heather Graven, et al. Thus, CS conclude that the burning of fossil fuels has had little impact on the (trendless) aggregate source signature (NOT the cumulative atmospheric signature on the upper left of the graphic, which has risen). The source signature should have trended more decisively if fossil fuels dominated the rise in atmospheric CO2, especially as human emissions grew over the decades.

CS find that atmospheric carbon tends to dissipate fairly rapidly due to natural processes: 3.5 – 4 years, contrary to frequent assertions of very slow decay (see CS Table 1). It’s what plants breathe, converting it to oxygen; oceans absorb a great deal of carbon as well. Furthermore, human emissions have accounted for only about 4% of gross fluxes of CO2 into the atmosphere each year. CS state that the balance comes from natural sources such as “oceanic processes and … terrestrial respiration.” These include plant decay and geothermal activity. These natural sources have less extreme isotopic signatures than fossil fuel emissions. (I say “extreme” because most of these signatures take negative values.) Based on these facts, CS show that increases in natural fluxes can easily account for the added CO2 that has accumulated since the 1950s.

An Alternative Explanation

The meaning of the Cohler-Soon paper is that to-date, all but the last several years of human emissions of CO2 are still present in the atmosphere. Obviously, this concentration would grow if annual emissions grow. But to-date, the stability of the net source signature suggests that some other carbon source is acting to offset the extreme isotopic signature of CO2 from burning fossil fuels. In fact, that logic suggests that ocean outgassing, geothermal fluxes, plant decay and the soil biosphere can account for the added atmospheric carbon. Those natural sources have less extreme isotopic signatures, especially geothermal, followed by ocean outgassing.

But what caused this increase in natural fluxes? CS maintain that warming temperatures since the end of the Little Ice Age (1300 – 1850) led to the increase in atmospheric carbon from oceanic and biospheric fluxes. The higher temperatures themselves were not driven by CO2 concentrations but by greater solar radiation, changes in cloud cover, ocean cycles, and deep ocean heating. This conclusion is supported by earlier research conducted by Soon and other authors cited in the CS paper.

Failed Models and Predictions

More and more, we see that virtually every assertion made by the climate-crisis orthodoxy lacks evidence that stands up to scrutiny. The earth is not “on fire”. It is greening beautifully. Here’s a helpful timeline of failed, catastrophic climate predictions made since the mid-1960s. There will be many more. One such failed prediction calls for severe storms to increase in frequency and intensity, but that trend is negative. The trend in forest fires is negative as well, as are droughts, despite alarmist predictions. The oft-cited trend in sea levels has been in place since the Little Ice Age, with no recent acceleration. See this page for information on other climate phenomena that run contrary to the alarmist narrative.

Summary

Evidence from isotopic measures of CO2 over recent decades, and proxy measures over several centuries, show that the much-dreaded rise in carbon concentrations had its probable origin in natural sources. Human emissions are too inconsequential relative to natural sources, and carbon dissipates too rapidly in the atmosphere to support the hypothesis of rising carbon concentration based on human activity. Natural sources include geologic and oceanic outgassing, along with decaying matter and soil. These fluxes were stimulated by warmer temperatures brought on by stronger solar radiance, geothermal deep ocean heating, and changes in cloud cover.

So the evidence strongly indicates that higher temperatures induced more atmospheric carbon fluxes, not vice-versa. But how can that be when the models used by the climate science establishment embed assumptions to the contrary? The answer is that they are models based on sketchy empirics, not reality, and the line of causation seemed logical to modelers searching for a culprit. Furthermore, the causal chain upon which the models depend was often politically and financially expedient. While higher carbon concentrations can lead to rising temperatures given radiative forcing, the effect is weak and tapers at higher CO2 concentrations.

The IPCC’s retirement of its extreme climate scenarios represents a significant change. It is not that the extreme model scenarios have “become less likely”. It’s because those scenarios were always farfetched and reality finally caught up with the extremist narrative. This should give us all pause whenever policymakers attempt to sell costly initiatives to address climate change, anthropogenic global warming, climate sustainability, or the alarmist euphemism of the day. We’re not yet free of the exaggerated climate narratives, as this piece regarding the new IPCC scenarios tells us.

Is “Global Temperature” a Fiction?

01 Friday May 2026

Posted by Nuetzel in Climate science, Global Warming

≈ 1 Comment

Tags

ARGO Buoys, Atmospheric CO2, Christopher Essex, Extensive Measure, Global Temperature, GMST, Intensive Measure, IPCC, Jack Salmon, Jonathan Cohler, NOAH, Ocean Acidification, PH, Price Level, Satellite Temperatures, Sea Surface Temperatures, Temperature Averaging, Urban Heat Island Effect, Weather Station Siting

At the heart of the climate crisis narrative lies a huge weakness regarding a thing its believers take for granted: whether our measures of global temperature are meaningful, let alone reliable. The problems are both at the level of individual weather stations, their siting, their geographical distribution, and perhaps even more critically, their aggregation into the so-called Global Mean Surface Temperature (GMST).

The Weather Station Network

In the U.S. and worldwide we have about one weather station for every one thousand square miles. However, the geographic distribution of weather stations is highly uneven (see the map of land-based stations above) and is more sparse in rural areas than in urban environments. It’s also very sparse in highly remote and extreme environments.

At best, a temperature reading at a particular weather station might be approximately representative of its surrounding area at that moment. However, temperatures from place-to-place are influenced by many varying features of local geography. That includes altitude, the presence of waterways and bodies of water, other surface features such as rock and greenery, and human land use. Thus, conditions at a given weather station might not be at all descriptive of the surrounding area.

Moreover, there are no well-defined geographic “zones” to which weather stations are assigned. Attempts to do so involve arbitrary and irregular boundaries and drastic variations in size. “Averaging” temperatures across such zones requires a crude attempt to assign weights based on distances and ultimately yields mongrelized statistics. Furthermore, daily temperature averages are based on averages of high and low temperatures at each station. Such an average might only describe the actual temperature at a station for an instant, but regardless of duration, the timing is likely to differ across any two stations. Not only that, but many weather stations do not record “daily” temperatures based on normal calendar days. Thus, temperature averages across stations are calculated across locations, extremes only, and time. And again, inputs of temperatures from the individual stations are not representative of their respective zones.

Deterioration in the quality of weather station sites has been the subject of sharp criticism over the years. There are now a large number of poorly-sited stations, often located in close proximity to paved surfaces, concrete, metals, or exhaust fans. These kinds of features impart an upward bias to the local temperature record. Individually, these are small examples of the well-known urban heat island effect. In the aggregate, it creates a substantial exaggeration in temperatures, accounting for about 50% of the estimated warming trend for the U.S.

According to this study, the upward bias is more severe for poorly-sited stations, and the quality of siting often deteriorates over time as urban growth encroaches on outlying communities. Urban sites tend to warm the most, followed by semi-urban sites, followed by rural sites. Even worse, the study found that the NOAH temperature adjustment process creates a contagion of the warming bias, passing biases from poor sites along to better stations as an artifact. That is, the process adjusts temperatures upward for well-sited stations to more closely match poor sites!

Ocean temperatures present their own challenges. Several different techniques have been used over the years, but the most consistent and reliable ocean temperatures are from so-called ARGO buoys, which have been available only since 2003. Before that, ocean temperatures were taken using buckets dipped into the water from the sides of ships, and from engine water intakes. Unfortunately, error rates on reported observations from ARGO buoys (which involve several factors besides the accuracy of the thermometers themselves, such as transmission errors) are unknown, but they appear to be far outside acceptable limits. Thus, reasonably good sea surface records have only recently contributed to global temperature coverage, and even those are subject to great uncertainty. (Satellite temperature measurements, by the way, are really indirect estimates of temperatures based on radiance and subsequent calibrations.)

Thus, historical temperature records are an amalgam of different measurement instruments at different locations at different times of the day, adding layers of inconsistency to the calculation of temperature averages.

Physically Untethered

I was prompted to write this post after reading a mathematical analysis of the impossibility of aggregating temperature readings across multiple weather stations in any meaningful way. The analysis, by Jonathan Cohler, is a damning indictment of GMST as a concept. It relies on a series of calculations and transformations that are arbitrarily chosen from many unsuitable alternatives. Cohler says that such an “average temperature” calculation is necessarily “untethered” from the various states of nature it attempts to summarize.

Temperature itself is a so-called intensive quantity. That means it is independent of the size of the system it characterizes. If you combine it with an identical twin system, the temperature of the combined whole doesn’t double, unlike measures like mass or volume. The latter are examples of extensive quantities.

Temperatures vary from one spot to another within a given system while in disequilibrium, and of course they vary over the course of any day. However, the validity of a temperature measurement at a particular location and time requires a local state of equilibrium in the immediate vicinity of the measuring instrument. Otherwise, a temperature measurement is would not be a valid descriptor of the condition of the (very local) system.

Faulty Aggregations

With that in mind, imagine the many arbitrary ways we can devise to aggregate temperatures across weather stations for which conditions differ drastically. These are all attempts to calculate a single temperature for a large and geographically uneven system in a continuing state of disequilibrium. And every combination of weather station temperatures represents an artificially combined “system” in a state of disequilibrium. That’s true of any two adjacent weather stations or of all the weather stations on the globe. No one method of doing so can claim validity as a measure of system-wide temperature. This contrasts with extensive quantities, for which well-defined rules of aggregation exist (e.g., summation) regardless of a system’s dynamic condition.

Over time, the temperature records involve a changing number of stations, local environmental conditions, accuracy, and a varying mix of seawater bucket measurements, ship engine water intake measurements, and ARGO floats. These disparities reinforce the impossibility of measuring wide-ranging “average” trends in temperature.

As Cohler demonstrates mathematically, these temperature averages are physically meaningless. He offers a crazy-sounding example of blending two intensive measurements: averaging the PH of your morning coffee with the PH of seawater at a nearby coast. This is very much of a kind with averaging temperatures across weather stations under disparate conditions. Furthermore, as noted above, the steps employed to arrive at the temperature to be used for each station, and the weight each station is assigned in the average, is hardly a unique set of calculations. There is an infinite number of equally invalid aggregations of the same data.

Grand Ambiguity

Cohler is not the first to point out that the concept of a global temperature average is physically meaningless. In 2007, a paper by Christopher Essex, et al was entitled, “Does a Global Temperature Exist?” The abstract states (my brackets):

“Distinct and equally valid [or invalid] statistical rules can and do show opposite trends when applied to the results of computations from physical models and real data in the atmosphere. A given temperature field can be interpreted as both ‘warming’ and ‘cooling’ simultaneously, making the concept of warming in the context of the issue of global warming physically ill-posed.”

This is all the more salient in a world with warming biases at poorly sited weather stations and a strong urban heat island effect.

My Glass House?

Of course, there are other areas in which similar statistical “sins” are common, some of which are also used repeatedly by climate alarmists: ocean water PH, which Cohler explains cannot be averaged across “parcels”. The result is meaningless. If that isn’t enough for you to harbor doubts about the ocean acidification narrative, just read the first few paragraphs of the tweet linked above!

Similar examples occur in the world of economic data. For example, prices are intensive measures, but economists often refer to an aggregate “price level”. Can such a thing truly exist? Simply averaging prices of all goods and services creates a meaningless figure. Each price can be weighted in a variety of ways (e.g., by shares of a fixed or varying “market basket”). There are several prominent alternatives, all of which have strengths and weaknesses, but none has a claim as an accurate measure of “the price level.”

In fact, though economists talk about it constantly, it can be said that “the price level” does not exist as an objective reality, just as there is no “global temperature.” The difference is that economists readily acknowledge this fundamental ambiguity surrounding price aggregation. Some even insist, for example, that only nominal aggregates (e.g., total spending = prices x quantities), rather than inflation in “the price level”, be considered in certain policy domains, though there is more than one reason for that preference. In contrast, climate officialdom, within the likes of such organizations as the IPCC and NOAH, are loath to acknowledge weaknesses in GMST.

Conclusion

There are many reasons to question the climate orthodoxy, which holds that human emissions of carbon dioxide, a trace gas, produce a warming global temperature trend. An issue that’s been largely taken for granted is the integrity of the so-called global temperature, most commonly the GMST. The reality is that it’s impossible to identify a unique method of calculating a global temperature. It’s possible to specify many different aggregations of local temperature readings, but there is no “true” way of measuring global temperature. Another way of putting this is that it’s impossible to define a single global temperature as a physical reality. There is no such thing.

Nevertheless, global temperature is a critical pillar on which climate alarmism rests, and Cohler has published equally damning critiques of several other climate measurements (also see here), such as mean ocean PH, ocean heat content, and human contribution to atmospheric CO2. Climate authorities should acknowledge the inherent weakness of relying on temperature aggregations, and especially any one aggregation. Perhaps they could define several alternatives, as economists have with price indices, acknowledging the impossibility of pinning down a true global temperature.

The real lesson here is that we should approach climate statistics both with skepticism and humility. Even if you must pretend that it exists, any measure of a so-called global temperature and its trend is of highly of uncertain value. This is critical when it comes to assessing climate policy. As Jack Salmon says in a somewhat broader context:

“One of the most striking features of modern climate economics is not consensus, it’s dispersion. Depending on which paper, model, or administration you consult, the economic damages from climate change range from modest to catastrophic.“

ESG Contortions: Virtue, Returns, and Politics

01 Wednesday Apr 2026

Posted by Nuetzel in Investing, Virtue Signaling, Wokeness

≈ Leave a comment

Tags

Antitrust, Carbon Credits, Caveat Emptor, Covid-19, DEI, Environmental Social Governance, ESG, ESG Fees, Fiduciary Duty, Greenwashing, Jeb Hensarling, Non-Pecuniary Returns, Obamacare, Phil Gramm, Politicized Investing, Proxy Advisors, Sanjai Bhagat, Stakeholder Capitalism, Trump Executive Orders

Recently I mentioned the many executive orders (EOs) issued by President Trump since his inauguration. He’s on a record-setting pace! Of course, he pushes the envelope because he’s serious about his agenda, Congress is often paralyzed, and because he can. As one X poster puts it, Trump “swings for the fences”. The system allows him to take shots as chief executive, and if you don’t like it you’ll have to wait for the courts to rule on challenges. So far, in cases that have been decided, the Administration’s court record in defending Trump’s EOs would be good for an MLB batting average.

The Circle of Rent Seeking

Like his overall record as president, Trump’s EOs cover the spectrum from very good policy to just horrible. I tend to favor deregulatory actions, but a recent Trump EO bearing on corporate Environmental, Social, and Governance (ESG) scores and DEI practices is a pro-market exception to typical regulatory actions. That’s basically the view expressed by Phil Gramm and Jeb Hensarling of the American Enterprise Institute. The ESG EO addresses potential fraud and conflicts of interest in the promotion of “socially responsible” shareholder initiatives and investing.

I’ve expressed my distain for corporate ESG initiatives in the past (see here and here). The quest to earn a high ESG score is a distraction from a firm’s core mission and often a misuse of resources. Higher ESGs are associated with government subsidies, which closes the circle on the politicization of “sustainable” investing. Plumping up ESG helps firms garner more subsidies and greater subsidies help firms boost their ESG scores. These victories might be more pyrrhic for shareholders as management enlists the firm’s assets into service for government industrial policies that are often misguided.

Seedbed For Fraud

As for protecting investors from the fallout, one can argue that abuses related to ESGs belong to a class of problems best left to the market via caveat emptor. Investors might wish to earn pecuniary returns or they might wish to earn non-pecuniary returns. However, they might not always recognize the possibility of tradeoffs between the two, or the possibility that they are being scammed outright.

Unfortunately, financial decisions involve complexities that are often beyond the ken of the investing public. Their dealings with financial advisors obviously involve information and knowledge asymmetries, which underly the need for fiduciary laws and standards. ESG investing has constituted a kind of fad that has both attracted the naive and was always ripe for abuse by overeager or unethical advisors and other industry players.

Proxy advisors have been heavily involved in counseling public companies on ESG proposals brought before shareholders for votes. At the same time, these proxy advisors often engage in selling ESG metrics, which can create conflicts of interest. In particular, the EO in question seems to target two foreign-owned proxy advisors, who effectively dominate the space.

Investor Protection

The EO in question seeks protect American investors from politicized investment advice and shareholder proposals. That might sound like standard Trumpese for “I want to make my opposition illegal along with anything I don’t like”. However, there are good reasons to support this EO. I’ll get to those below, but first some quick details.

The EO instructs the SEC to review and consider revising rules, guidance and other materials relating to ESG and DEI. Scrutiny of shareholder proxy advisor recommendations is given particular emphasis. There are provisions targeting potential antitrust violations in collaborations between investment and proxy advisors. Also, there are provisions aimed at protecting pension and retirement plans from violations of fiduciary duties and obligations.

It’s hard to argue against standards of fiduciary duty. They ought to be politically neutral by their very nature. Unfortunately, the fascination with ESG metrics has made it easier to dispense poor investment advice, even for those purported to have expertise in the area. This is of greater import given that a significant share of investors have been led to believe that signals of corporate virtue are associated with superior pecuniary returns. It should be obvious that diversion of corporate resources to “social” pursuits must be scrutinized by shareholders and stock analysts. Even more troublesome are efforts that undermine productivity in the name of broad political or social objectives.

Not Objective Measures

ESG’s are by no means standardized. There are a great many vendors of ESG metrics, and they frequently disagree as to the merit of particular companies in terms of social responsibility.

Measuring the social value of particular initiatives or policies can be highly subjective, and weighted aggregations of those measurements into E, S, and G components, and combined ESG metrics, can be highly arbitrary. It’s not an exaggeration to say that the social value of certain key elements are sometimes fictitious, such as the carbon credits so often used as “offsets” by firms whose pollution is unavoidable to one extent or another. The purchase of those credits is a performative exercise that has earned the name “greenwashing”. But it’s seldom a wash. This kind of activity is a wasteful distraction and sometimes downright harmful: so-called deforestation credits might just as well be assigned a negative social value.

ESGs have also tended to reward firms adhering to DEI hiring and promotion policies. Merit takes a back seat. While diverse perspectives can add value in business contexts, HR decisions based on race, gender, or other superficial classifications are unlikely to serve shareholder pecuniary interests.

ESG Performance

Evidence on the performance of ESG funds is checkered at best. This is noted by Gramm and Hensarling, who reference an article by Sanjai Bhagat’s in the Harvard Business Review (also see this study). Bhagat reported that not only are returns on ESG funds inferior, but they fail to deliver enhanced non-pecuniary outcomes. Moreover, ESG funds often carry higher fees to investors. One study found that the willingness to pay these higher fees is driven by financial illiteracy.

A few studies seem to contradict Bhagat’s assertions, but at best the evidence is mixed. An April 2025 paper by two Dutch authors found that only changes in the E component (environmental), as opposed to changes in S and G, were positively correlated with stock returns. Those positive abnormal returns were driven by institutional investors who, despite their presumptive expertise, might be just as cowed as certain individual investors by the appearance of social virtue.

As a reality check, note that one can pick and choose among ESG vendor scores, the stock “universe”, sample periods, and estimation techniques to find positive or negative correlations between ESGs and stock returns.

As I mentioned above, the process of assigning ESG values is highly arbitrary in any case. It’s possible to engineer ESG scores in ways that essentially reward firms with high earnings for minor gestures of ostensible social value, even while ignoring less convenient consequences of a firm’s activity. Thus, the scores can be used to buttress valuations associated with high earnings while maintaining the pretense that the score is strictly about social virtue.

Conclusion

I’d be the first to defend the right of consumers to deploy their savings to political, social, or economic purposes of their choosing. However, they should do so with their eyes wide open. It would be of great benefit if the ESG community would agree to a set of measurement standards. When seeking advice from an advisor or in reading analyst reports, investors should have confidence that the information comes from sources who respect the duties of a fiduciary. In the case of ESG funds or in selecting stocks based on ESGs, investors should be aware that their pecuniary interests might be compromised.

Furthermore, analysts and firms who are in the business of selling ESG ratings should be wholly independent of proxy advisors, investment advisors, and ESG funds to avoid conflicts of interest. Unfortunately, these simple, common-sense guidelines have been neglected. As a result, I support the thrust of Trump’s EO on ESGs to reinforce the fiduciary duties of investment and proxy advisors. It would be even better if Congress could meet this challenge via legislation.

Grading Trump II, So Far

16 Monday Mar 2026

Posted by Nuetzel in Election, Politics

≈ 2 Comments

Tags

Anthropic, central planning, CLARITY Act, Corporatism, DEI, DOGE, Donald Trump, entitlements, ESG, eVTOL, Fed Independence, GENIUS Act, Golden Share, Government Waste, Great Healthcare Plan, Industrial Policy, Jerome Powell, Jones Act, Kevin Warsh, Most Favored Nation Drug Pricing, Obamacare, One Big Beautiful Bill Act, Open AI, Pete Hegseth, Populism, ROAD To Housing Bill, Robert F. Kennedy Jr, SAVE America Act, Stargate, Tariff Dividend, TrumpRx.gov, Voter ID

I voted for Trump because I considered him to be far preferable to Kamala Harris across a range of issues. I still feel that way, but I’m appalled at a number of actions he’s taken and/or proposed in the 14 months since he took office. As a candidate, I gave Trump a “grade point average” of about 2.68, a solid C+. Here, I’ll grade him on most of the same categories, but I’ve made a few changes to the categories based on developments since his inauguration. My perspective here is generally domestic non-intervention and small government.

Yes, I realize this is tldr; I’m sure I elaborated more than necessary, but you can skip around and scroll to sections in which you might have greater interest. Here’s a list of topics:

Role of Government
Regulation
Border Policy
Antitrust
Foreign Policy
Trade
Taxes
Inflation
Federal Reserve Independence
Federal Spending and the Deficit
Entitlement Reform
Government Waste
Health and Health Care
Abortion
Housing
Energy
First Amendment Rights
Second Amendment Rights
DEI and Its Evil Financial Twin, ESG
Technology
Voting Rights
Education

Role of Government: It’s probably unfair to treat this as a separate category because it might double count specifics mentioned later, but Trump has demonstrated an unfortunate proclivity for wielding government power over private affairs when it suits him politically. On this point, “The Conspicuous Fist of Trump’s State Corporatism”, is a good read. Trump’s actions demonstrate the awful ways in which populism is often a close cousin to socialism. An example is Trump’s economic micro-management and abrogation of property rights in attacking share buybacks. Trump boasts of his efforts to strengthen the American economy by committing public resources to investments in private enterprises, and by “doing deals” with foreign governments to invest in the U.S. When it comes to limited government, candidate Trump’s C is now President Trump’s D.

Regulation: Despite the kinds of intrusions cited above, the Trump Administration has, at the same time, aggressively pursued deregulation of private activity. The goal is to achieve a 10-to-1 ratio of rule rollbacks to new regulatory rules. One can and should assess regulatory measures one-by-one, but there are plenty of rules that wouldn’t pass a reasonable cost-benefit test. On the whole the regulatory state has grown unwieldy and imposes significant costs on producers, and ultimately taxpayers and consumers, often with little compensatory benefit. I applaud the effort to untangle the regulatory state. My grade for Trump here remains an A.

Border Policy: Despite my preference for non-intervention, I support strong border enforcement along with expanded legal immigration.

Illegal entry has plummeted under Trump, a welcome development. Uncontrolled immigration entails a loss of sovereignty and is a poor fiscal proposition. Those with deeper criminal records, from either before or after entry, deserve no concessions. Strict vetting is also necessary to prevent incursions by potential terror threats.

While illegal entry is a crime, otherwise innocent illegals should be treated kindly. For example, rewards can be offered for voluntary deportation, an approach used extensively by the Trump Administration. There are difficult issues such as birthright citizenship, the constitutionality of which has been questioned on textual grounds, and the practicality of which can be shaky, even for children of parents who enter the U.S. legally. Either way, it seems clear that the promise of birthright citizenship should not serve as an incentive for illegal entry.

The Administration has certainly fumbled immigration enforcement in some instances, with cases of improperly detained individuals. Furthermore, very little has been done to advance the cause of increased legal immigration. On this topic I give Trump an overall B-.

Antitrust: This is a case of excessive government meddling with a big dose of favoritism thrown in. Early on, the Trump Administration chose to follow in the footsteps of Biden-era antitrust enforcement with a bias toward penalizing successful businesses on the pretext of “protecting” consumers.

Even worse, the Trump Administration has used the threat of antitrust as a cudgel in pursuit of a variety of objectives that are purely political. For example, in a recent executive order (EO), Trump threatened antitrust action against companies who invest in *too many* single-family homes, a counterproductive prohibition with hoped-for appeal to populist instincts. Then, under Trump, there have been missives from the FTC to tech companies about their failure to provide “balanced” news coverage, a prerogative protected by the First Amendment.

Trump has also interfered with Netflix’s now aborted acquisition of Warner Bros., in favor of a rival offer from Paramount. Trump also engineered the coercive extraction of a U.S. government “Golden Share” in approving the merger of U.S. Steel and Nippon Steel, which Trump claims gives him “total control”, in part by controlling the number of board seats. And he basically extorted a 15% cut for the government for approving a deal allowing Nvidea and AMD to sell the older H20 chip to China.

Trump’s approach to antitrust is very much entangled with the Administration’s uninhibited embrace of industrial policy and public control over private activity. He shares a fantasy common to interventionists that he can leverage the coercive power of government to create just the outcomes he would like.

The grade here is a D, which I think is generous.

Foreign Policy: I’ll try to keep this category separate from trade and tariff issues, though they are intertwined. Trump’s approach to foreign policy is nothing if not bold, and it’s been a mixed bag in terms of success. In the western hemisphere we have the so-called “Donroe Doctrine”, Trump’s effort to establish U.S. hemispheric leadership. So far: we gained a more effective partnership with Panama over the canal and diminished China’s control; decapitated the Maduro regime in Venezuela, asserting control over its oil shipments and undercutting the flow of narcotics through the country; brought the Cuban communist regime to near collapse by choking off its oil imports (but at the cost of greater human suffering in Cuba); partnered with Mexico in eliminating the head of a major drug cartel; and developed closer ties with several conservative regimes in Central and South America.

I’m troubled by the deadly force used against vessels said to be transporting drugs. We might have great intelligence on smuggling operations, but there must be less deadly ways to interdict.

For better or worse, Trump has trolled Canadian leadership in an effort to provoke dissent and gain influence there with respect to trade and security issues. His provocative stance on Greenland is primarily motivated by concerns over security in the Arctic.

Trump’s action against the repressive Iranian theocracy, its support of terror, and its nuclear ambitions has been a military success. Unfortunately, it has come at the cost of some American lives, at least a few civilian casualties in Iran, and a considerable economic cost. We can only hope for quick resolution and a transition to a more liberal regime for the people of Iran. However, Trump was patient to a fault with the mullahs, offering them an off-ramp during repeated rounds of negotiations. They refused to take it.

Of course, Trump is also pro-Israel and has rallied a coalition of nations who might contribute to a revitalized Gaza. I give Trump huge props for his support of Israel and his disgust with anti-Semitism in general.

Trump’s involvement in negotiations between Ukraine and Russia have been unsuccessful. It’s fair to wonder whether he’s cutting Putin way too much slack, as Putin has no intention of relenting. China remains a major threat to U.S. interests and our allies, but many of Trump’s foreign policy initiatives have served to undermine CCP interests.

Trump unique approach has alienated some of our traditional European allies, though he has had success in influencing policy abroad. In Venezuela, it’s worrisome that Trump acts as if he’s cultivating a relationship with Maduro’s replacements, who are probably no better than Maduro except for their eagerness to cowtow to Trump. Well, maybe, maybe not! Also troubling is the collateral damage suffered by the people of Cuba. There are signs of a willingness among Cuban leaders to negotiate with Trump, though hopes for a friendly successor regime might be foolish.

On the whole, I’ll give Trump a B on foreign policy. It’s bold, but he’s had some real successes.

Trade: I gave Trump an F on trade policy as a candidate. He’s more than justified that grade as president. He is a complete dolt when it comes to the benefits of foreign trade, the meaning of a trade deficit, the costs inflicted by tariffs, their complete inadequacy as a replacement for the income tax, and their counterproductive effect on foreign investment in the U.S. His “emergency” tariffs constituted a huge tax increase on the American people, but those were ruled unconstitutional by the Supreme Court. His latest ploy is to impose punitive tariffs under the guise of a balance of payments emergency, but the balance of payments is zero! This too will be struck down in the courts.

Some might argue that Trump’s other foreign policy achievements would not have been possible without the threat of tariffs, but the fact is Trump imposed the tariffs anyway. Yup, it’s an F.

Taxes: In terms of budget effects, the increased tariff revenue (which might not last at present levels) is much more than offset by tax provisions in the One Big Beautiful Bill Act (OBBBA) passed into law last summer. It makes permanent many of the reductions in the Tax Cuts and Jobs Act of 2017 that had been ready to expire. The standard deduction is increased and more limits are placed on itemization. The Act also creates targeted (and temporary) deductions for tips, overtime, auto loans, and seniors, which is inefficient because it treats various forms of income differently, leading to incentives for unproductive reallocations. Those changes also smack of political pandering.

The OBBBA makes permanent some tax incentives for business, such as immediate expensing of short-term asset purchases and domestic R&D investment. It also provides a temporary 100 percent deduction for certain structures and phases out tax credits for green energy production (bravo!).

To the extent that the tax package includes some pro-growth elements, I applaud it. Tax reductions generally are a good thing because they reduce distortions, but Trump has managed to introduce several distortionary elements just the same. I won’t dock Trump for deficit effects here because the deficit is fundamentally a spending problem, not a tax problem. I gave him a C+ on taxes as a candidate, but I’ll boost him to a B- for his first year.

Inflation: Trump doesn’t have real control over inflation as economists define it, but he’s managed to aggravate some price increases just the same. Unfortunately, he makes repeated claims that “prices have fallen” under his leadership, which of course is false. Egg prices perhaps, and oil prices (er… not this month). Of course, in general prices are up, including import prices. Inflation measures have been fairly steady over the past year, but remain stubbornly higher than the Federal Reserve’s target. I give Trump a grade on this topic only because he deserves a penalty for his false boasts. It’s a C, the same as candidate Trump.

Federal Reserve Independence: Trump has relentlessly badgered Jerome Powell and the Fed to somehow engineer lower interest rates. Of course, many key interest rates are market driven and outside the Fed’s direct control. Trump has gone so far as to bring lawfare to bear against Powell, accusing him of misleading Congress regarding cost overruns on the renovation of the Fed’s offices in DC. Of course, it’s not unusual for a president to jawbone the Fed, but Trump has been absurdly aggressive at a time when reducing the Fed’s rate targets would quite possibly backfire. At least Trump’s selection of the next Fed Chairman, Kevin Warsh, was more reasonable than another top candidate who would probably have been a mere punching bag. For this, I’ll lift his grade slightly, from an F to a D-.

Federal Spending and the Deficit: I discuss a few components of spending under other headings below. Beyond those points, Trump has taken every opportunity to find creative uses for taxpayer money. He has proposed a “tariff dividend” for all households funded by the revenue from import taxes. (Refunds of tariff revenue to “payers” are still in question.) At this point, the better alternative is to put extra revenue toward paying down the federal debt. The same goes for any revenue earned from the many “deals” Trump is counting on. Pay down the debt and earn an immediate, certain, and lasting return, rather than installing the government as part owner of otherwise private enterprises having uncertain returns.

Apart from that and the folly of establishing a sovereign wealth fund while the public debt is burgeoning, Trump has made no progress whatsoever on deficit reduction. Granted, he can’t count on strong legislative support despite slight majorities in both chambers of Congress.

The tax cuts in the OBBBA obviously don’t help the cause of deficit reduction. In fairness, rebuilding the military is a major priority. However, interests costs on the debt will keep rising as will discretionary non-defense outlays. At least the East-Wing Ballroom, the Arc de Trump (!), and the Kennedy Center renovation all appear to be privately funded.

Trump deserves a D here. Some of his priorities are terrible, and I can’t cut him any slack based on trends in discretionary spending.

Entitlement Reform: Trump has been silent on reforms to Social Security’s “Old Age and Survivors” programs and Medicare, except to promise no cuts in benefits under his watch. Kick the can! However, the administration has considered cuts in other entitlements, such as Social Security Disability Insurance, Medicaid and Supplemental Nutrition Assistance (SNAP). These programs have been riddled with fraud, so I applaud steps to clean them up. Nevertheless, any progress made here will still be dwarfed by the insolvency of the Retirement and Medicare programs, which Trump considers a third rail for potential reformers. I gave him an F as a candidate, but his anti-fraud efforts help him salvage a C-.

Government Waste: DOGE was short-lived as originally constituted, its execution was clumsy, and the blow-up in Trump’s relationship with Elon Musk was an embarrassment. However, DOGE was a force for stanching the flow of taxpayer dollars through politicized NGOs. The budget savings were relatively small, but the defunded programs were often egregious varieties of government waste. Subsequently, DOGE personnel had an outsized influence on downsizing the federal bureaucracy and targeting waste across various agencies. In addition, the efforts of one-time DOGE workers were put to good use in identifying entitlement fraud, which could and should result in budget savings. Trump gets a B+ on this one.

Health and Health Care: I’ll give Trump credit here for pursuing a more consumer-oriented approach to health care reform, though at least one of his initiatives is counterproductive.

His initial steps took the form of EOs reducing subsidies paid on ACA marketplace policies, ending remaining penalties for violating the ACA’s individual mandate, approving short-term coverages free of certain ACA restrictions, cutting Medicaid expansion funding, and granting more flexibility for states in defining “essential” healthcare benefits. All of these are basically good steps.

Trump issued an ill-conceived EO calling for “Most-Favored Nation” (MFN) prescription drug pricing, which should reduce Americans’ prescription costs but will dramatically undercut life-saving drug research. Hate the pharmaceutical companies all you want, but they must earn a reasonable profit to risk the massive development costs of new miracle drugs, of which they’ve brought many to market. Price controls always create more problems than they solve.

In early 2026 Trump introduced his “Great Healthcare Plan” (GHP). It would codify MFN drug pricing, fund cost-sharing reductions for ACA plans, encourage price transparency, and redirect payments to consumers and away from insurers to facilitate choice and competition. Also launched was the TrumpRx.gov platform featuring MFN pricing. Ironically, the goal here is to improve access to prescription drugs. Good luck!

Under Robert F. Kennedy, Jr., Trump’s HHS Secretary, the “Make America Healthy Again” agenda has emphasized a healthy diet and exercise, including noteworthy changes in the famous food triangle hierarchy. I can’t argue with those. However, RFK Jr. has upended research under HHS, and those actions were rash in a number cases. He wants to address chronic diseases but I’m skeptical of some of his causal claims. I also have mixed reactions to his changed guidance on vaccines. There are reports that the White House has not been comfortable with all of RFK’s pronouncements and is eager to inject more oversight.

I have varied reactions to Trump’s efforts in the health care arena. MFN price capping is a good way to destroy the advantages Americans enjoy in terms of access to innovative drugs, even if they come at a steep cost. RFK Jr. is a wild card, to be fair. Otherwise, while the GHP should help to improve healthcare affordability, it neglects other critical reforms such as ending the disparate tax treatment of health care premiums and deregulating providers. Still, Trump’s grade improved here, from a D+ as a candidate to a B- thus far in his term.

Abortion: No change here. Trump has consistently supported the right to life. He gets an A.

Housing: Build Baby Build! But aside from harping on the Fed to lower interest rates, Trump hasn’t done much to encourage housing supply.

His EO banning institutional investors from owning “too many” single-family homes won’t help affordability because so few homes are owned by large investors. But to the extent that they are, the EO will increase rents and discourage new housing supply. This is another misguided foray into central economic planning.

While I think a 50-year mortgage should be legal, it’s something I believe potential homebuyers should avoid unless they want to risk stubbornly low equity in their homes stretching into retirement. Trump shouldn’t talk this up too much.

Trump has supported the “ROAD to Housing” bill, which has garnered bipartisan support. It would codify the restrictions on ownership of single-family housing by institutional investors and restrict construction of “rent-to-own” housing by such investors. One couldn’t invent a less effective way to encourage supply and promote “affordability”. But the bill would also subsidize demand, which will increase pressure on housing prices even as the bill aims to assist particular groups (e.g., tax credits for first-time homebuyers). Despite all those downsides, the bill actually includes a few steps to boost housing supply, such as making some federal lands available for development, regulatory reform, and tax incentives for builders.

Trump has also discussed changes to government sponsored enterprises (GSEs, Fannie Mae and Freddie Mac), which purchase new mortgages from lenders, including possible privatization. He might be licking his chops for the $300 billion the GSEs owe the federal government, which could be put toward various “deals” he might like to cut. If privatization were to end the explicit government guarantee for mortgage-backed securities issued by the GSEs, mortgage interest rates would rise and it could be quite disruptive for banks.

Update: On Friday, March 13, the President issued an EO entitled “Removing Regulatory Barriers To Affordable Home Construction“, which looks sensible at a glance.

Housing policy is another mixed bag for Trump, but I’ll give him a B on the strength of his deregulatory effort.

Energy: Drill baby drill! Despite the current disruption to oil shipments through the straight of Hormuz and the spike in oil prices, I deem Trump’s energy policies a success thus far. Largely through deregulation, Trump has opened up the spigots on domestic oil production. He has also realigned energy priorities, eliminating subsidies and mandates for intermittent renewable energy sources in favor of encouraging fossil fuels, hydroelectric, and especially a new emphasis on nuclear power. Some of these steps represent unabashed central planning, so I can’t give Trump an A on energy policy,. However, the preceding green-energy regime was central planning on steroids with the unintended consequence of instability in the power grid. I would greatly prefer a policy of complete neutrality with respect to energy sources, but at least Trump is not cowed by global warming hysteria.

And Trump is considering a temporary suspension of the Jones Act due to the energy crunch brought on by the war in Iran. That would be great except that the waiver should be permanent. The move would lower energy (and other) costs to U.S. consumers and minimize supply disruptions by allowing energy (and other goods) to flow more freely between U.S. ports.

His grade on energy policy is a B.

First Amendment Rights: Trump has not been the defender of free speech that I had hoped. On this, I gave him an A- as a candidate, but his Administration has been belligerent in attacking speech. He (and his FCC Chairman) threaten media outlets with license revocation, his Attorney General says “we will target you” for anything DOJ attorneys might define as hate speech, and Trump has called certain speech he dislikes “illegal”. I also have qualms about an EO issued last year by Trump targeting “campaigns of … radicalization”, which might, in practice, bring any sort of opposition speech under scrutiny. And there are other potentially troublesome provisions for protected speech. Trump’s pure intent might be to stop violent radicalism, which is fine in spirit but hard to bring off without mass surveillance and violations of rights. I therefore downgrade Trump to a C on free speech.

Second Amendment Rights: Trump has not been quite as consistent on gun rights as he was as a candidate. He took a number of actions to reduce burdens and restrictions on gun rights, but in other cases he let restrictions stand, including arrests for gun possession in Washington DC by federal agents and a possible proposal to restrict the gun rights of transgendered individuals. All-in-all, I’ll reduce Trump’s A on gun rights to a B+.

DEI and Its Evil Financial Twin, ESG: There is no question that Trump has done much to cut through the stranglehold that DEI doctrine had imposed on social and economic life. He issued EOs to end DEI practices in the federal government. He also threatened major universities with funding freezes and anti-discrimation actions, an approach that has met with some success. Trump’s words and actions on DEI have reverberated through the private sector as well. He has encouraged individuals who believe they’ve suffered discrimination based on DEI to file lawsuits. The thrust of the Administration’s agenda on DEI and regulatory changes has served to undermine the use of ESG measures. These are intended to draw investors to companies purporting to foster environmental and social goals, which can be at odds with creating value for shareholders. Trump has earned his A in this category.

Technology: As in other policy domains, the record here is marred by misguided industrial policies. That includes the recent snafu over the Department of Defense’s allegation of “supply chain risk” posed by Anthropic. DoD wants carte blanche access to all aspects of any AI model it adopts, including uses in autonomous weapons systems and mass public surveillance. Anthropic said it would not accept that without guardrails, so an apparently infuriated Pete Hegseth moved to designate the company a supply chain risk, an outright punishment that would obviously damage Anthropic’s economic prospects. Yet almost immediately, DoD agreed to an arrangement with OpenAI with guardrails similar to those desired by Anthropic. Now, Trump, who seems to have Hegseth’s back, is readying an EO on the topic… so we shall see. But it’s a mess. Anthropic has filed suit.

And yet Trump has generally been supportive of AI development, signing an order to prevent states from imposing a patchwork of varying, complex regulations. The White House has issued an ”AI Action Plan” to encourage AI exports, minimizing federal regulatory burdens, and “upholding free speech” on “unbiased” frontier models. Let’s hope “unbiased” has a truly neutral definition in this case. Trump has signed a series of EOs related to AI research and deployment, which are linked here.

Post-inauguration, Trump dove right into another socialist joint venture known as Stargate to build data center infrastructure. The rationale for the government’s direct involvement is national security. Of course, that’s the Administration’s rough and ready excuse for almost any kind of intervention.

Trump has helped promote the crypto industry, supporting legislation (the CLARITY Act and the GENIUS Act) enabling more widespread use of stablecoins. He even supports the payment of returns on stablecoins, a development that is unpopular with banks. Trump has also acted to promote cybersecurity and harden infrastructure against malicious actors. More recently, he initiated a program to test eVTOL technologies (electronic vertical takeoff and landing), which are expected to revolutionize local and regional transportation in coming years.

The best I can give Trump on technology is a B-, given his penchant for government control. The Anthropic controversy is a real black eye.

Voting Rights: The Trump-backed SAVE America Act would require an ID proving citizenship to vote in federal elections. It’s stalled in the Senate, seven votes short of the 60 needed to send it to Trump’s desk. GOP senators are unwilling to force a talking filibuster, let alone to use the so-called “nuclear option” to force a simple-majority vote. There is still a possibility of including a voter ID requirement in a budget reconciliation bill if anyone can convince the Senate Parliamentarian that it would have budget impacts. For his part, Trump says he’ll refuse to sign any other legislation until the SAVE Act crosses his desk, though he’s also threatened to issue an EO mandating voter ID should the Senate fail to pass the bill. The constitutionality of such an order would be challenged, of course, but for his determination on the issue, I’ll give him an A+.

Education: This is a quick addition to the list. After inserting the photo of Trump at the top, I realized that I’d completely forgotten to add education as a performance category. Trump’s effort to dismantle the wasteful and unproductive Department of Education is to be applauded. He’s also been an unwavering supporter of school choice. I’ll give him an A here.

I have to stop! That’s 22 categories and a “grade point average” of 2.55 if the categories are equally weighted. It’s a little worse than Trump’s GPA as a candidate (2.67). He could have improved his grades dramatically without his bent for economic intervention, but I’d have to vote for him again given the alternative.