Hallo, awesome readers! It’s time for a roundup. I actually never think of a theme for these in advance. I just dump everything in my list of “stuff I don’t have time to write a full post about" into the Substack editor, then try to figure out some kind of thread that ties the items together. Today’s list is, roughly speaking, about industrial policy — deliberate policies that governments can take in order to encourage specific sectors or pieces of their economies.
But first, podcasts! I went on Scott Galloway’s Prof G Markets podcast, to talk about the macroeconomic implications of AI:
You can also watch a video if you prefer! Not sure why, but it looks like I haven’t shaved in a long time even though it’s only 12 hours of beard shadow.
I also went on Jayden Clark’s podcast, Members of Technical Staff, with Sam D’Amico (founder of Impulse Labs). We talked about San Francisco’s local politics, while cooking steak on an Impulse stove:
Anyway, on to this week’s list of interesting stuff!
1. Is Trump getting better on science policy?
The Trump administration, generally speaking, has been the worst on science policy in the country’s entire history. As part of its effort to root out wokeness from American institutions, it has slashed science budgets. Thanks to its conviction that immigrants are foreign invaders intent on overthrowing Western civilization, it has blocked or scared away lots of the foreign researchers that American science depends on. And due to its bizarre political alliance with pseudo-leftist conspiracy theorists, it has elevated quasi-mystical antivaxxers to positions of authority over biomedical policy.
But at the same time, there are some people within the Trump administration who are trying to take things in a more positive direction. The Office of Science and Technology Policy recently released a report called “Science: A New Golden Age” that contains a number of interesting and promising ideas. Alec Stapp of the Institute for Progress wrote a quick summary of what he likes about the plan:
The most important proposal is probably the idea to shift funding from organizations to individual scientists:
Refocus on the Individual Scientist: Put the working researcher back at the center of America’s scientific enterprise. Free them from the growing administrative burdens that now weigh them down for nearly half their working hours. Bet on people, not just projects, by expanding portable graduate fellowships like the National Science Foundation (NSF) Graduate Research Fellowship Program (GRFP), backing early-career independence, and scaling long-horizon grants for the best and brightest modeled on National Institutes of Health (NIH) Director’s Pioneer Award. Open alternative pathways beyond standard academia, and ensure that selection rests purely on merit, not the political fashions of the day.
This is probably a very good idea on the merits. And you can also see how the OSTP folks are selling it to a skeptical Trump administration. Bypassing universities and funding researchers directly seems like it would naturally appeal to administration people who think universities are engines of woke ideology.
Another good idea is to diversify federal science funding mechanisms:
Move beyond consensus-driven peer review by adopting a broader menu of selection mechanisms suited to different kinds of science. Examples include “golden tickets” that empower individual reviewers to champion ambitious proposals, fast grants that deliver rapid funding decisions, prize challenges and advanced market commitments that pay for results, and regranting models that delegate funding authority to scientists to draw on distributed expertise…
Many of today’s most important problems are too large for an academic lab, too cross-disciplinary for a single department, and too hard to commercialize for a private corporation. Federal funding should support a wider range of performers. The recently launched X-Labs can assemble agile, time-bound teams of professional scientists and engineers to break specific bottlenecks. Advanced Research Projects Agencies (ARPAs) can empower individual program managers to make bold bets and curate researchers to execute them. Curiosity-driven institutes can give our best minds the stability needed to pursue fundamental questions over long time horizons.
Science is changing fast in the age of AI, and old funding models may not always be the best for every discipline. Also, notice that there’s a bit of industrial policy here — the mention of advanced market commitments suggests that Kratsios and the OSTP understand the intimate relationship between lab results and industrial scale-up in fields like chemistry and materials science.
Finally, OSTP wants to do metascience — they want to evaluate new funding methods as they’re implemented, to see what’s working and what isn’t:
Stand up an empowered metascience unit in federal science agencies, reporting directly to the director, with authority to run controlled experiments on review and funding mechanisms and to drive change across the organization.
I am in favor of all of these proposals. They’re very good, and most are long overdue. The problem is that they’re going to cost a lot of money. OSTP’s report isn’t a piece of legislation, or even a funding request; it’s just a plan, by one little piece of the government, that may or may not ever be implemented. Trump’s budgets still call for huge cuts to science funding, which would basically throw the OSTP plan right in the trashcan or (at best) turn it into a tiny symbolic demonstration program.
But these ideas are good enough that they need to be bipartisan. If Democrats take back the White House in 2028, they need to pick up this plan, slap a little token partisan gloss on it, maybe have Claude rewrite the language a little, and fully fund it.
2. America’s national debt is a big and growing problem
I’ve been shouting about the national debt for years now (including when Biden was President), so it’s good to see other people who aren’t fiscal perma-hawks shouting about it too. One of these people is Martha Gimbel, who worked for Biden’s Council of Economic Advisors. She writes that America’s national debt is already being reflected in higher long-term interest rates:
What should matter is that the consequences of this debt are not off in the future, but already here. The government’s deficits have saddled many American families with higher costs, largely from rising interest rates. The Budget Lab, the policy research center at Yale where I am the executive director, recently estimated that congressional-spending decisions since 2015 have raised Treasury yields by almost a full percentage point, which affects what American households pay to borrow. For someone taking out a 30-year mortgage at last year’s median home price, this rise in long-term interest rates has increased their borrowing costs by about $2,500 a year, or roughly $76,000 over the life of the loan.
The bloated government budgets and waning federal revenues of the past decade are driving up costs across the board. Compared with a world in which these fiscal-policy changes did not take place, the annual borrowing costs on a typical auto loan are now up by about $120, and by about $770 on a typical small-business loan. Credit-card borrowing rates are also hovering near record highs. [emphasis mine]
Gimbel is no one’s idea of a fiscal perma-hawk. But actual perma-hawks, like the people at the Committee for a Responsible Federal Budget, are naturally freaking out even more. Here is their illustration of how government debt can spiral out of control, when higher interest rates force the government to spend more even as they depress growth and reduce tax revenues, leading to even higher interest rates:
Relentlessly rising federal interest payments show why we’re in danger of this spiral right now.
Once this kind of spiral takes off, the only thing you can really do is print money, which can easily lead to horribly damaging inflation. A few macroprogressives on the left and die-hard supply-siders on the right still discount that possibility, but the experience of 2021-22 shows why Democrats and Republicans need to ignore those folks.
So what do we do? In fact, we have lots of levers to fix the debt. Here’s Gimbel again:
The main remedies for these problems—higher taxes and spending cuts—are generally politically unpopular. Every budget fix will have its critics, but some options are more palatable than others. Better funding for the IRS, for example, could help close the “tax gap”—the amount of taxes legally owed that are not paid in a timely way—which the IRS estimated at about $700 billion a year in 2022. Other levers include raising the retirement age and reducing Social Security benefits for high earners, who also tend to live longer; reforming Medicare Advantage, a program that has been shown to allow private insurers to overcharge the federal government; and removing the tax exemption on employer-provided health insurance, so that these benefits can be taxed as income. The Congressional Budget Office regularly publishes policies that could help close the deficit, and Americans need to decide what we’re willing to pay for and what we’re not.
It’ll take political will, but we managed to muster that political will back in the early 1990s. What we need, most urgently, is to destroy all vestiges of the bipartisan “deficits don’t matter” consensus that emerged in the 2010s and early 2020s. Yes, deficits DO matter.
3. Europe’s disdain for software comes back to bite it
Over the past decade or two, Europe has become increasingly hostile to the software industry. Although Europe does have a few successful software companies (SAP, Spotify), these are few and becoming fewer. Europe has generally chosen to regulate software rather than build it, enacting the free world’s most onerous software regulation — GDPR — in 2016. That regulation, which is why you have those useless, annoying “Accept cookies” popups on every website you visit, convinced European leaders that they can control the direction of software development by regulation alone — trading access to the European market in exchange for the ability of European leaders to have a say in how global software is made and run.
Why exactly Europe decided to regulate software instead of building it is a topic that deserves a deeper and longer discussion. It’s possible that European leaders just concluded, like Xi Jinping did in 2021, that software is a consumer toy that isn’t “real” technology — that it absorbs resources that are better used for manufacturing, that it doesn’t strengthen the nation or create real value, etc. It’s also possible that, like progressives in America, European leaders got negatively polarized against the “techbro” class — the industrialists who amassed vast personal fortunes figuring out new uses for software — and who used software regulation as a way to deprecate the social status of those industrialists.
But whatever it was, the European bias against software is looking more and more dangerous and self-defeating in the age of AI. AI is definitely not a toy, and not just a consumer good — it will be a crucial input into every manufacturing process on Earth, and a critical tool of national security. Countries that don’t have access to the best models may be at the mercy of those that do. They will be more vulnerable to cyberattacks, less capable of controlling drone armies (which now dominate the battlefield), and far less competitive in any export industry.
In other words, software matters now in a way it didn’t matter as much back when Europe decided it didn’t need the industry.
A group of European think-tankers and researchers have written a document called Europe 2031, illustrating the danger that their region is facing. It’s a bit long and dramatic, but it gets the point across. The report paints a vivid picture of what it would look like for Europe to become a de facto economic satellite state of the U.S. and China.
Avoiding this will require Europe to adopt a different approach toward AI than it did toward the consumer internet. Overregulation needs to be avoided, but that’s not enough. As the authors of Europe 2031 note, simple NIMBYism — similar to the kind that paralyzes the U.S. — will be sufficient to stop Europe from building data centers. European leaders aren’t just going to have to allow the AI industry to develop — they’re going to have to overcome their ambivalence toward software technology enough to fight entrenched NIMBY interests to get data centers built.
Fortunately, the Europeans appear to understand the gravity of the situation. But modern Europe has a long and storied history of issuing rhetoric and proclamations about the need for policy change, but not making anything happen. Basically, Europe needs to re-learn the political art of making things happen, because the era when it could coast on the legacy of post-WW2 industrialization has already come to an end.
4. Why doesn’t America have good trains?
The U.S. notoriously has one of the worst rail transit networks in the world. This is partly because building trains is so incredibly expensive in America. The Transit Costs Project did a deep dive into figuring out why, and concluded that there are a bunch of different factors — bad procurement procedures, lack of standardization, and so on. Basically, my interpretation of this report is that American cities and states decided that trains weren’t that important, which prompted them to A) gut their train-related state capacity, B) allow a bunch of essentially parasitic consulting firms, contractors, and unions to dominate what rail budgets did exist, and C) ignore the need to streamline regulations that prevented rail from getting built. If we started caring about trains more, we could start fixing those problems.
But it’s also notable that trains aren’t equally expensive everywhere in America. The Boyd Institute produced a good chart of the Transit Costs Project’s data, showing the dispersion of costs per mile of tunneled train in various countries:
This is a logarithmic chart, so the cost differences are very big. The U.S. cost per mile is 4x that of the median rich country. But note that in median terms, we’re barely more expensive than Singapore, and we’re actually cheaper than Hong Kong — both of which have great rail networks. If we wanted to, we could build great trains too, like Singapore and Hong Kong, despite the costs.
But we don’t. To me, this drives home the fact that our cost problem has a feedback loop with our unwillingness to build. Yes, high costs make us less willing to build trains, but not building trains keeps costs high. If we’re going to get better rail in America, we can’t only focus on pure cost factors like station standardization and procurement processes (though these are important). We’ve got to want to build more trains! That probably means things like denser development patterns and less crime and disorder on trains.
But the chart also shows something else — a few train systems, like NYC’s, cost an absolutely enormous amount. NYC is already train-dependent, so their problem isn’t a lack of trains — it’s the inefficiency, corruption, and incompetence they’ve allowed to become endemic in their system. So in NYC, the problem really is just fixing the system. The Transit Costs Project does have a new report on how to do exactly that, but it’ll require New Yorkers to get very mad at their government and demand change.
5. China’s choke-hold on rare earths
“Critical minerals” are metals that are very important for modern technology — traditional industrial metals like aluminum, nickel, and cobalt, rare earths like neodymium and yttrium, and others like gallium and germanium. For years now, American leaders have understood that our country is in grave danger from China cutting off our access to many of these critical minerals.
But a lot of Americans seem to still misunderstand why that danger exists. A lot of people seem to think that it’s all about mining the minerals, and that if we just A) discovered more deposits, and B) loosened regulation enough to allow mines to be constructed, America would have ample supply of these metals. This is wrong and misinformed. The reason China controls our supply of critical minerals is not because we don’t mine these metals, it’s because we don’t refine them.
When you dig metal up out of the ground, it’s not in a form you can use in industrial applications. To turn it from ore into something usable takes a bunch of steps — mostly, dunking it in various baths of chemicals. This is called refining.
Most critical mineral refining is done in China. Every year the IEA comes out with a report on critical minerals. Here’s a chart from this year’s report that shows how dominant China is in refining, even for things like cobalt that China mines very little of:
In fact, China is becoming even more dominant in minerals like lithium and manganese. This is despite the fact that other than graphite and gallium, China doesn’t dominate the mining of any of these metals.
Why does China dominate refining of critical minerals? A few reasons:
China dominates the downstream industries in which some of these minerals are used. For example, China makes most of the world’s lithium-ion batteries, so it makes economic sense to locate lithium refining near to the Chinese factories.
China’s financial system gives a huge amount of cheap bank loans to companies that refine critical minerals, making it very cheap to finance these expensive plants.
China has somewhat looser environmental restrictions than Western countries.
China has been investing heavily in metal refining for decades, meaning that they’ve built up a tremendous amount of distributed tacit knowledge in difficult refining processes (such as rare earth refining).
If the U.S. and its allies want to get out from under the Chinese yoke, they will need to address all of these shortcomings at once. They’ll need to promote downstream industries like batteries (which Trump has discouraged and attacked) and electronics. They’ll need to revamp their financial systems to allow big loans for refineries. They’ll need to loosen environmental restrictions in targeted, judicious ways. And they’ll probably need to use AI to quickly reproduce the distributed tacit knowledge that makes Chinese refineries so efficient.
6. India’s women need to work more
One big barrier to Indian industrialization is that women in India haven’t gone to work en masse. In most countries, industrialization starts when a ton of women move off of farms into cities and work in factories doing “light industry” — clothing, fabrics, toys, electronics assembly, and so on. This creates manufacturing companies with the capital and know-how to move up the value chain into more valuable and capital-intensive parts of manufacturing. Eventually the wealth created by high-value manufacturing creates the demand for high-value services industries.
That’s the typical story, but in India it isn’t working yet. This isn’t because factory automation has made labor-intensive “light industry” irrelevant — witness Bangladesh, which has grown a bit faster than India since 2004, largely on the back of its garment industry. Bangladesh has a relatively low female labor force participation rate, but it has increased its rate steadily over the decades. India has not; women in India are much less likely to work outside the home than women in other developing countries throughout the region:
Goldman Sachs analysts believe that getting Indian women out of the house and into the factory represents a huge economic opportunity. But Indian society seems to be resisting this.
A new paper by Alison Andrew and Andrea Smurra helps us shed a little bit of light on what’s going on. Low-income Indian women are increasingly not even leaving their homes:
We use rich time-use data on where, and how, individuals spend their time to quantify and describe women’s seclusion in India. We document extremely high levels of seclusion with the median married woman leaving home for just 0.5 hours/day and 45% not leaving home at all on a given day. Seclusion has increased markedly over the past two decades. While richer and more-educated women were, and still are, the most secluded on average, this gradient has flattened over time….Women are more likely than men to specialize in activities that are more readily done at home but are also more likely to carry out any given activity at home.
Why are Indian women becoming such hikikomori? Why hasn’t the lure of factory jobs been enough to draw them out of the countryside to the bright lights of the big city, as it was in Bangladesh, Vietnam, China, and a bunch of other countries? Andrew and Smurra don’t even hazard a guess. It’s not because they’re busy having lots of kids; Indian fertility rates are low and falling. Part of it might be simple lack of awareness of economic opportunities in factories. But whatever it is, it presents a big economic problem for India.
7. No, murder is not secretly really high
A lot of people like to have nostalgia for the 1950s. In fact, measuring by the murder rate, America is actually less violent now than it was back in the 50s (after a brief spike in the late 2010s and early 2020s):
People who think of the 1950s as being very safe tend to instinctively resist this conclusion; they think something must be wrong with the data. And so many latch on to the myth that murder rates have only fallen because of improved trauma care in American hospitals.
But it’s just not true. In a recent blog post, Jeff Asher explained how this myth got started, and how we know the narrative is wrong:
Basically, the myth rests on a 2002 paper by Harris et al., claiming to show that Americans are getting shot more and more often, but are surviving the shootings much more, leading to a decline in death but a rise in violence. Here’s their key chart:
So what’s wrong with this chart? The data on “lethality” isn’t official data — it’s just the authors dividing the aggravated assault rate by the murder rate. And the aggravated assault data they use is bad. They use the aggravated assault rate as reported by police. But as Asher explains in his post, American police forces got a lot more professional and thorough throughout the late 20th century. If someone hit you with a bat in 1955, there was a good chance you wouldn’t call the cops, or they wouldn’t record the incident. By 1995, there was a much better chance.
In fact, we can just go and ask people if they’ve been the victims of a shooting or an assault. When we do that, we can easily see that even as police-reported shootings rose in the 70s and 80s, shootings reported by victims didn’t rise:
So did aggravated assaults really rise in the 60s, 70s, and 80s? Almost certainly not. So aggravated assaults were probably not becoming less lethal over that time period. Yes, we had better trauma care, but we also had a lot better guns and a lot more dedicated murderers.
In other words, America today really is about as safe as 1950s America. Sure, violence in the 50s was concentrated in poor and Black neighborhoods, but that’s true today too. What really changed in America since the 50s isn’t the lethal sort of violence, it’s urban decay and disorder. That’s what we need to focus on fixing.
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