politics

Rebuilding the Agencies

When the next administration is sworn in, January 2029, they are going to have some major challenges. Every time you read about another career prosecutor leaving the DoJ over some prosecution they refuse to file, it’s another person that put their agency and their profession above politics. Everyone that stays, and is willing to file those charges, is someone who caves. It’s likely that a number of senior people being promoted, who will promote other people underneath them, at best put their career above their ethics. At worst, they put their politics above their ethics. Perhaps so much so that they will undermine a Democrat administration.

Some of these folks will see the writing on the wall and will leave to start a podcast, “telling all” about the failed Democrat justice department. And with no sense of irony, will talk about how they were pushed toward political prosecutions. They will join a long line of other former federal law enforcement that quit to specially crap on Democrats. That’s nothing new. I would be surprised if the bulk of federal law enforcement didn’t lean Republican. And they’re not above the tribal fighting that the current administration is promoting. What’s happening is the ones who may vote Republican, but put their professional ethics and their agency above politics, are being pushed out. The saving grace, if there is one, is craven people are usually less competent.

But what does the next administration do? Does it start to go through the agencies, with a wire brush, making it clear they want the nakedly partisan people gone? Pam Bondi and Cash Patel will be gone the moment a Democrat president’s hand comes off the bible, January 2029. There will be, and should be, no discussion of keeping those unqualified political hacks in place one minute longer than necessary. Along with many of their deputies and assistants, who would normally be held over into a new administration, at least for a time. I don’t think it will take long for them to see that some people are the result of four years of intentionally injecting politics into prosecutions. And those people have to go.

In a sentence, the next administration will be accused of exactly what this administration is doing. Even if their goal is to simply get rid of the lackeys and hacks.

In the same way the Supreme Court is giving the administration a free hand on even long stand precedent regarding independent agencies, they will try to curtail the new administration. If the Democrat fires commissioners at the FCC, for example, I’m sure they’ll suddenly rediscover the error of their previous decisions. And I’m sure when it comes to suits by civil servants being pushed out because they are brazenly political, they will be horrified that a Democrat would politicize the justice department.

I have no illusions about the Federal Courts any more. I think they mostly follow the law, and some cases depend on how you see the world in interpreting the law, but the result of the Trump appointments (and the failure of Obama and then Biden to fill those appointments) is a more political judiciary. One that will impede the return back to a professional, ethical Federal law enforcement bureaucracy.

The Tribe is Speaking

I spent 9 paragraphs ranting about the authoritarian tactic of accusing your enemies of financial crimes, prosecuted by a highly political machine, to discredit and remove them. I only touched on, in passing, the state sanctioned, extra-judicial murder of Renee Good the next day. My thoughts go out to her family. I find her murder especially troubling, and more indicative of a dark and ugly truth.

The first thing they did to the woman, when her body wasn’t even cold, was to paint her has a member of the other tribe. Don’t investigate the murderer, investigate who else is in her tribe. Those mentally stunted weirdos even asked (out loud) who paid her to be there. Find out who’s part of her tribe and let them know they’re next. The shooter wore the tribal uniform of the paramilitary, with at least one gun, as we’ve seen from Charlottesville through the January 6 insurrection, to today’s ICE enforcers. The tribe circled round him, likely not even seeing the murder as a bad thing, which is how video from the murderer’s perspective may have leaked. But they don’t see it as murder. Murder is only in your own tribe.

Will this be a one off? No. When I see how amped up and angry the ICE and CBP agents are, and how scared they look when people start to gather around them, I don’t think the shootings so far will be an aberration. I suspect they will become more confrontational, more aggressive, and even less restrained by the law and the constitution. And fear will encourage them to pull the trigger. And the tribal dynamics will interject them more and more into “blue” cities for exactly this type of confrontation.

The agents will realize their tribe provides two lines of protection. First is the FBI and DoJ which will excuse the shooting and prevent a local investigation. Second will be a pardon from the tribal chief. Take the shot, the tribe will protect you. And if people resist, the tribe will make sure the whole neighborhood or city is miserable from crackdowns and collective punishment. The tribe will hurt the other tribe. And when the Homeland Security director shows up with a “One of Ours, All of Yours” sign, I think they lack the historical or cultural understanding of what they’re doing, except that they are intentionally reinforcing tribal membership.

Or, maybe they do understand the historical implications of that sign. In which case so much of our country is infested with the worst kind of racists and authoritarians. That could very well be. Farmers were willing to vote for an immigration crack down that cost them their laborers, even risking their export markets. They may not recognize it in themselves, but that kind of behavior suggests they care more about racial identity than about their business. They just wanted to hurt the other tribe, not true Americans like themselves. Punish the blue state tribe and keep out the new tribes. And their boy knows the tribe, he’ll be good for a government handout like his last administration, should tariffs cause an issue.

It’s the same impulse behind my sense of schadenfreude when I hear yet another FAFO story. But in my defense, they voted for the racism, bigotry, and disregard of the law that’s biting them in the ass right now. I only wish to give them the dignity of their choice. I don’t really follow sports. I don’t see 11 strangers failing to convert on 4th and 1 as having failed my tribe. But a lot of people do. Maybe 4 out of 5 people have that kind of deep tribal instinct. The best part of mankind tries to get past this tribalism to form bonds between peoples. The kind of tribalism that the New Testament specifically tries to overcome. That’s the whole point of stories like the good Samaritan.

What reinforces tribal membership? Race is part of it. It’s almost impossible to hide your race. That’s why they feel so free to arrest anyone based on race. If “those people” don’t like getting arrested, they can go somewhere else. Next is accent and speech. You might be an American, but you don’t sound like their tribe. You’re part of the other tribe. Religion is part of it, especially outward demonstrations of faith. And the dozens of little cues like Mar-a-Lago face. Or hyper masculine characteristics, like the kind of physique that requires a possible course of HGH or anabolic steroids. A particular type of license plate or car. The music you to which you listen. Or the drink you order at a bar. All those things signal your tribe.

If you’re a good person, you temper your tribalism. You don’t relish in the misfortune and pain of others. Tactics like collective punishment should be abhorrent, if have a sense of justice or empathy. America works if the process is more important than tribal victory. Once tribal victory becomes the only thing that matters, the whole thing falls apart. Because those tribal feelings are not necessarily conscious thoughts, they can invade into the actions of people who are especially admonished to be non-tribal. Why do you think police officers target certain people, even if they’re the same race? Because they are not a member of their tribe.

The sign in front of Kristi Noem is a tribal sign. In fact, it’s particularly despicable. The dog-whistle comments help reinforce that sense of tribe. It sends a message of twisted unity. They need to promote the in group and create an “other” out group. Murder is only within the tribe. If you kill members of the other tribe, it’s justified to protect the tribe. That’s why they repeat the same accusations, over and over again, no matter how patently ridiculous they sound. To reinforce their enemy’s membership in the out group, the other tribe. The goal is to make the other tribe so distinct that you aren’t even killing another human being when you kill them. You are just eliminating a threat. If you kill one or two by mistake? Good, maybe their tribe will get the message.

We need to oppose this is because the same territory cannot be occupied by two tribes. I don’t know how the American right comes back from deep tribal thinking. There is tribalism on the left, but so far it mostly eats its own, and has not presented as an existential threat to others beyond social media Ethnic cleansing (the effective policy of ICE) and mass murder and genocide, are the means by which one tribe takes ownership of a territory. Like two battling groups of chimpanzees, with one group forcing the other out. When people operate at this basic level of social development, the end has been on full display for the last 10,000 years of human history. The goal of punishing “blue” cities is to convert them (great) or get rid of them. If they cause enough pain and enough disruption it will maybe make them dissolve? Or go away? We’re not operating at the intellectual level once we descend to tribalism, so it doesn’t have to make complete sense. But then the tribalism speaks, listen, and recognize it for what it is.

Tit for Tat When It’s The Chicken Game

Game Theory was part of my economics education and later my computer science education. Game theory analyzes interactions between competitors to understand the strategies, given the incentives and the rules of the game. The overused example is the prisoner’s dilemma. Two prisoners locked in separate interrogation rooms have two options: to stay quiet or rat out the other prisoner. They are unable to communicate. If both stay quiet, they will get convicted of a crime with a short sentence. The prisoner who rats out the other prisoner, while the other prisoner stays quiet, gets off. The prisoner who stays silent, while the other rats him out, gets the worse sentence. The player that is silent while the other player rats is called the patsy. If they both rat each other out, they get a medium sentence.

Without getting too deep into the weeds, if you play the game repeatedly, players do best if they adopt a tit-for-tat strategy. One player stays silent, and on the next iteration the other player also goes silent. If they both stay silent, they do much better. If one player decides to “get one over” on the other player by ratting them out, the other player goes back to ratting. And the player who ratted has to accept the cost of staying silent and being the patsy to get back to a better outcome. Therefore, no one has an advantage when cheating, except it will cost them more than if they hadn’t cheated. I’ve heard the argument made the Democrats need to start playing tit for tat instead of being a permanent patsy.

The Republicans keep ratting (abandoning norms and breaking the law) and the Democrats keep silent (playing by norms and rules). In game theory speak, the Republicans are defecting (not cooperating) and the Democrats are cooperating. But I’m not sure that’s we are playing the prisoner’s dilemma. There’s another game called the chicken game. (Named for the “sport” of two drivers hurtling toward each other in their cars, with the one who swerves becomes the loser). In this game there are different payouts. If player 1 does not swerve, but player 2 swerves, player 1 gets their best outcome. Player 2 loses some face. The worst outcome (they both die) happens when the both do not swerve. Unlike the prisoner’s dilemma, where if they both rat on each other, the outcome is not their worst. For the chicken game, this is not just the worst outcome, it is a catastrophically bad outcome. If they both swerve, it’s a draw and neither wins or loses face. In this game swerving is cooperating strategy and not swerving is considered the defecting (not cooperating) strategy.

A slightly modified chicken game is the game I think Republicans are playing. They can reign in the administration, by cooperating with Democrats, but that costs them their job during primary season. Unlike the normal chicken game, where if both parties cooperate it’s a tie, any cooperation with Democrats is loses face. But the the country is in tact. Or, they can defect and not reign in the administration, expecting the Democrats will cooperate by obeying norms and laws, and the Republicans expand their power. That’s their best outcome. But what happens if we apply tit-for-tat to the chicken game and Democrats stop cooperating until Republicans cooperate? We get a catastrophic outcome. In the cold war days, this was the strategy of mutually assured destruction (MAD). The US can back down and lose face, the Soviet Union can back down and lose face, but if neither backs down, there aren’t enough bulldozers to scrape up all the dead bodies.

Look at what happened when Joe Biden came to power. Initially, the goal was to prosecute just the protestors breaking into the Capital. The norm was to never prosecute the opposite party, lest that open up a Pandora’s box of criminal accusations at every transfer of power. The restrained effort to hold the ex-President accountable moved through bi-partisan commissions and through Congress, not the White House. They retained Republican appointees at Justice for their full terms. Republicans didn’t cooperate, while the Democrats reliably cooperated. As the Democrats had cooperated by preserving order in the Senate during the made up “norms” Mitch McConnell discovered about Supreme Court nominees. The Republicans are fully expecting the Democrats to swerve again, should they lose the presidency in 2028 or the house, and maybe the Senate, in 2026. Republicans are not expecting something like a two year delay on the a Supreme Court appointment, if Clarence Thomas leaves the bench.

The idea the Democrats will fall back to norms partially preserves the system. If there’s a transfer of power we can all take a breather. We might get lucky and everyone goes back to norms from here on. At least half of the political machine is still invested in the system. If Democrats play tit for tat and stop cooperating until the Republicans cooperate? If no one is invested in the system, it completely breaks down. At that point it’s no longer a democracy. It’s mob rule and he who has the biggest mob rules. Instead of an orderly transfer of power it’s a shoving match at the end to see who comes out on top and woe to him that does not. There are countries like this all over the world, where once power changes, people flee the country to avoid being arrested. And we could very well become that kind of country. (Although some people think we’re already there because they’ve never traveled to any one of these places and are deluded).

The more brazen the Republicans get, the less tied they are to norms and rules, the bigger the stakes if the Democrats apply tit for tat. With the conduct of ICE, and the the highly politicized FBI covering for ICE, we may already see the people they’ve killed as extra-judicial murders. What if Democrats come into power and decide to arrest hundreds of ICE agents and arraign them on Federal murder chargers and others with felony murder? (Felony murder is charging someone with murder if they aid or abet a murder. Even lending a car, without knowing there was a murder, has been grounds to charge someone with felony murder). And what if the DoJ and Treasury (no longer independent and summarily replaced with partisans) go after the right wing pod casters and big Republican donors. (I suspect there’s something Elon can be charged with without even stretching the truth). Maybe start charging anything crypto related with money laundering, unless they buy into the new Democrat run “clean” crypto. Maybe force the companies Trump has bought into to higher key Democrats into the C-suite?

And let’s be clear about something. In countries where norms don’t form or where norms are abandoned, corruption follows. As long as you have power you need to extract wealth and create a system of patronage, just as the Republicans are doing now. To hold power, you need people who are vested in you maintaining power. That flows by bestowing money or status. Tim Cook and Apple would be just as happy to give a Democrat a gold iPhone, if it meant some kind of special treatment. They might grumble, but even oil executives will happily line blue as well as red pockets. And if enough executives are getting snatched up for tax evasion, they could be incentivized to behave themselves. And if those that behave are rewarded, even better. Especially if they were were afraid the arrest would involve a degree of physical violence.

So what’s the out, if we don’t want to become as ineffective a government as your stereotypical banana republic? Are Democrats turned into eternal patsies, while Republicans take increasing liberties with the constitution? Unlike the prisoner’s dilemma, chicken game participants can and do communicate. The Democrats can signal they will stop cooperating next round and that they will be just as bad, if not worse. To make this threat credible, they really need to gin up the base. This isn’t easy, but some of the administration’s actions are making it easier. This is not something Chuck Schumer, or his imaginary friends the Baileys, can do. Or the Obamas, frankly. As Amanda has said, this “we go high” strategy doesn’t always work. Sometimes, if they spit in your face, you need to make them spit out their teeth. Nor is the far left useful. They are more willing to tear apart the slightly less politically correct left, than do anything particularly useful.

Of course, the Republicans may not believe it. This was the real danger of MAD (mutually assured destruction). If the other side mistook your actions as guaranteed cooperation, and lost confidence in your willingness to respond, you could very well wind up in nuclear war. To avoid nuclear war, you had to convince the other side you would respond quickly and robustly. But we don’t have to completely convince every Republican, beyond a shadow of a doubt, that it would be the end of the American system. We would only need to make them think it is sufficiently likely. Unless they moderate and return to norms, and look at cooperating as not so bad compared to other outcomes, they have no incentive to change. Right now, I don’t think Republicans believe Democrats have the balls. If things get bad enough, the danger is the Democrats get pushed into a tit for tat strategy when the base demands they don’t chicken out this time. And we wind up not with the third worst outcome (from prisoner’s dilemma), but with the destruction part of mutually assured destruction.

Finally, Someone Engaged with Reality

In the effort of appearing statesmen or scrupulous guardians of norms and decorum, too many politicians and members of the press have used language mask the illegal, brazen, and power hungry nature of the administration’s actions. They couch the actions in terms of difference of opinion or something on which they can “work with the administration.” I never expected the Chairman of the Federal Reserve to be the one that calls out, in plain language, exactly what is happening.

Politicians on the left and the right have been intentionally or unintentionally legitimizing an illegal authoritarian drive toward power by not wanting to directly confront the problem. Too many in the press have treated insane statements by the administration not as the crazy they are, but as something on which “legal experts disagree,” as if there is a legitimate debate. Their inability to face reality is leading us down a road to the end of the American experiment. A country that is a constitutional republic in name only. The irony is America’s experiment may be coming to an end as we approach its 250th birthday.

If it were just this action, I would assume it was petty, vindictive, and likely a dead end. But this is just one more data point in a long line of data points where complicit republicans and compliant democrats largely rolled over. And a supreme court that uses the shadow docket to “let it slide for now.” (Don’t worry, they’ll re-discover limits to executive power when a Democrat is president).

The drive to establish a fraud prosecutor tied directly to the White House instead of the DoJ smacks of the kind of political prosecuting that happens in dictatorships. Putin didn’t start by throwing his enemies in jail for what they said, they were often prosecuted for “tax fraud.” Xi didn’t purge his opposition by charging them with personal disloyalty, he arrested them for corruption. In America the indictment may not result in an automatic conviction, but even if it doesn’t, the defendant has to hire lawyers capable of defending them in Federal criminal court. That may be multiple attorneys, each billing in the neighborhood of $500 an hour on up.

I have a friend who believes that Trump didn’t do anything wrong on January 6. That the rioters were not criminals, or were let in, or were driven to it by FBI provocateurs. I can’t bring him back to reality. That people were prosecuted as part of the January 6 riot as part of a concerted effort to undo the 2020 election. To replace legitimate electors with frauds. To effectively overturn the election to keep the previous Trump administration in power. I could sit him in a room with Jack Smith and have Jack Smith walk him through all the evidence and I don’t think it would make a difference. It’s because my friend isn’t engaged with reality. And he’s representative of many of the people who voted for Trump. People who sometimes felt Trump had been treated unfairly, even if they didn’t understand all the facts about what was being alleged.

Republicans who bemoan this state of affairs in private, or sometimes in public, have often failed to step up when asked, picking their party over the country with devastating consistency. To those Republicans who stick their heads in the sand, or wish things were different in private, I say “fuck you” and grow a pair of balls. To those democrats looking for a middle ground that isn’t confronting this for what it is, I say “fuck you” and wake the hell up or get out of the way. To the media that tries to sound balance at the expense of excusing this illegality, I say “fuck you,” and grow a spine. At the end of the day, the lot of you seem like you’ve disconnected from reality. That you inhabit another country where the president is normal and maybe just a little ‘colorful.’

This is the very real hellscape we’re in. Most Americans are more focused on the memes they can get out of it, rather than the fact a sitting president is trying to indict the Chairman of an independent body, in order to force him to change policy. If you think “well, he is the president, he gets to set policy” I say you are a fucking moron ignorant of basic American civics. You don’t understand our system of government. These independent agencies and the Federal Reserve were created by acts of congress and signed into law by previous presidents to keep their operations specifically out of the political spoils system. That made us not like some banana republic or tin-horn dictatorship. Now the courts are largely political and they have eroded the separation between the executive and the independent agencies to the point that we can’t really call them independent. The Federal Reserve is one of the last bastions.

To the “don’t worry, it’ll be fine in the end,” crowd, I say fuck you. I’m not sure why you think everything just turns out fine. To the “courts will deal with it” crowd, I say fuck you. There’s no guarantee you won’t get an Eileen Cannon who wouldn’t be in the tank for Trump.

For all those who wonder what the Germans, or the Italians, or the Russians were doing when their countries slid into dictatorship, it was exactly what we’re doing now. Trying to find the reasonable middle path, or trying to appear even handed, or moderating your tone to keep your press access, or sticking your head in the sand because at least your party was staying in power. There wasn’t any one day when someone could say “well, it’s official, we’re a dictatorship now.” Bit by bit they got there as everything soured. Each day a little more spoiled and rotten. This is starting to smell like the end.

The Quantum Job Market

We have 3 numbers in fairly short order: JOLTS, first time claims, and the monthly jobs number. What do we have so far? The first time claims continue to come in well below ‘recession’ levels. From that number, the labor market looks tight. The JOLTS data, covered earlier, indicates a functioning labor market and not a great disconnect between people leaving jobs and people getting hired. And today we have the non-farm payrolls number. Let’s also add in the ADP number (which I do not think is as reliable as the payroll data). Both the payroll and the ADP number show a struggling labor market, according to historical metrics. Not a bad labor market, but a struggling labor market. Like most economic statistics, we care more about trends than the absolute number, but a non-farm payroll number indicative of a very healthy labor market would be above 150,000. Although it’s possible to get the occasional blip below 100,000.

Note the left hand side is the crazy period when the job market went nuts after COVID.

So far we’ve had about 160,000 jobs created over the last six months. That’s well below the number we need to absorb new entrants into the economy. The less reliable ADP number confirms the payroll data. The JOLTS data indicates a reasonable labor market and the first time climes show little job loss. This is where I think the first time claims may be under-reporting. If you lose your job, you might make slightly more money driving an Uber than collecting unemployment. I suspect other factors are depressing the actual number of people who would seek unemployment assistance. That’s not necessarily a bad thing, if you can make more money driving an Uber than collecting unemployment. You would be better off, even if you are grossly under-employed.

The red line represents initial unemployment claims, while the blue line is a survey of people looking for full time work.

This is why there is no magic single number, and no magic single sample of that number, that gives you a picture of the US economy. From the numbers, the labor market looks slack but not recessionary. It seems to back up the anecdotes of job hugging (where employers and employees may want to part ways but decide it’s better not to part ways right now), and new entrants having a difficult time finding a job. If it’s true that 70 million Americans engage in some kind of “gig” work, that’s nearly half the labor force (about 160 million participants). And maybe a weak jobs number isn’t as bad as it sounds if people can enter the gig economy instead of a “regular” job, and those people are under-counted. (Setting aside issues of job security, benefits, and the impact of under-employment). Is the labor market indicating recession?

There is something we need to acknowledge. Deficit spending is stimulative. At the end of the 2008 recession, there was a push-back on yet another democrat taxing and spending. And the stimulative policies were tempered by the resistance from republicans. (Although at levels that now seem quaint). That drew out the recovery period because fiscal policy was not injected into the problem. Spending more money than the amount removed through taxation stimulates activity and we may have ratcheted that up with the latest budget. We won’t know the final numbers until 2027. It will depend on actual receipts and actual outlays. There is some evidence the outlays will be higher than anticipated, with the DOGE effort showing an actual increase in government spending. If income tax receipts are weaker than offsets from tariffs, it could easily come in above estimates.

The current CBO estimates put the 2026 estimated deficit at 5.5% of GDP. The percentage of GDP is useful because it allows us to gauge what the real impact of the deficit, given the size of the economy. After all, a billion dollar deficit is a much bigger issue if the economy is only 10 billion dollars in size. The 2026 number may be above (likely) or below (unlikely) estimates given factors we won’t know until later. We won’t know until we actually see the impact of the new tax law, along with actual real spending.

The deficit coming down slows the economy in kind of a natural way, as activity boosts tax revenues and broader employment lowers spending on programs like SNAP and unemployment insurance. This natural brake pulls money out of the economy in higher tax revenues and lower spending, reducing the risk of the expansion becoming inflationary. However, we are doing two things that are expansionary for 2026, which are reducing tax rates and pushing the Fed to lower rates. In the face of already expansionary fiscal policy, this may push inflation for 2026. Unfortunately, it’s almost impossible to know the actual impact on inflation because we don’t know how the economy will react. The consumer in the lower 50% of income is in shambles. Most of the consumption is done by the top 20%, with half concentrated in the top 10%. There may not be the purchasing power for broad inflation, even if high end goods may see a level of inflation.

In addition, lower imports from tariffs boosts GDP, even if it means people are consuming less stuff. Could we be in a world where stagnation is masked as the GDP “increases” due to fewer imports? It’s mathematically possible. You could have patchy inflation depending on what goods you are measuring along with an improving GDP due to fewer imports. (You aren’t better off, you just don’t buy that sweater or bottle of wine, because it’s a little pricey). Combine this with jobs numbers being a less reliable measure of economic health (because workers don’t leverage unemployment insurance and transition to gig work), and you could have a stagnant economy, even if the numbers don’t look bad. You have low unemployment because of gig work and GDP growth from lower imports, even though you are under employed and just can’t afford things you used to buy.

Note that numbers are negative, so sloping up and right means the lower imports.

At the end of the day, the purpose of economics is to understand how these voluntary and sometimes emergent systems of interaction between people create well-being. The purpose of 2% inflation or a target of 4.5% unemployment isn’t because the number is important, but because the well-being of many people seems to change at around those inflection points. If inflation drops below 2%, that is usually because economic activity is slowing and over time we will be worse off. If it goes above 2%, that’s a level people feel it erodes their buying power and they are less well off. If unemployment is too low, there is inflation as wages are bid up, while if it is too high, people are out of work and can’t find jobs. The goal of the specific metric should be to indicate when a change in policy is necessary because people feel their well-being is falling.

But it feels like we’re too focused on the numbers, rather than what they mean. I can’t count how many times it feels like the number itself is the target or the policy is being gamed to meet the target number. This includes “patching up” numbers like the CPI so they under report inflation. (There is mixed evidence on this. But we would expect the CPI goods basket to change as the basket of goods and services from 1976 is less applicable in 2026). When the economy changes, the old metrics used to gauge the health of the economy no longer make sense. Following unemployment claims or number of jobs created, if people are shifting to gig work that isn’t reported through these numbers, may no longer provide a meaningful metric. And yet, we don’t have a widely accepted substitute. Like a quantum system isn’t in one state or another until it’s observed, our economy is both good and bad at the same time, because we lack the metrics to observe it.

It Feels a Little Like a Lie

As Q3 GDP arrives, it’s above expectations. I hate anecdotal accounts as a basis for inferring trends, but we have had report after report of worsening conditions for individuals. Whether it’s visits to food banks or layoffs, or retailers pointing to weaker consumers, it feels like Q3 GDP should not have come in at 4.3%. I’m certainly not saying anything ridiculous, like the number is a fabrication or it should have been something negative. I live in the real world (or at lest do my best to discern the real world around me). Somewhere in the 3.5 to 2.5% range felt reasonable.

I’m still digging through the explanations, but one thing that sticks in the back of my mind is feeling like a 4 year economics degree was a joke. All the discussions about stability, or rule of law, or predictability as good soil for economic growth, are out the window. Apparently, you can run the economy like a drunken loon and it doesn’t matter. Or the government stepping in to buy stakes in companies is now a good thing (remember when the evil government stepped in to buy a stake in the big three)? Nosebleed deficits are now okay. Absolutely bonkers ideas from those responsible for our economy, like replacing income taxes with tariffs, is now calmly, if not happily, digested by the markets.

But the biggest shock is the degree to which tariffs don’t matter. It’s part of a larger narrative, where the lower income folks that make the stuff get the shaft and higher income investors and managers are doing better and better. (The managers and shareholders do well as profits, bonuses, and stock awards roll in for moving production overseas, while local workers lose their jobs. While the remuneration is tax efficient, at lower rates for capital gains, the unemployed eventually see their benefits cut because they’re ‘lazy’). We make life better and easier for the top earners while fucking the bottom quartile half three-quarters. Any discussion of taking the surplus from trade and using it to offset the negative impact as jobs shift overseas or are eliminated entirely is sidelined as socialism.

But I digress. We have had chaotic, possibly illegal, and arbitrary tariffs and restraints of trade (like who the fuck thought the government should get a ‘cut’ of GPU sales). And it doesn’t matter. Push for inflationary rate cuts. It doesn’t matter. Heck, I could be wrong, we might not get inflation. Make enforcement a function of bribes to a would-be monarch. No problem, apparently rule of law was not important as long as a bribe gets you what you want. Need to merge? Don’t look for clear guidance to support M&A, just give the grifter in chief and his cronies their vig. Policy clarity can be defined as knowing where and who to bribe.

Am I angry that GDP came in at 4.3%? It surprised me, but I’m not angry. I am frustrated that all the talk about the care and feeding of the economy, the hard choices we need to make to keep it running well, or the degree to which we need the best people running seems like a joke. All the ivy league, PhD, novella-sized CV people apparently were just tooting their own class horns. You took an economics at a community college and think we should return to the gold standard? Who the fuck knows at this point, maybe it will work. You’re a welder who thinks we should stop importing things from Turkey to boost GDP? Sure, why not. Think there’s a trillion dollars of spending that can seriously be cut? Sure, no problem, fuck the math.

Admittedly, this was a rant. Maybe we’re floating on a bubble that may pop badly. And then we might see the effects of stupid policies through the lens of a spiraling economy. And we’ll rediscover we need intelligent, skill people in charge. Or maybe not. Maybe Baumol and Blinder is as much a work of careful fiction as a theology textbook.

But that’s not something I want for me, my family, or my neighbors. Maybe we’ll see the government wade further into business by back-stopping any collapse with “free money” of cheap interest rates, loan guarantees, and buying even more equity in private companies. I remember when that kind of socialism was something Republicans vehemently opposed. Against all the good principles of being careful stewards of the pillars that hold up prosperity. Manipulating rates, funny money deficits, state owned companies, and corrupt officials were something we pointed to as markers of guaranteed economic suffering under tin-pot dictators. I never could have imagined it would be our future.

Prostitution is Next

It’s arguable there should never have been a ban on marijuana. That said, I think what’s important to the psyche is the relaxation of the ban. And there can be many good reasons why the ban should have been relaxed and how many people will benefit more than be harmed by relaxing the ban. The point is it was a vice we were all told it was wrong for so many (sometimes fabricated) reasons. The ban was relaxed. The same is happening with gambling. It was once illegal, immoral, and even predatory. Now it’s available on your phone in every state, courtesy of sports books and prediction markets. The last serious prohibition left is prostitution. Something which is legal and regulated in some countries and strictly not illegal in others. But in the United States, outside of a few particular counties, is illegal.

There are reasons it is illegal. Some of these reasons are good. Some are bad. Some are documented through rigorous study, but some harms are largely the byproduct of its legal status. Remove the incarceration of women for solicitation, and the risk of getting labeled a sex criminal, and some of the harms go away. But as we sail past broad legality for intoxicants and gambling, prostitution is the only vice still left standing. And many are arguing it should not be illegal. I don’t know that I agree or disagree because many people are disingenuous in their arguments around vices. Some argue for it because they don’t want to be arrested (as a customer or provider), rather than a genuine appeal from reason or data. And some argue against it because of their desire to impose their morality on others. It doesn’t invalidate the arguments, but the motivation makes it harder to judge the argument as honest. I don’t know the correct answer, but given the track record of those that profit from the sale of (often women’s) bodies are rarely the women sold.

It will be a chip shot to the green for Only Fans or a dating site to offer in-person or compensated dating experiences. Ashley Madison was a scam, but how long before a dating app with low prospects allows women to start advertising? (I say women but the same applies to some men, where economic vulnerability has made some men exploitable by other men). After all, this ‘disrupts’ dating, something “we all know isn’t working.” And I can imagine the excuse would be that policing this in practice is impossible, anyway. That many people just use these apps to ‘hook up.’ Like gambling, once the apps move in, and there are investors, it will be legitimate. It will be a business out in the open. And if you don’t like it, it’s because you are a prude or not ‘with it.’ People will do it, so why not offer it through the convenience and safety of an app?

Would prostitutes be better off, if they were able to openly solicit? I could see benefits, such as screening out out violent clients. Although, given the track record of safety in the hands of tech bros in other contexts, it might be a ban is voided by quickly creating a new account. I could see women more willing to file rape charges against clients because they don’t fear arrest. However, I could also see apps black-balling any woman who did file such charges. These disruptive companies are often more subtly exploitive than the pimp. Uber has been accused of manipulating fares to give the impression a living is possible as an Uber driver, but the reality may be a below minimum wage grind. Uber doesn’t need to exploit them, the drivers exploit themselves by chasing smaller and smaller payouts. How well silicon valley would treat sex workers is practice may be as exploitive as the worst pimp.

How likely do I think this is? Ironically, more likely because of the Epstein scandal. With so many establishment men, including David Brooks, Larry Summers, and Bill Gates being seen around Epstein, it could perversely make the prohibition of seeking sex workers a class-based rule. (Not that I have any indication any of these men actually did anything illegal or even unsavory – other than their association with a vile person). If you’re wealthy and elite, it’s accepted, but if you’re not, it’s prohibited. And as we all know, the United States is a country full of temporarily embarrassed billionaires. Why shouldn’t Trey Schifflet from Beckley, WV (a made up persona) be treated to the same earthly delights as his favorite president? Trey, who sits at home smoking weed and playing Call of Duty in his parents’ basement. Who burns up his Uber money gambling through Kalshi on sports. Who has found every dating app frustrating because he’s not a “high status male.” Who looks at his jaw or his height or the slightly more pronounced ears as the real reason he’s passed over. And nothing to do with the fact his app profile features his sucked-in, two-pack abs, and actually calls women ‘females.’

And we live in a world where the pursuit of money is almost a dispensation for wrong-doing. Even Sam Bankman-Fried has has a moment or two of seriously attempted rehabilitation, including possibly restarting his exchange (in name only) FTX. The President and his family are openly grifting using meme coins. It’s not a bribe if you squint your eyes so hard they close. Whose family business works with and may become a prediction market, like Kalshi, to openly take bets. Who has turned the pardon into a coin-operated dispenser, giving pardons to wealthy, well documented, easily convicted, and unrepentant fraudsters. The pursuit of profit is sacred, beyond question, and insured against prosecution if the potentate is given his vig.

In this environment, where subsidizing illegal activity is just “disruption,” why should this last taboo stand? To be fair, there are many who want to see the laws prohibiting sex work repealed because they see women whose exploitation is facilitated through the risk and fear of arrest. Or whose avenues for legitimate work are proscribed because of a prostitution related conviction. But if the tech bros smell blood in the water, or rather money to be made, they will pounce on your resistance to legalizing prostitution. Posts on X, undisclosed sponsorships to creators, and AI slop comments, will drive you to feel bad for believing it should be illegal. It should be just as easy as Uber to order up a date. After all, it’s just like Only Fans, but IRL. It will happen anyway, so in-person access should be legal and available through an App, with the App taking a cut to profitably cover expenses like payment processing and client screening. And once Andreessen-Horowitzes of the world are behind it, it will be a legitimate enterprise, an investment, a company to IPO, and much more than simply pimping and profiting from the vulnerable.

First Time Claims Make Less and Less Sense

The number of first time jobless claims (a weekly statistic measuring the number of folks filing their first claim for unemployment insurance when they become unemployed) has been bouncing around 250,000 for the last year and change.

A related number, the continuing claims, which measures the number of unemployment claimants who are continuing to file for benefits has also been remarkably steady.

While it looks like there was a big jump in May, it was a change from 1,800,00 to about 1,940,000, of about 7-8%. And then it stayed steady. Meanwhile, unemployment has been slowly creeping back up over the last two years.

Meanwhile, we see a definite softening of new jobs created. The change in non-farm employment shows a degree of cooling in the economy.

What would we expect to see, if job creation is slowing, along with an up-tick in the unemployment rate? We’d expect to see more claimants for unemployment insurance. Fewer jobs, more layoffs, and lots of stories about graduates that can’t find jobs (who cannot apply for unemployment insurance), indicate a soft labor market. We see the average weeks of unemployment (how hard it is to find a job once you lose your job), tick up slightly but not decisively, by about 2 weeks, but still within statistical noise.

With today’s CPI coming in a lot softer than expected, this will give the Fed a green light to cut. But as much as we see evidence of a slowing job market, we don’t see more and more people applying for unemployment, what gives? Is this just what a more normal employment market looks like after the go-go job markets of 2021 to 2023? When there were many times more jobs open than there were candidates?

First, we have to remember a few things that may be complicating the first time claims picture. First is that the new graduate cannot claim unemployment. If a new high-school or college graduate cannot find a job, they cannot claim benefits because they haven’t worked for an employer that paid into the insurance pool. If you quit because your commute would be 2 hours (after you moved because even your boss was saying WFH would be the new normal), you are not eligible. If your employer claims it was for cause, you are not eligible. That’s why many employers will try to cite ’cause’ as the termination reason, even though they’re firing dozens or hundreds of people at the same time. Nor are independent contractors. if you were an independent IT contractor at US AID and your contract was terminated, you are not eligible. You basically have to work on a “W-2” basis for an employer that terminates you for non-performance (or criminal) reasons.

Then there are other reasons, such as deciding not to claim benefits, because you can make more money driving for Uber. (Or at least you think you can make more money driving for Uber). If you make more money than your benefit check at a part time job, you can’t claim benefits. Some people won’t claim it out of principle. And some people live in states that felt too many workers were getting cushy at home instead of returning to the workforce and made it harder to claim benefits.

Does an increase in first time claims (or continuing claims) predict a recession? No. It is a trailing indicator. Generally corporate profits fall, along with Wall Street’s expectations of future profits, as the economy slows. At that point corporations realize revenue won’t grow, so they have to cut costs to keep their margins. One quick way is to lay off staff. Often, this is a time for the company to prune their deadwood projects. These are projects they’re putting money into because it seemed like a good idea at the time, but no one seems to be able to kill it now that it’s shown to be a dud. Managers are human, too, and subject to biases like the ‘sunk cost’ fallacy. This is the push that management needed. But sometimes they just reduce head-count to the point of pain, because they can coast on their accumulating inventory until business improves. Only after output falls (a recession begins) does employment really contract.

But it is still striking there’s been so little movement in first time claims. It feels like you could place bets on it being between 220,000 and 240,000 next week and the week after. Do I think it’s being manipulated? No. While it was popular among the right to say Biden’s numbers were all fake and made up, I never thought that claim was based in reality and I don’t think there’s any skulduggery now. Did Trump send a worrying signal by firing statisticians? Yes, but I believe the core of the process is still very much intact. Are the numbers massaged? Yes, sometimes seasonality needs to be taken into account, otherwise the increase or decrease would be overstated and the period to period changes are harder to compare. And if you think that’s an issue, most numbers are also released without seasonal adjustment. So, go look for yourself. Are numbers revised? Yes – because sometimes data doesn’t come in on time. This is especially true of the employment survey, with some employers submitting data weeks after the data was due.

What we may be seeing is a change, or a beginning of a change, in the relevance of this number. Due to a variety of factors, it’s becoming less sensitive to changes in the health of the labor market. If you lose your job, your ability to access smaller benefits may be reduced. And employers may be getting better at incentivizing you to quit and unable to access your benefits. For example, we need you to report to work 3 states away and we won’t help you move. The first time claims may be very slow to move, if at all. Like we are seeing unemployment hit 4.6% but little to no change in the first time claims.

AI Wins the Shutdown

It’s Monday, November 10, and I’m going through the news. The shutdown may be coming to an end. Welcome news to some, although I believe the Democrats caved. The Republicans indicated they were willing to scorch the earth over ACA subsidies. These are the payments that help people buy health insurance, when they can’t possibly afford 15,000 or 20,000 a year in premiums. It seemed as though Republicans were willing to let air travel fall apart in front of the holiday season rather promote access to healthcare. All while the government feels they have enough money to possibly send $2,000 rebate checks from the taxes collected through tariffs. And the Democrats blinked. The government, assuming the house approves and the administration doesn’t have a spaz and veto the bill, will likely re-open.

What stocks do you think would be doing well on that news in the pre-market? They airlines? Yes, they’re up. Defense contractors? They’re mixed. What about health care? Mixed to net negative. What’s ripping? AI hardware and semi-conductor companies. NVIDIA is up over 3%, while the strongest airline, UAL, is up just barely 2%. The DOW and the SP500 are up largely because of just the AI and related semiconductor stocks.

On the Russel 2000, there’s more broadly positive price movement. The second tier defense contractors are doing well. When the Russel 2000 does well, it is a proxy for investors being more willing to take risk. In the sense that ending the shutdown is positive for the economy, taking on more risk through AI and smaller companies follows. With the gross dysfunction abated, it is more likely companies will make money. But the undercurrents of self destruction over providing health care to people is still there. One party is willing to burn it all down, including intentionally withholding food assistance to their base. They are willing to ignore their roll in checking even illegal acts. I don’t know if my outlook on the future is as sanguine as the other investors stepping up to shoulder more risk.

I feel like we’ve lost our ability to discern what is good and bad. All we know to do is calculate which option gives us more money. What you build is not important. Who you defraud is not important. What you destroy is not important. The dystopia you are creating is not important. And with enough money you can buy a legacy. All that matters is making as much money as possible. The invisible hand free of moral and ethical constraints. Even democracy and the constitution fall by the wayside if there is money to be made. Greed is not just elevated to ‘good,’ along with other good values. Greed is the only thing that matters.

Totalitarianism Is an Unneeded Expense

I covered nationalism and authoritarianism and why I think the latter is the serious issue. While you can’t have blood and soil politics without nationalism, in it’s weak form it isn’t a problem. Then I covered authoritarianism and that there is no acceptable level of authoritarianism. And why you can have authoritarianism even when the people choose it. We come to the third, but not to last, leg of the dictatorship table. Unlike a three-legged stool, dictatorships have probably four legs, maybe five, or even six legs. It takes a lot of work to dislodge the autocrat and the peoples’ thirst for an autocrat. People have a craving for order and strange fetishes a democracy will never really satisfy. Totalitarianism is just another leg. One that may not be critical in the modern age.

Total control has largely fallen out of favor. The Nazis, but more so the Soviets, really brought it home. (I will use the term Soviets broadly, encompassing the USSR and allied regimes, like East Germany, Hungary, Romania, or Yugoslavia). A totalitarian state is one where the totality of civic, artistic, and professional life falls under sway of the autocrat. There is no other party. There is no protest. There are no ‘liberal’ cities in opposition. There are no books sold at the store that are not approved. There are no films shown, records played, or news broadcast that isn’t approved by the state. In the Soviet period, especially in the 1930’s to the 1950s, possessing contraband items, expressing contraband ideas, or just running afoul of an apparatchik who desired your apartment could earn you a stint in a slave labor colony.

Modern dictatorships have not picked up the extreme totalitarian mantle. China is a hold-over from the old Soviet model, but even they realize they can’t have a modern society and truly perfect control. They’ve left that to the starving North Koreans. Which is why they allow a limited form of protest and discussion. Within narrow bounds you can make specific points, but no other power centers are permitted. Other dictators, like Orban, Erodgan, or Putin, have differing degrees of social and political control. Russia maintains a tighter control over its people than Turkey or Hungary, but they all have limits on expression and do not tolerate any challenge to their authority.

Autocrats are pulled toward totalitarian control. Dictators can’t help themselves. In little and big ways, their need to control manifests itself. Why has Trump injected himself into the Kennedy Center? Why does he threaten entertainers with investigations or arrest? Why does he use the FCC to intimidate news outlets? And also a late night comic by going after his parent company? Part of it is ego. Part of it is legitimacy with his own base of popular support. No more garish displays of love and acceptance, just proper entertainment like eulogies to fallen internet trolls and odes to the their gold-plated tin god. Part of it is calculated to discourage dissent, intimidate his opposition, and stifle debate. But the need to totally control is just is their insatiable desire for power.

The modern dictator slowly tightens the totalitarian noose, but never pulls it hard enough to completely choke the opposition. This ‘kindness’ accomplishes does two ends. First, it allows the dictator the fig-leaf of not being a dictator. How can we say someone is a dictator if there are still media outlets to oppose them? They’re not a dictator, they’re just the popular choice. When they go after a news outlet or nascent party, it’s over some fraud or a dense legal issue around permits. Because one or two independent sources still exist, other closures were obviously not for political reasons. It provides a handsome veneer over the rotten state of affairs. It allows their apologists to claim it is not a dictatorship or autocracy because control is not total.

Second it reduces the cost of staying in power. Those networks of informants, jails, collecting data, and surveilling cost resources. There is a degree to which the population naturally policies itself, if the regime has a degree of legitimacy. A true believer will rat out the person they see as a traitor or a threat. We like being cozy, safe, right, and righteous. For them, throwing someone in the gulag is for a better society is its own sick reward. Then there are those that can be cheaply coaxed into cooperation. Rat on your neighbor and you’ll be promoted to a better job. At the end of the day it still requires a network of informants, dossiers, and piles of “evidence.” Even in the AI age, that is not cheap. An algorithm might select, but cannot arrest, jail, or torture someone. That requires a paid human being in a jail that must be maintained. By some estimates, the cost of the internal security in Russia exceeded the cost of the military before the war.

It is impossible to put a minder in every home. In the Soviet era “samizdat” circulated even in the darkest days. These are well-worn, dog eared, hand-made, hand-copied, and hand-circulated books, essays, stories, works of art, and news that the Soviet boot heel could not smother. Despite the blaring of propaganda from radio, film, television, and even the PA system in the subway, it was impossible to snuff out the minds of millions of people. People developed the skill of being outwardly compliant but inwardly rebellious. An unseen mass that just needed a spark to set them off. And to the regime, these dangerous people were everywhere. The regime knew this and spent untold efforts to eradicate traces of “foreign” influence. They did so in a brutal and frightening campaign of terrorizing its own population. In the Stalinist peak, people were simply plucked off the street or out of their homes. Accused of some crime or another, it didn’t matter, they were headed to the gulag or a drunken firing squad.

The parallels in the US are obvious. We’ve seen the true believers reach out to quickly remove books form libraries and schools. The fantasies some have of their political opponents arrested, en-masse, are beyond troubling. An administration targeting public opposition with threats of investigation or being charged with the thinnest of crimes. Violently abducting immigrants, and not being too concerned if any citizens who are opposed are also arrested and roughed up. Threatening news outlets with law-suits or revoking press access because they made the dear leader unhappy. Or the sycophancy on display during public events. Or working with police to use excessive force at every opportunity on protesters. Or even taking over the reigns of culture at the Kennedy Center. If you don’t see it, you are pathetically and hopeless ignorant or are a willing participant who won’t admit to it.

A degree of social control is part of the picture, but it is no longer total. We will be allowed some degree of opposition. California exists as a foil to the goodness of the autocrat and his worshipers. A hell-hole of crime and liberal values that the core supporters can contrast to their own cozy sense of safety. The dictator doesn’t need to disappear California politicians from the street. It is enough to force his presence into their civic life. Soldiers standing around a Humvee in the middle of a park. The dictator keeps the protests in check by making it known accusation of excessive force are of no concern. South Park, until it becomes too much of a threat to the profits of its owners, can continue to make essentially obscene mockery of the dictator. The blogs and the “liberal” social networks can continue to exist. As long as it doesn’t actually threaten the hold on power, costly totality is not necessary.