Month: April 2025

Priorities and Problem Bundles

Leave a comment

April 27, 2025

By Stephen Stofka

This is part of a series on persistent problems. The conversations are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Abel said, “After last week’s conversation on the homeless problem, I wondered about the strategies cities have devised to tackle the problem. I thought Denver and Aurora provided a good contrast. Here are two cities in the metro Denver area that have adopted policies with a different emphasis. They share a common border so imagine you’re standing on one side of a border street. Homeless people on that side of the street get treated one way. Homeless on the other side of the street get dealt with under a different policy.”

Cain smiled, “Well, you had a more productive week than I did. I spent Monday worrying about the consequences if Trump tried to fire Powell, the head of the Federal Reserve. On Tuesday, Trump said the media made too big a deal out of things he said.”

Abel asked, “What did Trump say?”

Cain replied, “That he wanted to fire Powell. Trump’s exact words were ‘his termination cannot come fast enough’ (Source).”

Abel smirked. “Naturally, it’s the media’s fault for broadcasting what Trump says. Anyway, to get back to the homeless problem. Yeah, the mayor of Denver, his name’s Mike Johnston, ran on a campaign of reducing homelessness and took office in July 2023. He immediately announced his administration’s ‘All In Mile High’ program. By the end of that year, the city had bought a hotel and turned it into a shelter for 205 families. Tamarac Shelter it’s called (Source).”

Cain whistled. “A government that got something done in six months. Good for them.”

Abel continued, “By the end of last year, the city had moved 2500 homeless people into housing of some sort (Source). The cost was about $155 million in the 17 months ending in December 2024 (Source). Much of the expense was startup costs, funded by federal grants for the purchase and repair of buildings to house homeless people (Source). The city expects to spend almost $58 million in fiscal year 2025 as ongoing costs to provide housing and support programs for 2000 homeless.”

Cain asked, “How many homeless people does Denver have?”

Abel replied, “A few years ago, they estimated 9000 (Source). That’s less than the 11,000 estimated homeless in 2012 (Source).”

Cain frowned. “So, the city hopes to resolve the problem in the next two years?”

Abel sighed. “Resolve? No. Reduce? Yeah. They estimate that people will spend six to twelve months in the program so I suppose the goal is to show a strong response in the hopes that the problem will ease.”

Cain raised his eyebrows. “Housing is not getting cheaper. That’s going to put some pressure on poorer families who are just one or two paychecks from homelessness. How many of the homeless are these immigrants that got bused up from Texas?”

Abel shook his head. “I don’t know but migrants were the main component of the surge in homelessness in 2022 and 2023.”

Cain nodded. “You said the city estimated a cost of $58 million a year to provide shelter and support services for 2000 homeless people. Napkin math tells me that’s about $30,000 per person. That’s the same amount the federal government spends to house someone in a standard federal prison (Source).  That says something about our priorities and values. In essence, we pay people not to work, whether they commit a federal crime or become homeless.

Abel scoffed. “Well, that’s not exactly giving them money.”

Cain argued, “It’s giving someone money. One man’s expense is another man’s income. That’s the underlying problem. The prison industrial complex naturally promotes more prison time as a solution to crime.”

Abel showed surprise. “You would support more rehab services instead of prison?”

Cain shrugged. “Depends on what the crime is. I don’t think rehab works well with violent people. They have seen violence as a solution to their problems for a long time.”

Abel asked, “That’s not true. Given an opportunity and the right emotional circumstances, an abused wife might kill her husband. Maybe there was not an immediate threat when she killed him, so a jury doesn’t buy her plea of self-defense. She killed him to avoid the likely chance of mortal injury because of her past experiences with her husband.”

Cain nodded. “Maybe you’re right. There’s not a cut and dried rule. Given that each individual’s circumstances are a bit different, I wonder if AI could be used to guide sentencing? An AI could scan through a gazillion histories of court cases involving violent crime, look for patterns that promise a greater chance of success with rehab.”

Abel wiped his mouth with his napkin. “I like that. A more individualistic approach.”

Cain continued, “These damn politicians just don’t think of the long-term consequences of their spending policies. They adopt a ‘tough on crime’ political posture to get re-elected. They support privatization of prisons because private corporations don’t have to be as accountable to the public. Core Civic runs 61 prisons (Source). The GEO Group has 50 facilities in the U.S. that house prisoners and detained migrants for ICE (Source). These are big businesses that are listed on the New York Stock Exchange. GEO had a drop in profit last year because they spent money to build additional capacity for detained migrants.”

Abel’s eyes widened. “Border crossings are at historic lows (Source). GEO can’t be happy about that.”

Cain nodded. “Sure. They’ve invested money. They want to fill those detention facilities. You can bet their lobbyists are bending ears in the White House and Congress. I’m just afraid that cities like Denver are going to promote a similar constituency of companies that provide services for the homeless. Those companies do not want a reduction in homelessness. OK, so what’s Aurora’s approach? You said it was different.”

Abel nodded. “Denver emphasizes a stable home as a priority. Aurora takes a “tough-love” approach that emphasizes work. They have three tiers of assistance. At Tier 1, which is an emergency level, the homeless have shelter but no privacy. They need to work at improving their lives through rehab, volunteer and paid work to earn a spot in Tier 2 housing, which is semi-private, and Tier 3, which is private (Source).

Cain replied, “Yeah, I like that. A program with incentives. In fact, I’d like to see an incentive program for prisoners. They would get basic gruel, a crude bed and a minimum of yard time when they first got into the facility. They would have to prove themselves to get better food, board and time outside their cell.”

Abel frowned. “The prison would need to segregate prisoners by level of accomplishment. The prison kitchen would need to cook separate meals. Housing facilities would need to be segregated. I’ll bet a lot of prisons just don’t have the resources for that. Raise taxes? There would be a lot of pushback from voters for an ‘incentive’ program like that.”

Cain shook his head. “Goes to prove my point. The prison industrial complex wants high recidivism rates. Most of the guys in prison need to have goals set for them. They are there in prison because they wanted something they didn’t deserve. They need to be broken of that habit.”

Abel scoffed. “Robbery, I get your point. Murder? How is that taking something you don’t deserve?”

Cain replied, “Murder is the quintessential example of taking something you don’t deserve. Someone else’s life.”

Abel argued, “That’s an overly simplistic perspective. The abused wife example I gave earlier. What does that have to do with how they are treated in prison?”

Cain put his coffee cup down. “The prison gives them something they haven’t worked to deserve. Food and shelter. That just reinforces the behavior they developed outside of the pen. They are treated better than some prisoners of war who have to build roads or bust rocks for their keep. So, these guys go to war against their society and society rewards them for it by giving them free room and board. No wonder there is such a high rate of recidivism.”

Abel cocked his head. “I don’t see people lining up to get into prison.”

Cain nodded. “Most people don’t like to be caged up like animals in a zoo.”

Abel raised his eyebrows. “The Romans let slaves work their way to freedom (Source). Is that part of  your program?”

Cain shook his head. “I think a lot of states have policies that reduce prison time for good behavior. This could be an adjunct to those programs, I suppose.”

Abel asked, “No, I mean could a prisoner work to have their conviction wiped clean? It would help people looking for a job.”

Cain looked puzzled. “That’s an interesting proposal, but maybe too much of a change? Could a child sex offender get his conviction erased? Would society want that? I don’t know.”

Abel said, “Let’s get back to the homeless. I favor getting them settled into housing first, forming a daily routine, developing a sense of safety before they try various steps to rehabilitation.”

Cain replied, “I like the work first model that Aurora has adopted. Step 13, now called Step Denver, has been using that model with addicts since the early 1980s (Source). They have been dependent on government services for many years. Step provides group housing, but the emphasis is on sobriety and getting a full-time job to break that cycle of dependence (Source). Some of these people have not had a regular job for years. They need to relearn the routines of daily life. Get a paycheck, budget money, go shopping, pay bills.”

Abel argued, “But that program was designed for men only. Women, especially those with kids, need a stable home life. If they have pre-school children, getting a job is a second priority after taking care of their kids. A decade ago, the Colorado Coalition for the Homeless estimated that women made up 45% of the homeless population (Source). You like simple rules, principles that you can apply in all circumstances. That approach doesn’t work in the real world.”

Cain shook his head. “Maybe not but it’s a starting place. In a country with 350 million people, we can’t apply the law based on individual circumstances. The Trump administration is trying a simpler approach in order to expedite immigration policy. Inevitably, the liberal media finds an instance where the application of the law seems unjust because of an individual’s circumstances. Hey, I have a heart. I feel bad for some of those individuals. But student visas and green cards come with restrictions. Sure, those restrictions have often been ignored, but they are there.”

Abel frowned. “There was a dad from Indonesia with a student visa and a pending green card application who was deported because he was convicted of a misdemeanor for spraying graffiti on a semi-truck trailer (Source). The Trump people are treating people like computer programs. They probably search a bunch of databases for immigrants and visa holders who have broken any rule, no matter how slight. A programmer can write a rule and feed that rule into a computer.”

Cain admitted, “Yeah, it’s not perfect, I’ll admit. The DOGE team used a similar methodology. They fired recent hires who have fewer job protections. It didn’t matter what those people did or how critical their jobs were. No matter what method people use to streamline government or any large organization, there are going to be mistakes and injustices.”

Abel asked, “So what are our choices? On the one hand, we can have an incompetent government that can’t get anything done because it tiptoes through a lot of hurdles put up by advocacy groups. On the other hand, we can have a government willing to make some casualties as it enacts policy and hope that we don’t become the victims.”

Cain argued, “You said I was too simplistic. I’d say your alternatives are too simplistic. Look, we invented this complex system of government about a hundred years ago. Each decade, we bolted on policies and procedures until government has become a series of Rube Goldberg machines that are way too complex for the task they must accomplish. Trump is trying to undo some of those machines. It’s not pretty.”

Abel shook his head. “His administration keeps taking things apart before they studied how they were put together. When mistakes come to light, they blame it on ‘politics’ or ‘improper classification of employees.’ Like Trump, DOGE never makes a mistake. It’s always someone else’s fault.”

Cain sighed. “We started out talking about policy solutions for the homeless and now we are discussing problems with redesigning federal government practices. What’s the point?”

Abel’s tone was exasperated. “Governments can’t conduct policy using simple rules because many of the problems that government handles are complex.”

Cain interrupted, “The private marketplace handles complex problems as well. Remember Milton Friedman’s video ‘I, Pencil’(Source)? The manufacturing of a simple pencil uses materials sourced from all over the world. The price system helps coordinate the work of thousands of people and a lot of capital to produce a simple pencil.”

Abel resumed, “That is a good example of a complex problem involving an exchange of goods and services. The buyer of the pencil has one problem to solve. Writing. Government handles problem bundles, where one problem is a container of many, call them sub-problems. What if the pencil had to be used as the rod in a Tinkertoy set as well? The pencil design would have to be more complicated. The lead tip of the pencil would be good for writing but weak for making a connection in a Tinkertoy structure.”

Cain smiled. “I like that.”

Abel continued, “Each problem in the bundle interacts and interferes with other problems in the bundle. It’s like a whack-a-mole game. Solving one problem makes another problem worse. It’s like walking with a bowl full of water. We fall forward to walk. That interferes with keeping the water level in the bowl, so it doesn’t spill. Which is more important? Getting the bowl across the room or spilling as little water as possible? Choosing a priority is a policy decision.”

Cain interrupted, “Ok, I get it. So, Aurora has chosen to get the bowl across the room, to get the homeless working in a productive job, even if that strains the homeless person’s mental or character resources. Denver’s priority is to spill as little water as possible, to keep the homeless person’s personal life stable and level. A go slow approach.”

Abel laughed. “I hadn’t made the connection but OK. It’s like I enjoy the shade tree in my front yard because it blocks the sun during the summer and keeps the house cooler. But it’s messy in the spring when it spreads its seeds and in the fall when it sheds its leaves. The tree’s solution to my need for shade creates other problems. My priority is shade. A lot of government problems are like that, only ten times more complex. That’s why we hand these problems to politicians.”

Cain sighed. “Unfortunately, people vote for politicians who say they have a magic wand that can fix these problems.”

Abel smirked. “Like Trump. He promised to bring prices down, to resolve the war in Ukraine and Gaza. People who don’t pay a lot of attention to politics voted for that illusion. Prices are up and the wars continue. The chaos grows.”

Cain nodded. “We secretly long for simple rules. They help us navigate our personal lives. Why can’t they work for society’s problems?”

Abel looked up. “Jesus thought two rules were sufficient. He was a preacher, not a politician.”

Cain placed his napkin on the table and stood. “A preacher who was put to death by politicians. That’s depressing. Hey, I’ll see you next week.”

Abel smiled. “First week of May. Flower planting time. See you next week.”

//////////////////

Image by ChatGPT in response to the prompt “draw an image of a whack-a-mole box.”

Homeless

Leave a comment

April 20, 2025

By Stephen Stofka

This is part of a series on persistent problems. The conversations are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Abel waited until the waiter had finished pouring the coffee, then said, “This week, Trump is threatening to take away Harvard’s tax-exempt status. This country is becoming a banana republic where those in power use the state to go after their political rivals.”

Cain dribbled a small amount of sugar into his coffee then set the sugar packet on the table. “In his first administration, Trump put an excise tax on the biggest universities (Source). Certainly, there are a lot of religious conservatives who resent the denial of tax-exempt status to religious universities like Bob Jones University.”

Abel argued, “That was a long time ago and the issue was whether Bob Jones was a non-profit institution, not that it was religious. Colorado Christian University in Denver is tax-exempt, for example (Source).”

Cain replied, “Last week you talked about Make America Fair Again. One group of people perceive something as unfair, and that grievance helps bind them together. Another group of people faults the first group for being unreasonable, and the first group circles their wagons, convinced that they are being picked on. Remember when a lot of Tea Party groups were denied tax-exempt status?”

Abel nodded. “The IRS didn’t deny their applications, but put them on hold. Any applications with the words Tea Party or patriots in the name (Source). The agency was overwhelmed with 501(c)(4) applications for the 2010 midterms. One of the reasons they were overwhelmed was that Republicans had cut funding to the agency while they were in power.”

Cain set his cup down. “Perfectly rational explanations. Or a conspiracy? Rebutting a grievance with logical arguments is fruitless, yet we continue to do it. Expressing a grievance is a form of signaling to others. Political parties are built on shared grievances as well as shared principles, perspectives and values.”

Abel smiled. “Good point. This country was founded on shared grievances. ‘Abuses and usurpations’ the Declaration of Independence called them, and most of that declaration is filled with grievances, not the noble sentiments about life, liberty and the pursuit of happiness (Source).

Cain waited as the waiter set the food on the table, then said, “So we were going to talk about collective action problems, something other than the latest abuse by the mad king.”

Abel laughed. “That describes him well. His niece, Mary Trump, warned us in Too Much and Never Enough, the book she wrote about her Uncle Donald.”

Cain sighed. “In his second administration, we are discovering how rash he can be. He’s worse than any Democratic president I can recall for his interference in the economy and the market.”

Abel asked, “Worse than a President Bernie Sanders?”

Cain nodded. “Sure. Bernie has some respect for institutional rules. Trump couldn’t care less. Hey, we were going to talk about something other than Trump this week.”

Abel replied, “Right. I’ve been thinking about homelessness. You are always championing the role of incentives. I thought of a policy that would align incentives to allow more permissive zoning.”

Cain reached for his back pocket. “Let me hold onto my wallet.”

Abel laughed. “There are several characteristics of collective action problems and dealing with the homeless has several of those. People resist multi-family development for fear that it will lower the value of their home. Zoning that permits only single-family housing reduces the opportunities for developers to build more housing. A shortage of housing causes home prices and rents to rise, increasing homelessness.”

Cain interrupted, “Less supply, higher housing costs. Classic supply demand response. But rising home prices are a good thing for an existing homeowner. Naturally, they want policies that preserve the value of their asset.”

Abel nodded. “That’s my point. What’s good for each individual homeowner may not be good for society as a whole. Individual benefit, group loss. Garret Hardin pointed that out in his essay Tragedy of the Commons (Source). Each herder has an incentive to graze their animals on common land, land that no one owns. Together, they overgraze the area and there is no grass for anyone.”

Cain frowned. “Residential land is privately owned.”

Abel argued, “But the zoning is like a common resource. Also, homeowners in single-family zoning are contributing to the homeless problem but paying nothing for the extra city resources needed to deal with the problem. So, they are free riding in a sense, another characteristic of collective action problems.”

Cain finished chewing. Wait. Homeless people are the biggest free riders, but you chose to focus on the hard-working homeowners.”

Abel shook his head. “I’m just pointing out the free-riding aspect of the zoning problem.”

Cain argued, “I hate when liberals say the homeless problem is a zoning problem. Zoning is a relatively small part of the problem.”

Abel replied, “Well, let me finish. Third, there’s the public goods aspect. Presumably, everyone in the city benefits from less homelessness and no one can be excluded from those benefits. Less communicable disease. What else? A sense of pride in the city? And fourth, the homeless detract from people’s enjoyment of public parks, so there’s that aspect of the collective action problem.”

Cain put down his fork. “That’s a nice analysis. Let me come at it from a different angle. Incentives. Look at the incentives to be homeless.”

Abel scoffed, “What? Like free rent?”

Cain argued, “Why do homeless people gather in cities? They like the anonymity. It gives them a sense of independence. They rely on medical services far more than the general population (Source). There are outreach programs available to supply them with food, shelter and clothing. In some cases, inexpensive tents (Source). All of that charity makes homelessness at least more tolerable. One part of the solution is to make it less tolerable.”

Abel interrupted, “What? Put them in jail? Refuse them medical service and let them die? Last week, you said that we should build policies around price incentives. This week, you’re saying let’s build policy on a framework of cruelty?”

Cain smirked. “Give me a break. Last week I said that the price system is thousands of experiments in opportunity costs. Give up this to get that.”

Abel nodded. “The trade-offs act as a counterbalancing mechanism. Homeless people are often beyond the bargaining of trade-offs. In the case of addiction, they’ve already traded their family, their job, their stability for the hamster cage of drug addiction. Those with mental health issues may not be capable of recognizing the choices involved in a trade-off. They may hear voices and imagine conspiracies. Then there are those who are working but are too poor to afford rent in an expensive area. They didn’t voluntarily make a choice to become homeless. Circumstances boxed them in.”

Cain shook his head. “Or there own choices boxed them in.”

Abel argued, “So you’re going to punish them for making bad choices? Isn’t homelessness punishment enough?”

Cain frowned. “Why do homeless people tend to congregate in one area? The police allow it. It attracts more advocates for the homeless who bring food and clothes, the support system that enables their homelessness. The city should prevent such encampments. Why doesn’t it? Policy decisions from liberal politicians who follow Marx’s rule of distributing stuff according to need, not ability. They sacrifice the well-being of their hard-working citizens to tolerate homelessness.”

Abel shook his head. “How many cops want to get involved in restraining and removing people who are not right in the head or on some kind of drug? Cops are likely to quit one police force and join one in a neighboring district where the homeless problem is less acute. It’s a complex problem.”

Cain asked, “So what’s your policy solution?”

Abel shrugged. “Not a solution, but something that would address the zoning aspect of the problem. What if there were a property tax charge for every subdistrict in a city that had single-family zoning? People would then be paying annually for a zoning regulation that they think preserves the value of their property. I would call it an equity insurance fee rather than a tax.”

Cain replied, “I live in a neighborhood that is zoned for single-family homes only. So, I would see a separate charge on my property tax bill for that zoning?”

Abel nodded. “Yes. Connecting the annual cost to the benefit you receive from the zoning.”

Cain raised his eyebrows. “How I would react would depend on the percentage change in my property taxes. If it was another $100 a year, I might not object. But you want to make it cost enough that it would encourage homeowners in a single-family zone to lower their resistance to multi-family development.”

Abel nodded. “That’s the point. I don’t know what percentage increase would do that.”

Cain replied, “Essentially, single-family zoning would become a privilege that only those with higher incomes could afford to pay. Last week, you talked about Make America Fair Again. How fair is that policy to homeowners in older, more established neighborhoods? They are more likely to be retired and on fixed incomes. Already, they resent the increase in their property taxes from higher assessed valuations. Now the city is going to impose yet another fee on them.”

Abel sat back in his seat. “No policy can be fair to everyone.”

Cain objected, “What if there is no visible sign of homelessness in a neighborhood? Homeowners may not see the necessity of such a policy. They will be motivated to vote against it. I like the analysis, though. Shows the complexity of these problems. A viable solution would address all four of those aspects.”

Abel agreed, “You always emphasize the relation between prices and incentives. Homeowners are not incentivized to adopt policies that will increase the supply of housing if it will make the value of their property decline.”

Cain replied, “Exactly. Any policy you put in place will act against that natural tendency. You call it an insurance fee, but since it applies to all homeowners in a district, it acts like a tax. Unlike a price, a tax does not obey the natural forces of supply and demand.”

Abel argued, “A tax raises the price and higher prices reduce demand.”

Cain shook his head. “Yeah, but prices react to something real. They react.”

Abel shrugged. “Can’t see the difference. A tax reacts to something real. In this case, it’s homelessness.”

Cain argued, “The tax you are proposing is an incentive, not a reaction. It is a stimulus you hope will get homeowners to adopt a more lenient attitude toward permissive zoning. Take this, for comparison. A city does not impose a sales tax because they hope it will dissuade people from buying goods. The tax is a reaction to city’s need for revenue to fund the services it provides.”

Abel replied, “So called sin taxes are meant as incentives to get people to buy less.”

Cain laughed. “Don’t try to sell your insurance fee as a sin tax. Owning a home isn’t a sin in anyone’s playbook.”

Abel moved his plate aside. “So, Trump’s tariffs are meant as incentives or punishments and they distort the market.”

Cain nodded. “Before the 16th Amendment, tariffs were the chief source of revenue for the federal government. They served other purposes, yes, but they generated much needed revenue. Today, any tariff revenue would be a drop in the bucket. Trump’s tariffs act as carrots and sticks. That may be the extent of all of Trump’s policies. Carrots and sticks.”

Abel frowned. “There are a lot of carrots and sticks in the income tax code. Tax deductions for college expenses, health insurance, retirement contributions. These are all attempts to get people to do more of something that they would naturally. So how can saving for retirement or going to college distort the market?”

Cain replied, “Tax-advantaged plans were introduced in the 1970s (Source). The financial sector manages trillions of dollars in retirement accounts. That gives it more market share and political power.”

Abel asked, “I take it you’re opposed to any tax whose primary purpose is to influence behavior, not collect revenue?”

Cain drew a deep breath. “I do, but I’m a realist. People get into politics because they want to exert their values, their sense of justice on other people. Now we’ve got someone in the White House who takes that to the limit. I worry for the free market system. I worry for democracy.”

Abel raised an eyebrow. “You weren’t worried last November?”

Cain smirked. “You are more of an institutionalist, but I think I trusted in the institutions that have kept this country together for more than two hundred years. The institutional rules as well as the laws. Seeing long-standing practices fall so quickly has made me question the strength of those institutions. In a political sense, I feel homeless.”

Abel asked, “You think there was insider trading going on while Trump flip-flopped on tariff policy?”

Cain nodded. “Sure. The SEC is not going to investigate. It seems like most of the government is being run by acting commissioners without Senate confirmation. Those of us who complained about the complexity of government are getting a chance to see what it is like when a bunch of loyalists run the government.”

Abel stood up. “I am afraid that we are losing the world’s confidence in American institutions, particularly its currency. I’ll see you next week.”

Cain seemed lost in thought for a minute. “Yeah, next week.”

///////////////

Image by ChatGPT in response to the prompt, “draw an image of a tent with a disheveled person poking his head out of the opening of the tent.”

Make America Fair Again

Leave a comment

April 13, 2025

By Stephen Stofka

This is part of a series on centralized power. The debates are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Abel tucked a table napkin into his belt. “Another uneventful week.”

Cain smirked as he cut a bite from his stack of pancakes. “Will the country last four years?”

Abel sighed. “Sometimes I dream that the voting public turns the House and Senate over to the Democrats so they can impeach him.”

Cain laughed. “There would be another January 6th when the new members took their oath of office.”

Abel frowned. “That’s what I worry about. Trump has too many of the same characteristics as other autocrats. Maduro in Venezuela, Erdogan in Türkiye come to mind. They freeze out the opposition party. Laura Gamboa had a piece in Foreign Affairs this month about past incidents (Source).  In 2003, Erdogan and his party began a campaign that either crippled or took over parts of the bureaucracy in Türkiye. Although the opposition stopped some legislation, in the first four years, Erdogan was able to totally seize power in 2007.

Cain gave a soft whistle. “Yeah, in any kind of governing, it’s ‘process over substance.’ I remember some Congressman saying something like, ‘I’ll let you write the substance … you let me write the procedure, and I’ll screw you every time.’” (Source)

Abel smiled. “Yeah, that was John Dingell. Served in Congress for fifty years! Anyway, a good example of that. Trump has extended his powers by declaring an emergency. What’s the emergency? Not a pandemic, or a war, an attack from China. No, it’s the trade deficit. Under the National Emergencies Act, Congress can pass a joint resolution declaring an end to the emergency (Source).”

Cain interrupted, “Yeah, but Trump could still veto the resolution.”

Abel nodded. “True. A higher hurdle to formally end an emergency. The House has a Rules Committee that decides on how legislation is brought to the floor. So, Congress can initiate a declaration ending an emergency declared by the President. It would send a word of caution to the White House.”

Cain raised his eyebrows. “You know, there’s no definition of emergency under the IEEPA, the law that Trump is using [Source].”

Abel nodded. “The IEEPA is another of those laws passed in the 1970s with no definitions. Another example is ‘waters of the United States.’ What does that mean? Courts, including the Supreme Court, have been arguing about it for 50 years (Source). Today, all serious legislation contains definitions.”

Cain replied, “So I didn’t know Congress could undo that. Go ahead.”

Abel continued, “So the Rules Committee just wrote a rule a few weeks ago that prevents any member from raising an objection that lead to a vote to declare an end to the emergency (Source). That tweak of the rules gets little attention but curtails any effective opposition in the House to Trump’s expansion of powers. Republicans in the House don’t want to go on the record opposing Trump. It was that kind of stuff that Gamboa was writing about.”

Cain said, “The slim Republican majority in the House weakens any checks and balances. Like I said last week, Trump has gone rogue.”

Abel argued, “He’s put together a team of rogues. Yes men and yes women. Sycophants who suck up to power and those who cower in the corner, hoping not to attract anger from Trump or Musk. The nominee to head the Bureau of Land Management just withdrew her nomination after it was revealed that she had written a memo criticizing Trump after the 2020 election (Source).”

Cain put down his fork. “I think there are some independent voices, but they are reluctant to come forward. Rumor is that Trump paused the reciprocal tariffs, the really high ones, because some people warned him that the bond market was starting to crack. At first, investors started moving into Treasuries as expected but then the rate on 10-year Treasuries started to rise, indicating that the nosebleed tariffs were causing investors to lose confidence in Treasuries (Source). US debt is like the Titanic was thought to be. Unsinkable.”

Abel frowned. “That’s why mortgage rates shot up half a percent, back up to 6.90% (Source). The mortgage market tends to move with the long-term Treasuries.”

Cain asked, “Just yesterday, mortgage rates broke the 7% threshold. Can the President of the United States cause a financial crisis? Maybe.”

Abel put set his coffee cup down. “Trump’s had several bankruptcies. His dad helped to bail him out of his brash bets on the casino industry in Atlantic City (Source). He was having trouble getting financing, so he ran for President to boost his name recognition.”

Cain sighed. “I think a lot of us voted for someone who could get things done, even he was a little bit crazy and impulsive.”

Abel said, “This last election, Trump attracted people outside of his core MAGA supporters. What does ‘great’ mean? Different things to different people. Some thought Trump would bring down prices. He promised to do that on ‘day one’ of his presidency. Some thought he would end the war in Ukraine because he promised to do that. Some thought he would be pro-business and curb the regulatory state.”

Cain replied, “Yeah, Trump’s a promoter. That’s what politicians do. Different people have different levels of gullibility. Even a skeptic can be convinced if the promises confirm their beliefs and desires. I think a lot of pro-business types bought into Trump’s promise to cut back on regulations. These tariffs are just a different type of big government imposing its will on the market. This is as heavy-handed as the Democrats get, only in a different way. It makes for a lot of uncertainty.”

Abel nodded. “Exactly. You know, AOC and Bernie Sanders have been going around the country to build opposition to Trump. They actually got over 30,000 people in Denver a week or so ago. I was thinking that there is a constituency in the Democratic Party that is like MAFA, Make America Fair Again.”

Cain interrupted, “I like that, but what do you mean ‘again.’ Has America ever been fair?”

Abel replied, “Well, some Democrats look back to the post-war period as an example of more fairness. Sure, there was a lot of prejudice. Jim Crow laws in the south, for example. But union membership was strong, wages grew faster than inflation and taxes were like 70% on the top 1%. Kind of a ‘Father Knows Best’ or ‘Leave It To Beaver’ moment. What’s weird about that is that the MAGA crowd on the right also looks back to that time as an ideal as well. The U.S. was the leading manufacturing country in the world and the supply chain helped support businesses in small and medium sized towns. There were good paying jobs and people could afford to buy a home. So, the MAGA crowd on the right and the MAFA crowd on the left are looking to the same post-war period as their ‘Golden Age.’”

Cain replied, “I like that idea. What’s ‘great?’ What’s ‘fair?’ It can be anything. They are promotional, not substantive words. What’s fair to me might not be fair to you. Let’s say you and I pick apples for a living. We both have the same size ladder, but I get assigned a section of trees where the apples are easier to reach than the trees in your section. I think it’s fair because we both have the same tool, the same length ladder. You don’t think it’s fair because picking apples is more of a challenge for you than it is for me. When we are done, I think I am more productive than you and I deserve the extra money I made. You feel cheated. I think you are just lazy. If you don’t know that my apples were easier to pick, you might become convinced that there is something wrong with you. Some character flaw. You might start believing that you are lazy or dumb or something.”

Abel said, “I remember seeing a cartoon about that once. It was trying to show the difference between equality and equity. Two people might have equal means, but not equal opportunity because one person’s environment is more advantageous. They are more likely to succeed.”

Cain frowned. “Fixing that problem only makes the problem worse. That’s what’s wrong with liberal politicians. They focus on outcomes and reason backwards. If outcomes are not equal, then the environment must be different, so they change some aspect of the environment. Outcomes are still unequal. Why? Because people anticipate policy changes. People are not machines or rats in a lab. There is a field of economics where researchers introduce policy changes into a community and test the effect. Some women in a rural farming community in India are given ducks. It’s random so the researchers can publish their study. The women will be able to raise the ducks so they can feed their families (Banerjee & Duflo, 2011). A neighbor, jealous because they didn’t get ducks, poisons the ducks. Social scientists can’t conduct experiments on people the way that researchers in the hard sciences can. We are sentient beings, not dumb guinea pigs.”

Abel nodded. “At least researchers are trying to develop some empirical data. It’s better than the approach that Aristotle and other philosophers used. Make up shit based on my perspective and declare it so.”

Cain laughed. “Hey, I’ll grant you it’s not easy. The beauty of the price system is that prices are the result of thousands of experiments testing the value of something. The magic of the price system is that it involves trade-offs, some opportunity cost. I need to give up ‘x’ dollars to get ‘y’ good or service. I could spend my dollars on something else or nothing else and save it. A gigantic set of experiments in opportunity costs. That needs to be a fundamental characteristic of policy design. Often, it isn’t.”

Abel argued, “Yeah, but that bottom-up approach doesn’t work for collective action problems. Spend more money on national defense or health care? Public education or more police? People can’t agree on the value of each and the opportunity costs.”

Cain interrupted, “Agreed, but a top-down approach doesn’t work either.”

 Abel stood up. “So, we are left with irresolvable problems, it seems. Maybe that is something we can talk about next week. Please, God, something other than the latest Trump fiasco.”

Cain waved. “That would be nice. See you next week.”

//////////////////////

Image by ChatGPT in response to the prompt, “draw a blue baseball cap with the words ‘Make America Fair Again’ stenciled in white letters.”

Banerjee, A. V., & Duflo, E. (2011). Poor economics: A radical rethinking of the way to fight global poverty. New York, NY: Public Affairs.

A Carousel of Surprises

2 Comments

April 6, 2025

by Stephen Stofka

This is part of a series on centralized power. The debates are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Abel set his water glass on the table. “I’ve been looking forward to our breakfast this week. I want to hear how  you are going to normalize the tariffs that Trump enacted this week.”

Cain shook his head. “Sorry to disappoint you. It’s hard to make sense of the layers of tariffs. 10% base tariff in addition to some previous tariffs except where excluded blah-blah-blah. A company that does international compliance had a table and explanation that helped (Source).”

Abel frowned. “We are on a carousel of weekly announcements and executive orders from the White House. A lot of uncertainty. J.P. Morgan estimates the probability of a global recession at 60% (Source). A few days ago, before the tariff rates were announced, the bank was putting the probability at 40% (Source). That’s quite a jump. Shows how surprised even the analysts at the bank were when the actual tariffs were announced.”

Cain stirred his coffee thoughtfully. “Did you see Trump’s press conference Wednesday? The one where he announced the tariffs? He had a chart, I’ll call it the tariff chart, showing the tariffs that other countries impose on U.S. goods, and I realized that someone in his administration had pulled those numbers out of their ass.”

Abel laughed. “Well, the U.S. Trade Representative has an explainer of how they calculated the rates (Source). Basically, they think that the U.S. should have a net trade balance of zero for each of its trading partners. Anything other than that means that country has enacted trade barriers and/or is engaged in some kind of currency manipulation. It’s nuts.”

Cain nodded. “Good point. International trade is not a zero-sum game. Anyway, the U.S. has the third-lowest tariffs in the world, just behind Japan and Switzerland. As of 2023, it was 2.2% (Source). The EU has an average of less than 3%. Trump’s chart showed that the EU has a 39% tariff rate. Trump exaggerates a lot, but this was excessive even for him.”

Abel wiped syrup off his finger with a napkin. “Well, there probably is some currency manipulation, don’t you think?”

Cain swallowed hurriedly before replying, “Some, but not to the extent shown on that chart. The Congressional Research Service just did a report, a one-pager, answering some of the concerns of House members about currency manipulation (Source). Only Switzerland, Taiwan and Vietnam met the 2015 criteria for currency manipulation.”

Abel asked, “What’s the criteria?”

Cain replied, “First is that the country has a trade surplus greater than $20 billion.”

Abel interrupted, “They sold us $20 billion more than we sold them.”

Cain replied, “Right. The second was that their current account surplus…”

Abel interrupted again, “That’s mostly the trade surplus.”

Cain replied, “Yeah. That’s shouldn’t be more than 2% of that country’s GDP. The third and last criteria is if that country buys dollars in the FX, or foreign exchange, market that is more than 2% of their GDP (Source). That shows their intention to drive up the price of dollars relative to their own currency.”

Abel made a soft clapping sound. “You’ve done your homework.”

Cain laughed. “I’ll bet there are a lot of people trying to understand or refresh their limited understanding of international trade. It’s a WTF moment like when the Twin Towers collapsed on 9-11.”

Abel interrupted, “Except there is even more misinformation now than there was 25 years ago.”

Cain continued, “So, look past the hocus-pocus on the tariff chart and look at the movement in exchange rates between countries. China’s yuan is trading at 86 cents today, the same as it was in 2011 (Source). Is China actively suppressing the value of the yuan? Probably. How much? 20%? 40%?”

Abel asked, “Yeah, but that’s not a tariff.”

Cain nodded. “But it’s an advantage for China’s exporters and a disadvantage for U.S. exporters.”

Abel replied, “So Trump equates ‘advantage’ with ‘tariff.’”

Cain sighed. “I think so.”

Abel argued, “But the advantage for China’s exporters is also an advantage for American consumers who get lower prices. I mean, I bought a cordless pruner, like for cutting tree limbs. It was made in China, well built and cost me less than $100. It’s a good deal.”

Cain frowned. “Yeah, a good deal for you but a bad deal for any American company that might want to make a cordless pruner. At least that’s the way Trump thinks. An American made tool employs an American worker who pays income taxes, Social Security taxes and local taxes. The more that American workers are employed, the less dependent they are on government.”

Abel replied, “So, let’s say that an American-made pruner had cost me $150. That’s a 50% tax on my income.”

Cain interrupted, “And now that pruner will cost you $150 because Trump is charging a 54% tariff on Chinese goods (Source).”

Abel frowned. “So, I would be paying more for an American-made pruner, but another American is less dependent on government welfare because they have a job. Is that what Trump is thinking?”

Cain nodded. “I can’t look inside his head but I’m guessing that is the reasoning underlying the direction of these policies. The problem is that it will take years to build a factory that makes a cordless pruner at a competitive price and the supply chain that supplies the parts for that pruner. A piston in an American-made car starts off in Tennessee as raw aluminum powder, goes to Pennsylvania, then to Canada, then to Mexico and finally to Detroit (Source). The 21st century supply chain is no longer confined to one region or one country. Trump will be out of office by the time a new supply chain is built.”

Abel had a faraway look in his eyes. “When I was a kid, I heard on a talk show that telephone customers who lived in urban areas had a fee tacked onto their monthly bill to support the customers in rural areas. I told mother that I didn’t think that was fair. She explained that it cost more to provide telephone service in a rural area where she grew up. She had lived in both worlds, rural and urban. Because costs were shared, telephone service was more affordable in rural areas, and she could talk to her family. She had that sense of a broad community. Maybe we have lost that. We live in our siloed worlds, absorbed in a perspective that we agree on and share with others.”

Cain replied, “It’s like what happened to music when FM radio started in the 60s and 70s. Large AM radio stations like WABC used to play a variety of music to appeal to a broad consumer base so they could sell advertising. As FM stations proliferated, each station’s choice of music narrowed to a particular taste. In fact, I think it was called ‘narrowcasting,’ not ‘broadcasting’ (Source). A hard rock fan could listen to only hard rock, not soft or pop rock. A country music fan who preferred traditional Nashville style music over Bluegrass could listen to a station that catered to their tastes.”

Abel laughed. “Specialization, the secret to progress, according to Adam Smith. Now we have specialized perspectives and opinions.”

Cain interrupted, “And tailor-made facts, carefully selected to support our opinions. That’s how those tariff rates wound up on Trump’s chart.”

Abel replied, “There’s no consensus.”

Cain nodded. “Divide and conquer. It’s a winning strategy in politics.”

Abel asked, “You’ve studied this recently. Why do you think they chose 10% as a base tariff rate?”

Cain replied, “Exchange rates, I think. Like we discussed before, a strong dollar helps the American consumer buy foreign-made goods at a discount.”

Abel interrupted, “And buy more local services with the money they saved.”

Cain replied, “Right. That’s what Trump’s team doesn’t get. It’s goods and services, not just goods. I can’t buy a haircut from China. Last year, a Federal Reserve study estimated that private services added 72% of economic value in the U.S. (Source). That $50 you saved on the cordless pruner might have been spent at a restaurant or some other service business. That business hires workers who pay federal and local taxes. The business itself supports the local economy with sales, use and property taxes.”

Abel sighed. “Now the $50 will be a tariff charge that goes to the federal government directly. That will hurt service businesses, service workers and local governments.”

Cain shook his head. “More likely is that you decide not to buy the cordless pruner for $150. There is less economic activity. You trim your trees and bushes by hand and save the money. Now someone on Trump’s team might say that the money you saved will be invested in the American economy, but investors are less willing to invest those savings because there is less economic activity. Interest rates go down because there is less demand for loans. The money you saved earns less interest. Consumer or saver, you’re getting screwed.”

Abel nodded. “It’s an endless carousel of cause and effect. Trump wants to return to some imagined idyllic age maybe in the 1950s when he was growing up. That world is out of reach and Trump will destroy this world in his effort to get back to that world.”

Cain shrugged. “Destroy might be an exaggeration. But he will definitely hurt this economy in his pursuit of that dream, I think.”

Abel asked, “Back to the 10% base tariff. Where do you think they came up with that?”

Cain nodded. “Oh yeah. So, if I am going to take a vacation in Europe, I can look up the euro-to-dollar exchange rate to see how many euros my money will buy. Then there’s several indexes that construct a type of average of several currencies against the dollar. There’s a traditional dollar index called DXY that’s often cited in financial markets, but it’s heavily weighted toward the Euro and doesn’t include the Chinese yuan. China is our third largest trading partner (Source) so the Federal Reserve maintains a broad trade-weighted index that includes the Chinese yuan. It is up 20% in the past decade (Source).”

Abel asked, “So that could be used to justify even a 20% base tariff rate?”

Cain sighed. “Like Trump said, the U.S. was being wonderful not charging more.”

Abel asked, “So, we’ve been talking about broad movements of money and goods but most of us stay focused on the prices we pay each week for gas, groceries and other necessities. Next week, we are going to encounter these tariff rates when we go to the grocery store. We get a lot of produce from Mexico and other Central American countries.”

Cain argued, “There are no additional tariffs on those imports from Mexico that were included under the USMCA that Trump negotiated in 2017 (Source).”

Abel replied, “Yeah, but that doesn’t include bananas from Guatemala, for example. During the winter, we get fruits and veggies from Australia and South America. Kennedy wants us to eat healthier, but the tariffs will make healthy foods more expensive.”

Cain nodded. “In the next few weeks, I’m guessing that consumers are going to get very angry. People who were thinking of buying a new car with their tax refund will be heartbroken when they see the increase in prices at the dealership.”

Abel replied, “I heard that some people were trying to lock in deals before the tariffs took hold.”

Cain nodded. “There’s that rush to buy phenomenon but we really notice persistently higher prices in the goods we buy regularly. Members of Congress are going to see their phones blow up with complaints.”

Abel argued, “The Congress has been pretty passive. You think public sentiment will have much effect?”

Cain sighed. “Who knows? Trump has gone rogue.”

Abel asked, “Not what his supporters expected? His poll numbers have declined, and his approval rating is below the average of U.S. Presidents (Source).

Cain replied, “He’s a lame duck president. I don’t know if he cares. Like I said, I think he’s gone rogue.”

Abel stood up. “A rogue president. Unsettling. Look, I’ll see you next week when prices are up on everything. I wonder how much the restaurant will charge for our meal next week? I think I’ll keep a copy of our tab to compare.”

Cain waved. “See you later.”

////////////////////

Image by ChatGPT in response to the prompt “draw an image of a carousel with people sitting on the animals”

Notes: 1) In the U.S. Trade Representative’s explainer of the tariff calculations there is an in-text citation to Cavallo et al. without a corresponding reference. The reference is:
Cavallo, Alberto, Gita Gopinath, Brent Neiman, and Jenny Tang. “Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy.” (pdf) American Economic Review: Insights 3, no. 1 (March 2021). See the lead author’s page.
2) The title of the first reference is incorrect. The title should read: The long and short (run) of trade elasticities.
3) Because of the values assigned to epsilon and phi in the denominator of the formula, the calculation of the tariff change is essentially (exports – imports) / -imports. A more appropriate measure would be a difference-sum ratio, as in (exports – imports) / (exports + imports).