Comparative Advantage doesn't rule out tariffs. We heavily tax domestic labor and equipment. Without tariffs we have subsidized outsourcing, not free trade. For example, a switch to the Fair Tax would be the equivalent to a 30% tariff on all foreign consumer goods.
We did have a protectionist system prior to the income tax. Then, the federal government taxed foreign merchandise at a much higher rate than domestic.
If the combination of income and FICA taxes add up to the same as the tariff rate, importing vs. making it here is revenue neutral.
Some would argue that income and FICA taxes support the workers and businesses which pay these taxes. Partially true. However, when blue collar wages go up, the federal government's welfare burden goes down. Also, the federal government is a major purchaser of domestic labor. By putting too much of the tax burden on domestic labor, the government is taxing itself. This is not sustainable.
In other words, Trump is not protectionist enough. 30% tariffs should be the baseline, with special deals for very close trade partners or poor countries we want to subsidize. (OK, maybe a bit lower since state sales taxes have the same effect as tariffs for foreign made consumer goods. Go for 23%
You make an excellent point about the way we tax income (labor). That's not "free" trade - it's discouraging domestic production. Amazing how hard it is for people in DC to understand that you get more of what you subsidize and less of what you tax. They act as if everything is static.
John Gallagher & Ronald Robinson, in their landmark essay “The Imperialism of Free Trade (1953), go over all the considerations that Great Powers make when they reach their zenith & midday & Ipso Facto how such considerations make them pursue ‘Free Trade’ against others.
Tariffs & Protectionism, meanwhile, are deployed in two instances.
The first is during the Ascension/Growth phase, when said Burgeoning Great Power defends its productive forces, labour pool, etc, from foreign actors trying to seize control of the market using various tactics (such as dumping lots of cheap product & cratering prices).
The second is during the Decline/Demise phase, when the said Weakened Great Power seeks to ‘jolt’ the patient whose heart rate has flatlined on the operating Table. Tariffs in this scenario are more used as leverage to get certain actors (like private enterprise & governments) to BEHAVE a certain way, as opposed to the Tariffs themselves ‘equalizing things on a Dollar per Dollar basis.
Yeltsin’s Shock therapy comes to mind as a more modern example of this, while the ‘Price Revolution’ of the long century & a half decline of the Spanish Empire... is a more Classic case.
Anyhow, it’s a ‘Hail Mary’ which has implicit to it these notions that ‘Actors X, Y & Z will change their behaviour BECAUSE of these Tariffs or these threats’... which alas is Optimistic silliness.
The Truth is that (for instance) even if America puts Tariffs on Canada & gets a significant cash windfall, that is brutally offset & turned red by lower volumes of Canadian Oil reaching American markets. Ditto for many other ‘simple’ & fundamental goods used as cheap inputs in various sectors. Steel comes to mind when considering that ‘US firms that produce steel’ is easily dwarfed by ‘US firms that NEED steel.’ This is now a feature, not a bug.
These pursuits will deindustrialize America at an accelerated pace since many firms will go to alternative markets. Meanwhile, those that stay with the US market will lower volumes & these low volumes will mean the cash windfall turns red in the medium to long term.
Great comment and ditto to the author. The material input side of things has the potential to derail a substantial portion of the economic boom likely to arise from Trump's view on economic policies more broadly. Job gains in steel or oil stemming from tariffs are always going to be outweighed by damage caused in the later stages of the supply chain, where all the value add occurs. I imagine Trump is really after the value add, particularly in relation to China. He's made quite serious noises about high value manufacturing in the past.
That being said, there are huge opportunities for American renewal in other areas of resource extraction. With mining, it's a poorly kept secret that China has been funding activist groups for decades, in the interests forcing politicians to veto new American mineral extraction. Meanwhile, the American lumber industry suffered quite substantially during the late 2000s for a number of reasons. Although production in board feet has since recovered, this represents a huge opportunity- especially given one of the easiest ways for MAGA to keep the Dems in the political wilderness for 20 years, would be creating Federal libertarian land reforms to power a generation of cheap new starter homes for American kids desperate to buy a home and start a family- a key factor in reversing the ticking timebomb of negative internal population growth.
Innovation is the key. Sweden in particular has had successes with their prefabricated approach to housing. Cheap to heat or cool as well- thermal insulation in this type of housing is exceptional. If only the Swedes weren't forced to export their otherwise cheap energy to Germany to cover-up for the absolute failures of wind and solar deployed at scale. We are experiencing the same form of failed climate policy denialism here in the UK...
Great to learn that Sweden is leading in lower cost pre-fab housing, which probably now has even greater configuration flexibility than I can imagine without personal close inspection. Germany also has had success with "almost" totally passive energy homes, although I don't know the cost penalties involved there.
Also good for northern climes to have a means to get a building up and sealed for other interior work to continue during winter. But I gather the slab and shell are about 20% of the cost of the final home. I would like to see or hear more about prefabbed plumbing assemblies "slapped" or placed in the (hopefully usually) interior walls. And something about pre-formed strips of wiring that can be peeled apart from a core as the wiring is used for various room circuits, etc. (sort of a larger scale printed circuit board just above the ceiling? Or a spine and rib configuration?). Or pre-wired panels feeding various outlets, but also plugged together as panels are joined to make exterior and interior walls? HVAC is something I expect the Swedes and Germans to have well under control, but they also must be designed for factory pre-prep installations plus wise layout of distribution channels, etc. In the US anyway, we still have a lot of screwing assembly rather than push and click "design for assembly" processes [to include easy release methods, too!]. Battery powered screw drivers help, but still faster modes are possible with proper planning.
Also, materials and labor are only part of the cost. We (in FL anyway) have and need impact fees to cover the costs for infrastructure, schools, police, etc., for new developments. Ideally all new owners contribute to their impact on a locale and society where they live. Make those costs and their justification public and open. Here they can run $10-$15K per house!! Subsidize lower income groups openly or recover those costs at a later state of life? Using factory quality control should also reduce the costs of building inspections to code, etc.
Hopefully also no costs for bribing officials for approvals, smooth processing for mortage loans, and other factors of administration?? Housing and real estate have a lot of codes and rules and regulations and laws for a reason, but why does a subdivision house need to be resurveyed as part of each sale to a subsequent owner? Concrete markers in the ground from initial survey = done and done. [Maybe with "home grown"GPS confirmations of the corners and boundaries via a cell phone? It also should not take 15 to 30 years to clear a questionable title: petition a court to clear it on your behalf = also done and done. Attack these admin costs and housing becomes affordable again??
Interesting points - especially about Chinese disguised advocacy for "green" policies here preventing the US from using our natural resources while they do the opposite.
Most people I know don't think we'll collect a ton of real money from tariffs. I do think the President's recent comments on reciprocal trade are important. Many in the US are for "free trade" without realizing that foreign markets are closed to our producers.
This does have an effect - hollowing our our manufacturing base. In my opinion reciprocal tariffs are one way to reduce government burden (if everyone lowers rates) and to increase domestic production. As noted in my article, some of that production is necessary for national security. Other aspects matter for quality of life. At a minimum, the current situation isn't working for many Americans to it's worthwhile to try to do something else.
Yep, I agree. On the foreign markets thing, it's exactly why Bannon and Trump were absolutely right about bilateralism, as opposed to the multilateralism which gives the one world brigade such rosy feelings. Multilateralism lacks teeth as an enforcement mechanism.
The other thing is regulatory burden. In the UK and Europe it's common for those opposed to farmers to argue free trade- they always fail to mention the huge costs imposed by the regulatory state, and the fact that it's not fair competition. I've heard the same thing happens in America- the 'go big, or go home' mentality of the USDA. I know a wealthy American geologist from Texas who desperately wants me to write an essay about Norman Borlaug. He routinely gets incensed by people defaming his legacy.
Plus, it's pure fiction- there is great source from Our World in Data which shows that North American synthetic fertiliser usage hasn't really increased since 1961. In Europe the figure has actually lowered substantially. Almost all increased fertiliser usage since 1961 has been in the least economically developed countries (something the source actually built into the graphs). Anyway, how fucked up is it that the people informing policy makers don't know the difference between the advent of synthetic fertilisers and the Green Revolution!
I did a pretty deep dive on the issue, just out of interest- although I did write a short piece on the Dutch Farmers, just before other far more prominent Substack writers took a crack at it. I found a number of American agricultural colleges who were convinced cover crops were the answer to nitrogen runoff, but they were all emphatic they didn't want government anywhere near the issue. Only 6% of farmers whose runoff feeds into the Mississippi currently use cover crops. A smart government would probably make use of the commercial insurance sector to reimburse farmers for trialling cover crops. Understandably, farmers have to be quite risk averse, given the margins involved, after risk.
I kind of assumed that fertilizers were concurrent with the green revolution, I should read your substack. Does the green revolution refer mainly optimally bred crop varieties?
Yep. Haber and Bosch developed the industrial process for synthetic fertiliser in 1913. Borlaug received the Nobel prize for his high yield wheat in 1970. This science heroes site which lists achievement by lives saved underestimates Borlaug's contribution. It wasn't 245 million- closer to a billion. I don't think I've written that particular essay yet- I'm still in the process of researching particular cover crops and break crops, plus I want to do a deeper dive on concentrated animal farming.
There is really dark side to the green movement on farming. One of the reasons why they want people to shift to a plant-based diet is because they want to use the land to grow trees to sequester carbon. Around 36% of the world's food is used to grow crops to feed animals, and only a portion of this relates to the much maligned cow.
In the developing world in some countries 80% of the working population works in agriculture. It's rarely lower than 50%. They are literally aiming to remove the market for poor people with no social safety nets, with no other means of supporting themselves- so they can grow trees. I've had arguments with people who are deluded enough to think their lives were better before they started exporting surpluses. No they weren't. They occasionally starved and were routinely far more malnourished than they are today, and I have the data to prove it. The blurb below the graph goes back further to give a broad approximation in the seventies.
Yep. The resurvey shit is bullshit. Here in the UK we still have snaggers- it's where you can commission your own builder to look at the quality of the build, particularly relevant to new builds. At one point when I was working for the largest supplier of PVC Windows and Doors in the UK the build quality on new homes constructed by the larger companies was absolutely atrocious. It wasn't at all unusual for a snagger to pick up 250 faults on a property, and then force the supplier to fix around 150 of them. Some firms even banned couples from bringing a snagger along with them, and there was even one undercover expose in which a camera caught a sales agent signing inspection paperwork on behalf of customers himself, so he could get the commission:)
I have to admit to a certain schadenfreude over the predicament the snaggers caused for the big boys. Virtually every time we got a new large contract, it would be all the bells and whistles, but at the price of a far more basic set windows and doors. Might point would be it's typical government- why would you want a government regulated survey, when a professional builder you've commissioned yourself, can give you an entirely different take on the quality of the build and spot things a surveyor wouldn't even know about? A lot of the more experienced guys pick up an awful lot of knowledge about plumbing, electrics, insulation, etc- plus, it's a benign enterprise useful for guys towards the end of their career who have emerging work-related health issues. Their experience is a definite market value add with huge value- and one guy in particular I know was almost in tears when he was explaining to me the severe pain he was experiencing on the job with his knees.
The approvals and biodiversity shit is a problem everywhere. It's why the West can't build large infrastructure anymore. This YouTube video by Spiked in the UK had me chortling with gallows humour in places. The £100 million bat tunnel, and the underwater speaker system for fish at a new nuclear plant were particularly eye-opening.
On the fees for local infrastructure the way to go is definitely a modest planning uplift tax- a tax on the difference in land value arising from planning permission for a change of usage of the land. The key is that it locks the cost into the development stage rather than the construction side- something which reverses the tendency of developers to make all the profits, whilst construction feels the squeeze. It's what the Europeans do (and one of the few things they still do right)- and why around 3% of their revenue goes to infrastructure, when here in the UK and in America, the figure is closer to 1% and everything is broken. Plus, the private sector already uses planning uplifts- for savvier land owners worried that the developers are offering them a pittance in prices.
But the big thing is that it changes incentives for local politicians and bureaucrats, if done right. If the politician knows their ribbon cutting ceremonies will be a result of planning uplift, suddenly they'll be all for granting new permits, and telling the planners their jobs are never being paid for by property taxes again, and suddenly they'll be rubber stamping new builds by the dozen.
I have a serious question. First, I presume you've at least heard of the Triffin dillema. https://en.wikipedia.org/wiki/Triffin_dilemma In short: if country A wants it's currency to be the reserve currency, it has to run a trade deficit in order to supply the world with it's currency. And if it doesn't do that, the world won't have enough of it's currency for it to be the reserve currency.
Now, Trump is trying to level the trade balance. That's what he says he's doing, and that's what it appears he's doing with the tariffs (especially the reciprocal tariffs). I think we have to assume people in White House know of Triffin dillema, which leads me to ask: Is Trump trying to pull USA out of the petrodollar system, and end the reserve currency status of the US dollar? Because that's the most logical outcome of a balanced trade between USA and the rest of the world.
I think he's focused on a more fair (reciprocal) system, reducing the income tax burden (bad incentives), and restarting US manufacturing. In Alex's book Running on Empty, he talks about how the Petrodollar system was great at first and has gradually led to disaster. The dollar is now a Ponzi scheme where we print to pay interest on what we printed last year. There's been no gain in full time jobs for native born workers in years. The real economy is in recession with growth in debt far greater than the growth in non-governmental GDP.
You're correctly pointing out that there are risks to the dollar to pursuing this strategy. I'm noting that without a course correction, the dollar will die (and has lost 9% share in the last decade alone). There's no safe path here.
> You're correctly pointing out that there are risks to the dollar to pursuing this strategy.
Well my angle here isn't that there's risks, it's that they're *deliberately* going for it. My thesis is that everyone knows the petrodollar won't last forever, and rather than let it collapse on it's own, chaotically, USA decided to take control of the process and manage it intelligently. So Trump is first establishing the base requirements for USA to live without petrodollar, which include balanced trade. That's my suspicion, that they're doing this intelligently and deliberately. But maybe we just have to wait and see?
Really interesting and astute analysis. I think it's too early to draw definitive conclusions which mean's I'm with you on the "wait and see part". Thanks!
I am ambivalent about the trade offs in tariffs and trade in general; balancing the benefits of specialization and trade with support for local/domestic citizenry. The CCP is clearly a bad actor in this regard so some forms of protection there are justified. But where is it a valid governmental function to ensure people are able to be employed*? So they have an income to pay taxes, or for their "general welfare"? Or should we expect them to take on the responsibility to obtain whatever is needed to be valuable in the marketplace they find themselves in (agricultural, industrial, information, AI, etc.??]
Following Don Boudreaux, I also understand money sent overseas can come back as capital investments domestically. This is also not always a bad thing, as it helps to rebalance the trade deficit. How, when, and where do we want to regulate what foreigners can invest in domestically? Canadians and Mexicans buying second homes or small businesses? Avoiding Chinese buying farms and builings near or overlooking military and senstive government facilities? Restricting foreign ownership via stocks in selected companies?? I welcome our authors' ideas.
*Part of this is the idea that someone owns the job they perform. So they are also "owed" a job or employment. That is false. If they are getting paid to do a set of tasks and provide skills and experience for someone else, that other person/ group/ organization "owns" that job, not the one performing it. This needs to be given wider discussion and confirmation. That is the reality -- and reality is not optional.
I believe you're making the libertarian argument here very well and I agree with you. Our government is much too large, imposes far too much on our freedom, and "guarantees" things they have no ability or business guaranteeing.
Unfortunately, we have the system we have. If you were able to implement a much smaller, more free, more libertarian model, I'd be on-board.
My analysis is not intended to design an ideal system (something Alex does very well as a political analyst and game designer). My job is to make money in the market. In order to do so, I have to understand the system as it is. I'm not advocating for larger government, just trying to figure out what happens next so I can help DKI subscribers be properly invested for it.
Long way of saying I appreciate and share your values, but at work, I have to wear a different hat.
A bit surprised to hear that you recommended bitcoin!? How is that supposed to help with the ponzi scam when it is a scam itself? As long as people recognize that it is only gambling, fine. But the Trump crypto grift was outrageous and very disappointing, taking advantage of unsophisticated investors who only want to support their president. His critics have focused on the wrong things in my opinion.
I agree that the Trump crypto grift was outrageous and disappointing. I also agree that 99% of crypto is indeed gambling.
It's not clear to me why you refer to Bitcoin as a scam or potentially tie it to a Ponzi scheme. I see these allegations a lot, but rarely with any explanation. Without understanding your reasoning, it's hard for me to respond. The Bitcoin community has done an excellent job differentiating Bitcoin and crypto. I agree with the distinction.
I agree that btc Maxis have done a good job of differentiating btc from most other crypto and its utility is greater than most other crypto (although not for things that most people would recognize as socially desirable, e.g. CSAM, ransom, drugs etc). However, this doesn’t make it any less of a scam or a ponzi. It’s telling that the whales talk about exit liquidity and resist efforts to get exchanges on a legal footing, and exchanges are rife with wash trading and front running. Nor is its longevity any proof of its legitimacy. Madoff was able to pull off his own ponzi for 20 years. Moreover btc is not anonymous or even the most secure crypto coin. That would be Monero, or so I am told by people in the know. What actually gives btc value? Solving crypto problems? Wasting energy? It doesn’t solve anything that other companies and currencies do better. It’s seven transactions per second is pathetic. And we’re 18 years in. If I was wrong about this tell me how. Thanks for your response.
Thanks for explaining BigOin. I do think a lot of what you've described is wrong. I can address some of the big points, but if it's of interest to you, a full description is beyond the scope of these comments and there are great books out there if you want to really dive into the topic. Just a few notes:
- Yes, Bitcoin can be used for illegal activity, but because it has a small market cap relative to fiat, and because it's not private, very little Bitcoin activity is for illegal stuff. It turns out the drug cartels, money launderers, terrorists, and human traffickers really love to use the dollar (and other fiat). Complaining about illegal activity in Bitcoin while ignoring the MUCH greater illegal activity in the dollar is what we've seen from Liz Warren.
- In no way is Bitcoin a Ponzi. A Ponzi scheme means early investors get their "returns' from the new money "invested". If you want to criticize Bitcoin, I think what you can say is you think it has little to no value which falls under the "greater fool theory". The Dutch tulip market is an example of that. Madoff is not a relevant comparison here.
- You can think of Bitcoin as wasted energy or as stored energy. It actually encourages building of "green" energy and can be used to take power when there's oversupply and shut down when there's undersupply. Most importantly, why is my desire to own Bitcoin less important than the desire of my neighbor to have a second refrigerator or charge his iPhone? We all deserve sound money and should have the right to exit a fiat system that debases our savings annually (or monthly). I might think lots of others are wasting energy that could be used to improve the lives of people wanting to exit fiat! The Bitcoin system uses a fraction of the energy of the big banks. Let's replace THEM!
- I mean this in a respectful way, but focusing on 7 transactions per second means you don't understand how the network works. That's true on the base layer. Using a second layer like the lightening network enables exponentially greater transaction volume. We have an entire section on that in our recent eBook on the topic. You can download a free copy here: https://investor.deepknowledgeinvesting.com/depth-report-re-release .
I really appreciate your questions and description of the perceived problems. Feel free to check out my linked eBook, Saifedean's "The Bitcoin Standard" or Lyn Alden's Broken Money for more on the practical and moral arguments in favor of Bitcoin. Either way, great to discuss it with you!
Thank you for your thoughtful response which contrasts with the somewhat dismissive attitude of most btc maxis. While I have seen many of your counters and I think I will continue to disagree with your points it’s good to have a civil discourse. Btw I have seen Lyn Alden and while he/she has many good points I think on btc she is dead wrong. I think Gammon also holds some btc but is far from a btc maxi a la Saylor. Have a good one!
Thanks BigOin. At DKI, we think ALL ideas warrant discussion and debate (including and especially mine). We debate the idea - not the person. Always happy to engage like this with you whether we agree or disagree.
I completely agree with you that many Bitcoin maxis are terrible at this. I HATE the whole "have fun staying poor" thing because it's dismissive and not persuasive. Much better to explain respectfully and invite the new people into the tent.
I have multiple friends who didn't see the value in Bitcoin. One reason they do now and have made money in it is because I treated their view with respect. YOUR view deserves respect.
Interesting that you mention George Gammon. He's someone I respect a lot AND with whom I frequently disagree. He's like me though - ask him a question on X and he responds with a clear explanation of his views. That's respectable.
Hat tip to you for the great discussion. I hope we'll have others in the future!
Maybe a little bit nitpicking here but the original purpose of btc was supposed to be a medium of exchange not a way to make money, and it has utterly failed at being a medium of exchange other than the things in my previous reply. if the dollar was a way to make money people would stuff their money in mattresses and that’s not good for the economy as a whole. You want to have your currency deployed in value added purposes. An electronic currency backed by something like gold would be something to get behind and less inflationary than fiat currencies. Many things to consider here. Thanks again! OG
We have the historical example of the now-decrepit English economy. When England became the workshop of the world in the 19th Century, they adopted a policy of near-unilateral "Free Trade". The outcome speaks for itself. "Free Trade" is an excellent theoretical concept, but it is worth paying close attention to a key element of that theory -- No-one runs a Trade Deficit; imports & exports are always balanced. Clearly, the "Free Trade" theory has no relevance to a US which is running a huge unsustainable Trade Deficit.
A tariff is a tax, similar to an income tax or a business tax. All taxes are eventually paid by productive workers and productive capital investments. The issue is how to raise the taxes in the most effective way to provide the revenues our OverLords need to run their government. Tariffs could in principle promote domestic production and revenue -- but not when building a new factory or digging a new mine requires spending years paying expensive overhead lawyers to get government permits.
Bottom line is that tariffs could be a major contributor to restoring productive manufacturing in the de-industrialized US -- but only if the Political Class dials back excessive regulations and simplifies today's Byzantine tax regime.
Comparative Advantage doesn't rule out tariffs. We heavily tax domestic labor and equipment. Without tariffs we have subsidized outsourcing, not free trade. For example, a switch to the Fair Tax would be the equivalent to a 30% tariff on all foreign consumer goods.
We did have a protectionist system prior to the income tax. Then, the federal government taxed foreign merchandise at a much higher rate than domestic.
If the combination of income and FICA taxes add up to the same as the tariff rate, importing vs. making it here is revenue neutral.
Some would argue that income and FICA taxes support the workers and businesses which pay these taxes. Partially true. However, when blue collar wages go up, the federal government's welfare burden goes down. Also, the federal government is a major purchaser of domestic labor. By putting too much of the tax burden on domestic labor, the government is taxing itself. This is not sustainable.
In other words, Trump is not protectionist enough. 30% tariffs should be the baseline, with special deals for very close trade partners or poor countries we want to subsidize. (OK, maybe a bit lower since state sales taxes have the same effect as tariffs for foreign made consumer goods. Go for 23%
as the baseline.)
You make an excellent point about the way we tax income (labor). That's not "free" trade - it's discouraging domestic production. Amazing how hard it is for people in DC to understand that you get more of what you subsidize and less of what you tax. They act as if everything is static.
And this business of taxing income or taxing sales contributes to Baumal's Cost Disease compared to old fashioned excises. https://rulesforreactionaries.substack.com/p/santa-claus-vs-the-cost-disease
John Gallagher & Ronald Robinson, in their landmark essay “The Imperialism of Free Trade (1953), go over all the considerations that Great Powers make when they reach their zenith & midday & Ipso Facto how such considerations make them pursue ‘Free Trade’ against others.
Relevant: https://www.jstor.org/stable/2591017
Tariffs & Protectionism, meanwhile, are deployed in two instances.
The first is during the Ascension/Growth phase, when said Burgeoning Great Power defends its productive forces, labour pool, etc, from foreign actors trying to seize control of the market using various tactics (such as dumping lots of cheap product & cratering prices).
The second is during the Decline/Demise phase, when the said Weakened Great Power seeks to ‘jolt’ the patient whose heart rate has flatlined on the operating Table. Tariffs in this scenario are more used as leverage to get certain actors (like private enterprise & governments) to BEHAVE a certain way, as opposed to the Tariffs themselves ‘equalizing things on a Dollar per Dollar basis.
Yeltsin’s Shock therapy comes to mind as a more modern example of this, while the ‘Price Revolution’ of the long century & a half decline of the Spanish Empire... is a more Classic case.
Anyhow, it’s a ‘Hail Mary’ which has implicit to it these notions that ‘Actors X, Y & Z will change their behaviour BECAUSE of these Tariffs or these threats’... which alas is Optimistic silliness.
The Truth is that (for instance) even if America puts Tariffs on Canada & gets a significant cash windfall, that is brutally offset & turned red by lower volumes of Canadian Oil reaching American markets. Ditto for many other ‘simple’ & fundamental goods used as cheap inputs in various sectors. Steel comes to mind when considering that ‘US firms that produce steel’ is easily dwarfed by ‘US firms that NEED steel.’ This is now a feature, not a bug.
These pursuits will deindustrialize America at an accelerated pace since many firms will go to alternative markets. Meanwhile, those that stay with the US market will lower volumes & these low volumes will mean the cash windfall turns red in the medium to long term.
Great comment and ditto to the author. The material input side of things has the potential to derail a substantial portion of the economic boom likely to arise from Trump's view on economic policies more broadly. Job gains in steel or oil stemming from tariffs are always going to be outweighed by damage caused in the later stages of the supply chain, where all the value add occurs. I imagine Trump is really after the value add, particularly in relation to China. He's made quite serious noises about high value manufacturing in the past.
That being said, there are huge opportunities for American renewal in other areas of resource extraction. With mining, it's a poorly kept secret that China has been funding activist groups for decades, in the interests forcing politicians to veto new American mineral extraction. Meanwhile, the American lumber industry suffered quite substantially during the late 2000s for a number of reasons. Although production in board feet has since recovered, this represents a huge opportunity- especially given one of the easiest ways for MAGA to keep the Dems in the political wilderness for 20 years, would be creating Federal libertarian land reforms to power a generation of cheap new starter homes for American kids desperate to buy a home and start a family- a key factor in reversing the ticking timebomb of negative internal population growth.
Innovation is the key. Sweden in particular has had successes with their prefabricated approach to housing. Cheap to heat or cool as well- thermal insulation in this type of housing is exceptional. If only the Swedes weren't forced to export their otherwise cheap energy to Germany to cover-up for the absolute failures of wind and solar deployed at scale. We are experiencing the same form of failed climate policy denialism here in the UK...
https://builtoffsite.com.au/emag/issue-05/sweden-became-home-prefab/
Great to learn that Sweden is leading in lower cost pre-fab housing, which probably now has even greater configuration flexibility than I can imagine without personal close inspection. Germany also has had success with "almost" totally passive energy homes, although I don't know the cost penalties involved there.
Also good for northern climes to have a means to get a building up and sealed for other interior work to continue during winter. But I gather the slab and shell are about 20% of the cost of the final home. I would like to see or hear more about prefabbed plumbing assemblies "slapped" or placed in the (hopefully usually) interior walls. And something about pre-formed strips of wiring that can be peeled apart from a core as the wiring is used for various room circuits, etc. (sort of a larger scale printed circuit board just above the ceiling? Or a spine and rib configuration?). Or pre-wired panels feeding various outlets, but also plugged together as panels are joined to make exterior and interior walls? HVAC is something I expect the Swedes and Germans to have well under control, but they also must be designed for factory pre-prep installations plus wise layout of distribution channels, etc. In the US anyway, we still have a lot of screwing assembly rather than push and click "design for assembly" processes [to include easy release methods, too!]. Battery powered screw drivers help, but still faster modes are possible with proper planning.
Also, materials and labor are only part of the cost. We (in FL anyway) have and need impact fees to cover the costs for infrastructure, schools, police, etc., for new developments. Ideally all new owners contribute to their impact on a locale and society where they live. Make those costs and their justification public and open. Here they can run $10-$15K per house!! Subsidize lower income groups openly or recover those costs at a later state of life? Using factory quality control should also reduce the costs of building inspections to code, etc.
Hopefully also no costs for bribing officials for approvals, smooth processing for mortage loans, and other factors of administration?? Housing and real estate have a lot of codes and rules and regulations and laws for a reason, but why does a subdivision house need to be resurveyed as part of each sale to a subsequent owner? Concrete markers in the ground from initial survey = done and done. [Maybe with "home grown"GPS confirmations of the corners and boundaries via a cell phone? It also should not take 15 to 30 years to clear a questionable title: petition a court to clear it on your behalf = also done and done. Attack these admin costs and housing becomes affordable again??
End of rant! :-)
Interesting points - especially about Chinese disguised advocacy for "green" policies here preventing the US from using our natural resources while they do the opposite.
Most people I know don't think we'll collect a ton of real money from tariffs. I do think the President's recent comments on reciprocal trade are important. Many in the US are for "free trade" without realizing that foreign markets are closed to our producers.
This does have an effect - hollowing our our manufacturing base. In my opinion reciprocal tariffs are one way to reduce government burden (if everyone lowers rates) and to increase domestic production. As noted in my article, some of that production is necessary for national security. Other aspects matter for quality of life. At a minimum, the current situation isn't working for many Americans to it's worthwhile to try to do something else.
Yep, I agree. On the foreign markets thing, it's exactly why Bannon and Trump were absolutely right about bilateralism, as opposed to the multilateralism which gives the one world brigade such rosy feelings. Multilateralism lacks teeth as an enforcement mechanism.
The other thing is regulatory burden. In the UK and Europe it's common for those opposed to farmers to argue free trade- they always fail to mention the huge costs imposed by the regulatory state, and the fact that it's not fair competition. I've heard the same thing happens in America- the 'go big, or go home' mentality of the USDA. I know a wealthy American geologist from Texas who desperately wants me to write an essay about Norman Borlaug. He routinely gets incensed by people defaming his legacy.
Plus, it's pure fiction- there is great source from Our World in Data which shows that North American synthetic fertiliser usage hasn't really increased since 1961. In Europe the figure has actually lowered substantially. Almost all increased fertiliser usage since 1961 has been in the least economically developed countries (something the source actually built into the graphs). Anyway, how fucked up is it that the people informing policy makers don't know the difference between the advent of synthetic fertilisers and the Green Revolution!
I did a pretty deep dive on the issue, just out of interest- although I did write a short piece on the Dutch Farmers, just before other far more prominent Substack writers took a crack at it. I found a number of American agricultural colleges who were convinced cover crops were the answer to nitrogen runoff, but they were all emphatic they didn't want government anywhere near the issue. Only 6% of farmers whose runoff feeds into the Mississippi currently use cover crops. A smart government would probably make use of the commercial insurance sector to reimburse farmers for trialling cover crops. Understandably, farmers have to be quite risk averse, given the margins involved, after risk.
I kind of assumed that fertilizers were concurrent with the green revolution, I should read your substack. Does the green revolution refer mainly optimally bred crop varieties?
Yep. Haber and Bosch developed the industrial process for synthetic fertiliser in 1913. Borlaug received the Nobel prize for his high yield wheat in 1970. This science heroes site which lists achievement by lives saved underestimates Borlaug's contribution. It wasn't 245 million- closer to a billion. I don't think I've written that particular essay yet- I'm still in the process of researching particular cover crops and break crops, plus I want to do a deeper dive on concentrated animal farming.
There is really dark side to the green movement on farming. One of the reasons why they want people to shift to a plant-based diet is because they want to use the land to grow trees to sequester carbon. Around 36% of the world's food is used to grow crops to feed animals, and only a portion of this relates to the much maligned cow.
In the developing world in some countries 80% of the working population works in agriculture. It's rarely lower than 50%. They are literally aiming to remove the market for poor people with no social safety nets, with no other means of supporting themselves- so they can grow trees. I've had arguments with people who are deluded enough to think their lives were better before they started exporting surpluses. No they weren't. They occasionally starved and were routinely far more malnourished than they are today, and I have the data to prove it. The blurb below the graph goes back further to give a broad approximation in the seventies.
https://ourworldindata.org/data-insights/progress-on-reducing-global-hunger-has-stagnated?utm_source=chatgpt.com
https://scienceheroes.com/component/content/article/who-saved-the-most-lives-in-history333?Itemid=27
Yep. The resurvey shit is bullshit. Here in the UK we still have snaggers- it's where you can commission your own builder to look at the quality of the build, particularly relevant to new builds. At one point when I was working for the largest supplier of PVC Windows and Doors in the UK the build quality on new homes constructed by the larger companies was absolutely atrocious. It wasn't at all unusual for a snagger to pick up 250 faults on a property, and then force the supplier to fix around 150 of them. Some firms even banned couples from bringing a snagger along with them, and there was even one undercover expose in which a camera caught a sales agent signing inspection paperwork on behalf of customers himself, so he could get the commission:)
I have to admit to a certain schadenfreude over the predicament the snaggers caused for the big boys. Virtually every time we got a new large contract, it would be all the bells and whistles, but at the price of a far more basic set windows and doors. Might point would be it's typical government- why would you want a government regulated survey, when a professional builder you've commissioned yourself, can give you an entirely different take on the quality of the build and spot things a surveyor wouldn't even know about? A lot of the more experienced guys pick up an awful lot of knowledge about plumbing, electrics, insulation, etc- plus, it's a benign enterprise useful for guys towards the end of their career who have emerging work-related health issues. Their experience is a definite market value add with huge value- and one guy in particular I know was almost in tears when he was explaining to me the severe pain he was experiencing on the job with his knees.
The approvals and biodiversity shit is a problem everywhere. It's why the West can't build large infrastructure anymore. This YouTube video by Spiked in the UK had me chortling with gallows humour in places. The £100 million bat tunnel, and the underwater speaker system for fish at a new nuclear plant were particularly eye-opening.
https://www.youtube.com/watch?v=rI8HLm-UfzI&t=219s
On the fees for local infrastructure the way to go is definitely a modest planning uplift tax- a tax on the difference in land value arising from planning permission for a change of usage of the land. The key is that it locks the cost into the development stage rather than the construction side- something which reverses the tendency of developers to make all the profits, whilst construction feels the squeeze. It's what the Europeans do (and one of the few things they still do right)- and why around 3% of their revenue goes to infrastructure, when here in the UK and in America, the figure is closer to 1% and everything is broken. Plus, the private sector already uses planning uplifts- for savvier land owners worried that the developers are offering them a pittance in prices.
But the big thing is that it changes incentives for local politicians and bureaucrats, if done right. If the politician knows their ribbon cutting ceremonies will be a result of planning uplift, suddenly they'll be all for granting new permits, and telling the planners their jobs are never being paid for by property taxes again, and suddenly they'll be rubber stamping new builds by the dozen.
“Tree of Knowledge of Weal and Woe” sounds like a great Substack!
I have a serious question. First, I presume you've at least heard of the Triffin dillema. https://en.wikipedia.org/wiki/Triffin_dilemma In short: if country A wants it's currency to be the reserve currency, it has to run a trade deficit in order to supply the world with it's currency. And if it doesn't do that, the world won't have enough of it's currency for it to be the reserve currency.
Now, Trump is trying to level the trade balance. That's what he says he's doing, and that's what it appears he's doing with the tariffs (especially the reciprocal tariffs). I think we have to assume people in White House know of Triffin dillema, which leads me to ask: Is Trump trying to pull USA out of the petrodollar system, and end the reserve currency status of the US dollar? Because that's the most logical outcome of a balanced trade between USA and the rest of the world.
I think he's focused on a more fair (reciprocal) system, reducing the income tax burden (bad incentives), and restarting US manufacturing. In Alex's book Running on Empty, he talks about how the Petrodollar system was great at first and has gradually led to disaster. The dollar is now a Ponzi scheme where we print to pay interest on what we printed last year. There's been no gain in full time jobs for native born workers in years. The real economy is in recession with growth in debt far greater than the growth in non-governmental GDP.
You're correctly pointing out that there are risks to the dollar to pursuing this strategy. I'm noting that without a course correction, the dollar will die (and has lost 9% share in the last decade alone). There's no safe path here.
> You're correctly pointing out that there are risks to the dollar to pursuing this strategy.
Well my angle here isn't that there's risks, it's that they're *deliberately* going for it. My thesis is that everyone knows the petrodollar won't last forever, and rather than let it collapse on it's own, chaotically, USA decided to take control of the process and manage it intelligently. So Trump is first establishing the base requirements for USA to live without petrodollar, which include balanced trade. That's my suspicion, that they're doing this intelligently and deliberately. But maybe we just have to wait and see?
Really interesting and astute analysis. I think it's too early to draw definitive conclusions which mean's I'm with you on the "wait and see part". Thanks!
I am ambivalent about the trade offs in tariffs and trade in general; balancing the benefits of specialization and trade with support for local/domestic citizenry. The CCP is clearly a bad actor in this regard so some forms of protection there are justified. But where is it a valid governmental function to ensure people are able to be employed*? So they have an income to pay taxes, or for their "general welfare"? Or should we expect them to take on the responsibility to obtain whatever is needed to be valuable in the marketplace they find themselves in (agricultural, industrial, information, AI, etc.??]
Following Don Boudreaux, I also understand money sent overseas can come back as capital investments domestically. This is also not always a bad thing, as it helps to rebalance the trade deficit. How, when, and where do we want to regulate what foreigners can invest in domestically? Canadians and Mexicans buying second homes or small businesses? Avoiding Chinese buying farms and builings near or overlooking military and senstive government facilities? Restricting foreign ownership via stocks in selected companies?? I welcome our authors' ideas.
*Part of this is the idea that someone owns the job they perform. So they are also "owed" a job or employment. That is false. If they are getting paid to do a set of tasks and provide skills and experience for someone else, that other person/ group/ organization "owns" that job, not the one performing it. This needs to be given wider discussion and confirmation. That is the reality -- and reality is not optional.
But should we subsidize trade over making it here?
I believe you're making the libertarian argument here very well and I agree with you. Our government is much too large, imposes far too much on our freedom, and "guarantees" things they have no ability or business guaranteeing.
Unfortunately, we have the system we have. If you were able to implement a much smaller, more free, more libertarian model, I'd be on-board.
My analysis is not intended to design an ideal system (something Alex does very well as a political analyst and game designer). My job is to make money in the market. In order to do so, I have to understand the system as it is. I'm not advocating for larger government, just trying to figure out what happens next so I can help DKI subscribers be properly invested for it.
Long way of saying I appreciate and share your values, but at work, I have to wear a different hat.
A bit surprised to hear that you recommended bitcoin!? How is that supposed to help with the ponzi scam when it is a scam itself? As long as people recognize that it is only gambling, fine. But the Trump crypto grift was outrageous and very disappointing, taking advantage of unsophisticated investors who only want to support their president. His critics have focused on the wrong things in my opinion.
I agree that the Trump crypto grift was outrageous and disappointing. I also agree that 99% of crypto is indeed gambling.
It's not clear to me why you refer to Bitcoin as a scam or potentially tie it to a Ponzi scheme. I see these allegations a lot, but rarely with any explanation. Without understanding your reasoning, it's hard for me to respond. The Bitcoin community has done an excellent job differentiating Bitcoin and crypto. I agree with the distinction.
I agree that btc Maxis have done a good job of differentiating btc from most other crypto and its utility is greater than most other crypto (although not for things that most people would recognize as socially desirable, e.g. CSAM, ransom, drugs etc). However, this doesn’t make it any less of a scam or a ponzi. It’s telling that the whales talk about exit liquidity and resist efforts to get exchanges on a legal footing, and exchanges are rife with wash trading and front running. Nor is its longevity any proof of its legitimacy. Madoff was able to pull off his own ponzi for 20 years. Moreover btc is not anonymous or even the most secure crypto coin. That would be Monero, or so I am told by people in the know. What actually gives btc value? Solving crypto problems? Wasting energy? It doesn’t solve anything that other companies and currencies do better. It’s seven transactions per second is pathetic. And we’re 18 years in. If I was wrong about this tell me how. Thanks for your response.
Thanks for explaining BigOin. I do think a lot of what you've described is wrong. I can address some of the big points, but if it's of interest to you, a full description is beyond the scope of these comments and there are great books out there if you want to really dive into the topic. Just a few notes:
- Yes, Bitcoin can be used for illegal activity, but because it has a small market cap relative to fiat, and because it's not private, very little Bitcoin activity is for illegal stuff. It turns out the drug cartels, money launderers, terrorists, and human traffickers really love to use the dollar (and other fiat). Complaining about illegal activity in Bitcoin while ignoring the MUCH greater illegal activity in the dollar is what we've seen from Liz Warren.
- In no way is Bitcoin a Ponzi. A Ponzi scheme means early investors get their "returns' from the new money "invested". If you want to criticize Bitcoin, I think what you can say is you think it has little to no value which falls under the "greater fool theory". The Dutch tulip market is an example of that. Madoff is not a relevant comparison here.
- You can think of Bitcoin as wasted energy or as stored energy. It actually encourages building of "green" energy and can be used to take power when there's oversupply and shut down when there's undersupply. Most importantly, why is my desire to own Bitcoin less important than the desire of my neighbor to have a second refrigerator or charge his iPhone? We all deserve sound money and should have the right to exit a fiat system that debases our savings annually (or monthly). I might think lots of others are wasting energy that could be used to improve the lives of people wanting to exit fiat! The Bitcoin system uses a fraction of the energy of the big banks. Let's replace THEM!
- I mean this in a respectful way, but focusing on 7 transactions per second means you don't understand how the network works. That's true on the base layer. Using a second layer like the lightening network enables exponentially greater transaction volume. We have an entire section on that in our recent eBook on the topic. You can download a free copy here: https://investor.deepknowledgeinvesting.com/depth-report-re-release .
I really appreciate your questions and description of the perceived problems. Feel free to check out my linked eBook, Saifedean's "The Bitcoin Standard" or Lyn Alden's Broken Money for more on the practical and moral arguments in favor of Bitcoin. Either way, great to discuss it with you!
Thank you for your thoughtful response which contrasts with the somewhat dismissive attitude of most btc maxis. While I have seen many of your counters and I think I will continue to disagree with your points it’s good to have a civil discourse. Btw I have seen Lyn Alden and while he/she has many good points I think on btc she is dead wrong. I think Gammon also holds some btc but is far from a btc maxi a la Saylor. Have a good one!
Thanks BigOin. At DKI, we think ALL ideas warrant discussion and debate (including and especially mine). We debate the idea - not the person. Always happy to engage like this with you whether we agree or disagree.
I completely agree with you that many Bitcoin maxis are terrible at this. I HATE the whole "have fun staying poor" thing because it's dismissive and not persuasive. Much better to explain respectfully and invite the new people into the tent.
I have multiple friends who didn't see the value in Bitcoin. One reason they do now and have made money in it is because I treated their view with respect. YOUR view deserves respect.
Interesting that you mention George Gammon. He's someone I respect a lot AND with whom I frequently disagree. He's like me though - ask him a question on X and he responds with a clear explanation of his views. That's respectable.
Hat tip to you for the great discussion. I hope we'll have others in the future!
Maybe a little bit nitpicking here but the original purpose of btc was supposed to be a medium of exchange not a way to make money, and it has utterly failed at being a medium of exchange other than the things in my previous reply. if the dollar was a way to make money people would stuff their money in mattresses and that’s not good for the economy as a whole. You want to have your currency deployed in value added purposes. An electronic currency backed by something like gold would be something to get behind and less inflationary than fiat currencies. Many things to consider here. Thanks again! OG
We have the historical example of the now-decrepit English economy. When England became the workshop of the world in the 19th Century, they adopted a policy of near-unilateral "Free Trade". The outcome speaks for itself. "Free Trade" is an excellent theoretical concept, but it is worth paying close attention to a key element of that theory -- No-one runs a Trade Deficit; imports & exports are always balanced. Clearly, the "Free Trade" theory has no relevance to a US which is running a huge unsustainable Trade Deficit.
A tariff is a tax, similar to an income tax or a business tax. All taxes are eventually paid by productive workers and productive capital investments. The issue is how to raise the taxes in the most effective way to provide the revenues our OverLords need to run their government. Tariffs could in principle promote domestic production and revenue -- but not when building a new factory or digging a new mine requires spending years paying expensive overhead lawyers to get government permits.
Bottom line is that tariffs could be a major contributor to restoring productive manufacturing in the de-industrialized US -- but only if the Political Class dials back excessive regulations and simplifies today's Byzantine tax regime.
England didn't have free trade. They had an empire. Huge captive markets like India.