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  • Tuesday Edition: What's Economic Populism?

Tuesday Edition: What's Economic Populism?

Plus: China's meteoric rise in scientific research.

1. The Case for Populist Economics

In a new interview with The New York Times, Sen. J.D. Vance, R-Ohio, makes the argument for “a comprehensive populist economic agenda.” (NYT)

Vance outlining how most economists think about globalization:

The main thrust of the postwar American order of globalization has involved relying more and more on cheaper labor. The trade issue and the immigration issue are two sides of the same coin: The trade issue is cheaper labor overseas; the immigration issue is cheaper labor at home, which applies upward pressure on a whole host of services, from hospital services to housing and so forth.

And how his populist approach differs:

The populist vision, at least as it exists in my head, is an inversion of that: applying as much upward pressure on wages and as much downward pressure on the services that the people use as possible. We’ve had far too little innovation over the last 40 years, and far too much labor substitution. This is why I think the economics profession is fundamentally wrong about both immigration and about tariffs. Yes, tariffs can apply upward pricing pressure on various things — though I think it’s massively overstated — but when you are forced to do more with your domestic labor force, you have all of these positive dynamic effects.

Vance uses the minimum wage to illustrate the case:

You raise the minimum wage to $20 an hour, and you will sometimes hear libertarians say this is a bad thing. “Well, isn’t McDonald’s just going to replace some of the workers with kiosks?” That’s a good thing, because then the workers who are still there are going to make higher wages; the kiosks will perform a useful function; and that’s the kind of rising tide that actually lifts all boats. What is not good is you replace the McDonald’s worker from Middletown, Ohio, who makes $17 an hour with an immigrant who makes $15 an hour. And that is, I think, the main thrust of elite liberalism, whether people acknowledge it or not.

The latest: Donald Trump’s recent proposal to replace the income tax with an “all-tariff policy” has kicked off a debate about the merits of populist economics.

  • Economists say Trump’s plan would lead to a gap in government revenue, and would lead to tax increases for the bottom 90% of the country.

  • NYU professor David Kamin: “Here's the thing: The income tax has its flaws. But, the bottom line is it raises ~$2.5 trillion per year in progressive fashion. Broadly substituting tariffs for income tax is a sure way to hit hard low and middle income Americans and reward top.”

Bubba’s Two Cents

The rise of Trump and left-right populism has spurred a reappraisal of conventional thinking on economics. Vance makes some fair points, but the solutions offered by economic populists come with their own tradeoffs and downsides. And in the case of proposals like Trump’s “all-tariff” idea, it’s not clear these policies would benefit working class Americans at all.

2. The Cost of Living Crisis

The cost of big ticket expenses — things like child care, housing and health care — have been exploding for years, and may help explain Americans’ current feelings on the economy. (The Ezra Klein Show)

What gives? The stock market’s in good shape, unemployment’s low and wages are rising faster than inflation, but poll after poll shows Americans are extremely down on the economy.

New York Times columnist Ezra Klein has a theory: Just a few years ago, Americans were primarily concerned with jobs and wages, and were less attuned to the fact that healthcare, child care and housing costs had skyrocketed.

  • But since inflation’s been high for so long now, prices are the hot topic, and Americans are “getting hammered with the reality of how expensive these things have become.”

Some relevant data points from economics reporter Annie Lowrey’s 2020 essay on “The Great Affordability Crisis”:

  • Two in five American adults would struggle to come up with $400 in an emergency.

  • Home prices are rising faster than wages in 80% of American metro regions.

  • The average annual deductible for health plans rose from less than $2,000 to over $3,000 between 2010 and 2016.

  • Spending on child care has increased by 2,000% in the past four decades, costing families $15,000 to $26,000 annually.

3. China’s Meteoric Rise in Science

Chinese scientific research has come a long way in a short span of time. (The Economist)

An eye-popping statistic: In 2003, the United States produced 20 times more high-impact research papers than China. By 2022, China surpassed both the U.S. and Europe.

Chart: The Economist

That’s not all: China leads the world in the Nature Index, which measures contributions to high-quality research published in prestigious scientific journals.

Chart: The Economist

And there’s still more: Six Chinese universities are in the top 10 of the Leiden Ranking, which evaluates universities based on the volume and impact of their scientific research publications.

  • In 2020, China’s universities awarded seven times as many engineering degrees as schools in the United States.

  • By 2025, Chinese universities are expected to produce nearly twice as many PhD graduates in science and technology as America.

  • China’s research and development spending has grown 16-fold since 2000, reaching $668bn in 2021.

  • No country in the world produces more patents than China.

  • China contributes to 40% of the world’s AI research papers, while the U.S. contributes to just 10%.

The Economist:

There is little to suggest that the Chinese scientific behemoth will not continue growing stronger. China’s ailing economy may eventually force the CCP to slow spending on research, and if the country were to become completely cut off from the Western science community its research would suffer. But neither of these looks imminent. In 2019 we also asked if research could flourish in an authoritarian system. Perhaps over time its limits will become clear. But for now, and at least for the hard sciences, the answer is that it can thrive.

Bubba’s Two Cents

China’s ascendance is probably a check to the gut for many Americans and our sense of our country’s place in the world. America’s been the global top dog for so long it can be hard to conceive of a reality where we’re not anymore. And that’s not to say we’re going to be overtaken by China (they’ve got a whole host of problems, too), but it might help explain why the public’s losing faith in U.S. institutions and why 6 in 10 Americans say our country’s best days are behind us. The world’s changing and people are a little freaked out.

4. A Tale of Two (Liberal) Cities

New York Times columnist Nicholas Kristof has spotted a trend — liberal cities on the West Coast are much more dysfunctional than their blue counterparts in the rest of the country. (NYT)

Homelessness: Two blue West Coast states, California and Oregon, have the highest homelessness rates in the country.

  • Meanwhile, three blue states in the Northeast (Vermont, New York and Maine) have the lowest rates of homelessness.

Drugs: Overdoses increased in every Democratic state on the West Coast last year but decreased in each Democratic state in the Northeast.

Violence: Portland’s homicide rate is more than twice that of New York City.

Kristof’s explanation for the stark difference between the West Coast and other liberal areas:

[My] take is that the West Coast’s central problem is not so much that it’s unserious as that it’s infected with an ideological purity that is focused more on intentions than on oversight and outcomes. … Perhaps on the West Coast we have ideological purity because there isn’t much political competition. Republicans are irrelevant in much of the Far West, so they can’t hold Democrats’ feet to the fire — leading Democrats in turn to wander unchecked farther to the left.

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