Getting what you asked for

I thought everyone wanted de-globalization and more safety

Photo by Ian Taylor on Unsplash

Hello,

Welcome to Known Unknowns, a newsletter that reads all the vibes, and right now, they are not too market-friendly.

Tariffs

What did you think post-neoliberalism meant? Vibes? Papers? Essays? No, it meant tariffs. It always meant tariffs because that is what rejecting globalism means.

I am not sure what to make of the national mood. On the one hand, we’ve been listening to every “right-thinking” person decry globalization and market pricing for the last decade. And now, many of those same people think tariffs are the most evil thing ever. I hate tariffs too, but I am also a neoliberal globalist. Will this whole foray into protectionism win free-trade converts from The New York Times editorial page? Can we all agree that while our economy has some problems and too many people have been left behind, trade and free-market pricing weren’t the problem? In fact, they made things better. I doubt it.

I really don’t know what our trade policy is about right now or what it’s trying to achieve. Is this all part of some master plan to secure better trade terms with countries like China and India? It’s not like we live in a free-trade world now, and maybe trade could be “fairer.” Or are we trying to create more jobs in manufacturing and agriculture? (If so, why? Are we hoping to bring back the 1880s economy?) Or does this administration just like tariffs because they think they are a great way to bring in revenue paid by foreigners? (It doesn’t entirely work that way, but that’s an argument.)

I am starting to think it is all of these things. I guess the next 18 months will have lots of highs and lows. But hopefully, we come out of it realizing that trade is a good thing and that this whole “neoliberalism failed” thing will be put to bed.

Conservatives are turning on markets

This all just shows how much things have changed. Conservatives were once the party of free markets—at least rhetorically. Their record on the debt and some crony capitalist elements aside, they were better than the left and had market-friendly instincts.

Is that still true now? I am not sure. All this tariff stuff is not market-friendly. Nor is the pledge to avoid tackling unfunded entitlements, which are our biggest source of debt. Neither is the enthusiasm for big transfers to the middle class, from the child tax credit to DOGE dividends. And, of course, there’s the bizarre fetishization of manufacturing and singling out certain groups for tax cuts.

On the other hand, there is deregulation, broader tax cuts, and the desire to shrink government and divert more resources to the private sector. Many members of the administration, especially the economics team, are free marketers.

But the likely inheritor of MAGA, J.D. Vance, is not a market guy. Neither is the new intellectual generation of conservatives—the “new right”—who appear to have a real yen for industrial policy, pro-labor policies, domestic manufacturing, and anti-trust regulation.

So, are conservatives anti-market? I wouldn’t go that far. But they are becoming the party of small government, restricted trade, and big transfers. That is not sustainable, so I am not sure where it will end up. I suppose the success of the Trump administration will tell.

Low growth is a choice

To be fair, no one is on a sustainable path. I feel for the Europeans. They want a big welfare state, need to spend more on defense, and have an aging population. The only earthly way to pay for all that is by boosting growth. But as I’ve written before, their low growth is a choice. They prefer safety. All those strangling regulations are by design—to have a slower, steadier economy. This is what they want. The problem is they can’t afford the safety they desire and pay for everything else.

I am starting to think this is the trade-off that will define this new economic era. Growth comes with risk—ups and downs, and more volatility. We are also entering a more volatile era because we are in a new innovation cycle (which is good on balance), and we are doing more bilateral instead of multilateral deals (less good). Some of this volatility is productive risk, in that it comes with the potential for more growth. But other aspects of it are the equivalent of under-diversification—risk with no upside. It is just inefficient.

The problem is, we’ve never needed growth more. And while everyone is talking about growth (an improvement), we are not being clear-eyed about what it requires, what we must give up in terms of safety, and how to avoid needless risk. Just read the Draghi report. It talks a good game about deregulation and boosting growth, but also still favors industrial policy and managed growth. It does not work that way.

In other news

I went on Marketplace to talk about bonds, ice cream, and White Russians. I think it is worth noting that while the 10-year is down about 20 basis points because of all the uncertainty, it is still up about 350 basis points since the pandemic because of bigger structural factors. When it comes to bonds, there is a flight to safety that makes them more expensive, but that tends to be short-term and small. Structural factors matter more.

I also participated in a Bloomberg roundup on metrics that reveal the state of the economy. I looked at wealth inequality. It shows how much housing matters to most Americans—no wonder the administration is so fixated on the 10-year bond.

Until next time, Pension Geeks!

Allison