Category: AI Equity vs Tax Policy

Tax the Gains from AI. Don’t Make Government a Shareholder.

There is a new idea circulating in Washington that cuts across ordinary partisan lines: the federal government should take an equity interest in major artificial intelligence companies so the public can share in the gains from AI.

The Case for Capturing the Gains from AI

The instinct behind the idea is understandable. Artificial intelligence is not being created in a vacuum. AI systems draw from the accumulated knowledge of society: public research, open scientific work, software, writing, images, data, language, law, medicine, engineering, and countless other forms of human knowledge. Much of that knowledge was created by people who will not be directly compensated when AI systems use it. Some of it was supported by government-funded research. Some of it came from public institutions. Much of it came from the creative and intellectual work of millions of people over generations.

So there is a legitimate question: if AI produces enormous private wealth, should the public share in some of that gain?

Yes. But government equity ownership is the wrong way to do it.

The Case Against Government Equity Ownership of AI

The first problem is that it is not obvious where the gains from AI will actually accrue. It is possible that a few AI companies will become immensely profitable and capture a large share of the value they create. But it is also possible that competition will drive the market price of AI assistance very low. If that happens, the companies that spend the most building AI systems may not capture anything close to the full social value of what they produce.

History offers a useful warning. The railroads of the nineteenth century created enormous economic value. They opened markets, reduced transportation costs, changed settlement patterns, and increased productivity across the economy. But that did not mean every railroad investor earned extraordinary returns. In many cases, competition, overbuilding, debt, and financial instability shifted the benefits away from the original investors and toward shippers, consumers, landowners, and the broader economy. Many of these railroads went bankrupt.

AI could follow a similar pattern. The largest gains may not remain with the AI model companies. They may flow to software firms, chip companies, cloud providers, manufacturers, hospitals, banks, law firms, schools, small businesses, workers, consumers, and investors across the economy. If AI becomes a cheap general-purpose tool, much of the value may be captured by those who use AI rather than by those who build the underlying models.

This matters because a government equity stake in selected AI firms is a narrow and speculative instrument. It requires the government to decide which companies are likely to capture the future rents from AI. It also requires the government to value highly uncertain firms, negotiate ownership terms, and then manage the conflict between being a regulator and being a shareholder.

This is not a small problem. The federal government should regulate AI in the public interest. It should be concerned about safety, privacy, national security, labor-market effects, competition, misinformation, energy use, and democratic accountability. If the government also owns shares in the firms it regulates, its incentives become muddier. Will policy be written to protect the public, or to protect the value of the government’s portfolio? Even if the answer is “the public,” the appearance of conflict will be hard to avoid.

There is also a simpler point: we already have mechanisms for capturing broad economic gains.

They are called taxes.

The Case for Capturing Some of the Gains from AI Through the Tax System

If AI produces extraordinary corporate profits, the corporate income tax can capture part of those gains. If AI increases the value of publicly traded companies, capital-gains taxes can capture part of those gains when shares are sold. If AI produces great fortunes, estate and inheritance taxes can capture part of those gains when wealth is transferred across generations. If AI raises productivity and wages, individual income taxes will capture part of those gains. If AI benefits a broad range of firms and industries, the tax system can follow the gains wherever they actually appear.

This is a much better approach than trying to make the federal government a venture capitalist.

The tax system is not perfect. In fact, some of the best arguments for public participation in AI gains are really arguments for repairing the tax system.

One obvious reform is limiting the step-up in basis at death. If AI creates enormous unrealized capital gains, those gains should not simply disappear for tax purposes when an owner dies. A tax system that allows large gains to escape both income taxation during life and capital-gains taxation at death is poorly designed. If this creates a record-keeping burden for small inherited portfolios, the limit on step-up in basis can be tied to estates above some significant threshold.

A second reform is preserving, and possibly modestly increasing, the corporate income tax. The goal should not be to punish business investment. AI will require large investments in computing, energy, chips, software, and talent. But if AI substantially increases corporate profits, it is reasonable for part of those profits to support the public institutions and infrastructure that make economic growth possible.

A third reform is tightening the estate tax. A serious estate tax is one of the few mechanisms we have for limiting the permanent concentration of wealth across generations. This does not mean confiscatory taxation. It does mean that very large fortunes should not be able to avoid taxation through increasingly elaborate planning devices.

One particular issue deserves more attention: the use of charitable structures that allow wealthy individuals and families to receive large tax advantages while retaining substantial influence over the assets. Philanthropy can serve public purposes. But an unlimited charitable deduction for self-governed or family-influenced charitable entities can become a way to avoid tax while preserving social power and control. This is not the same thing as paying taxes to support public purposes through the ordinary budget process.

Conclusion

If the public has a claim to the benefits from AI, the cleanest way to recognize that claim is not for the government to take shares in a handful of companies. It is to make sure the tax system captures AI-generated gains wherever they occur.

This approach has several advantages.

It does not require the government to pick winners.

It does not require the government to decide which AI company will dominate ten years from now.

It does not entangle regulators with ownership interests.

It does not assume that AI developers will capture all of the value they create.

It preserves market competition while allowing the public to share in broad economic gains.

And it fits ordinary public-finance principles. When economic activity creates large gains, the tax system should capture a reasonable share of those gains to support public purposes. When economic activity creates risks or external costs, regulation should address those risks directly.

This distinction is important. AI regulation and AI revenue policy should not be confused.

The government should regulate AI where public risks are real. It should address fraud, discrimination, privacy violations, national-security risks, cyber risks, misuse in elections, labor-market disruption, and the concentration of market power. It should consider whether copyright law, data rules, and competition policy need to be updated for the AI era.

But if the question is how the public should share in the economic upside of AI, the answer should be broad tax policy, not public ownership of selected firms.

CIVPAC’s general view is that public policy should be economically sound, fair, respectful of individual freedom, and politically realistic. A federal equity stake in major AI companies fails too many of those tests. It is economically speculative, administratively messy, politically tempting, and likely to create conflicts between regulation and ownership.

The better answer is less dramatic but more durable: preserve competitive markets, regulate AI directly where public risks are real, and fix the tax system so that AI-generated gains cannot escape taxation simply because they appear as corporate profits, unrealized capital gains, or inherited wealth.

AI may well transform the economy. If it does, the public should benefit. But the way to do this is not to make the federal government a shareholder in a few favored companies. The way to do it is to tax the gains wherever they actually appear.

Political Realism in Public Policy

Good public policy should be economically efficient, fair, respectful of personal freedom, and politically realistic.

That last phrase — politically realistic — is important. It is also easy to misuse.

Too often, people say a proposal is “not politically realistic” when what they really mean is, “I don’t like it, and I don’t want to explain why.” It becomes a substitute for argument. Worse, it can become a way of avoiding difficult tradeoffs.

That is not what political realism should mean.

Political realism does not mean surrendering to current public opinion. It does not mean splitting every issue down the middle. It does not mean that reformers should never advocate for ideas that are unpopular today. And it certainly does not mean that the most cautious, least offensive position is always the right one.

Political realism means asking whether a policy can attract enough durable public consent to be enacted, implemented, and sustained.

That is a higher standard than simply asking whether a policy sounds good to the people who already agree with it.

Abortion and the Limits of Absolutism

Abortion is a good example because the extremes are so visible.

A total ban on abortion, with no meaningful exceptions for rape, incest, threats to the life or health of the mother, or catastrophic fetal abnormalities, is not politically realistic in most of the country. It may satisfy a deeply committed pro-life minority, but it asks too much of voters who do not share that absolute moral framework.

At the other extreme, abortion on demand at any time in pregnancy, funded by the government, is also not politically realistic. It may satisfy a deeply committed pro-choice minority, but it asks too much of voters who believe the moral status of the fetus changes as pregnancy progresses.

Political realism does not tell us exactly where the law should be. It does tell us that a durable policy probably has to acknowledge competing moral claims. A society as large and diverse as ours cannot govern abortion well by pretending that only one side’s moral concerns exist.

That does not mean every compromise is good. Some compromises are incoherent. Some are cruel. Some are designed merely to survive the next election. But a policy that refuses to recognize the moral seriousness of the other side is unlikely to last.

What Is Unrealistic Can Change

Political realism also requires humility.

Some ideas that are unrealistic at one point in history become realistic later. Same-sex marriage is the obvious example. Gallup first measured U.S. support for legal same-sex marriage at 27% in 1996. Support reached majority level in 2011, and Gallup measured support at 60% in 2015, the year the Supreme Court decided Obergefell v. Hodges.

That history matters.

If political realism had meant simply accepting public opinion as it existed in 1996, same-sex marriage would have been dismissed as unrealistic and therefore not worth pursuing. But advocates changed minds. They made arguments. They told stories. They appealed to fairness, family stability, and equal dignity.

In other words, they did not ignore political reality. They changed it.

That is the difference between political realism and political cowardice.

A politically realistic reformer may say, “The country is not there yet.” But the next sentence should be, “What would it take to get there?” Not every unpopular idea deserves that effort. But some do.

Carbon Taxes and America’s Exceptional Difficulty

A carbon tax is another useful example.

Many serious people believe a carbon tax is good policy but politically unrealistic in the United States. They may be right, at least for now. American voters do not like visible taxes. Energy prices are politically explosive. Opponents can easily describe a carbon tax as an attack on ordinary households, rural communities, and working people.

But that does not mean carbon pricing is inherently unrealistic. Other democratic countries have adopted carbon taxes or carbon-pricing systems. The World Bank reports that jurisdictions representing a substantial majority of global GDP have adopted some form of carbon pricing, including carbon taxes, emissions trading systems, or both, and about 28% of global greenhouse-gas emissions are covered by a direct carbon price.

So the question is not whether a carbon tax can exist in a democracy. It can.

The question is whether it can be designed and explained in a way that enough Americans can accept.

That means revenue use matters. Protection for low-income households matters. Border adjustments matter. The effect on domestic industry matters, but not simply because domestic firms deserve protection from competition. The larger issue is that a carbon tax loses much of its effectiveness if carbon-intensive production simply moves overseas and the United States imports the same goods from countries with weaker environmental standards.

A carbon tax that simply raises energy prices and leaves voters to wonder where the money went is probably doomed. A carbon tax paired with transparent revenue use, protection for low-income households, and border adjustments that reduce carbon leakage may still be difficult — but it is not fantasy.

Political realism should force better design. It should not end the conversation.

Social Security and the Politics of Arithmetic

Social Security is a different kind of example.

Almost everyone who looks seriously at the federal budget knows that Social Security cannot remain unchanged forever. The arithmetic does not care about campaign slogans. Longer life expectancy, demographic change, and benefit promises eventually require some combination of higher revenues, benefit adjustments, retirement-age changes, or broader fiscal reform.

And yet almost every specific proposal is politically dangerous.

Raise the retirement age? You hurt people in physically demanding jobs.

Raise payroll taxes? You reduce take-home pay and increase labor costs.

Trim benefits for higher-income retirees? You weaken the link between contributions and benefits.

Borrow more? You push the problem onto younger taxpayers.

So politicians often do what politicians do best: avoid the issue while accusing the other side of secretly planning to destroy the program.

Political realism here does not mean doing nothing. It means recognizing that reform has to be gradual, transparent, and probably grandfathered. It means giving people time to adjust. It means refusing to pretend that there is a painless answer.

Sometimes political realism is not about finding a popular solution. It is about finding the least unfair way to admit reality.

Immigration Reform and Mutual Distrust

Immigration is another area where political realism gets abused.

There is probably a broad political deal available in theory: stronger border enforcement, a more rational legal immigration system, and humane treatment for some long-resident undocumented immigrants, especially those brought here as children.

But the deal repeatedly fails because neither side trusts the other.

Many conservatives believe legalization will happen but enforcement will never follow. Many progressives believe enforcement will become harsh and permanent while humane reforms are delayed or abandoned. Both sides have historical reasons for suspicion.

The distrust is made worse by the way both sides talk about demographics. Some on the right have embraced paranoid claims that Democratic elites are intentionally trying to “replace” existing voters through immigration. That rhetoric is dangerous and should be rejected. But some progressive and Democratic commentators have also treated demographic change as politically or morally encouraging, and Democratic strategists at times assumed that a more diverse electorate would naturally benefit their party. That is very different from a deliberate replacement plot, but it helps explain why some voters hear demographic language as threatening. In a diverse country, demographic change should not be treated as a partisan weapon. Immigration policy needs public consent, and public consent becomes much harder when one side sees immigration as cultural displacement and the other side appears too comfortable with that perception.

Political realism requires acknowledging that distrust.

It is not enough to say, “Comprehensive immigration reform polls well.” Lots of things poll well in the abstract. The real question is whether voters believe the government will actually enforce the parts they care about and protect the people they think deserve protection.

That means sequencing matters. Credibility matters. Administrative competence matters. The details are not details. They are the policy.

Housing Reform and the Local Veto

Housing policy shows another side of political realism.

Many people say they want affordable housing. Many of the same people oppose new housing near them.

That is not a minor obstacle. It is the obstacle.

A purely technocratic housing reformer can say, correctly, that restrictive zoning reduces supply and raises prices. But that does not make neighborhood opposition disappear. People worry about traffic, schools, parking, neighborhood character, property values, and simple change.

Some of those fears are exaggerated. Some are selfish. Some are real.

Political realism does not mean giving every homeowner a veto over new housing. That is how we got the problem. But it does mean recognizing that reform may need to be phased in, paired with infrastructure, handled partly at the state level, and framed around opportunity, property rights, and affordability rather than simply denouncing every opponent as a NIMBY.

Again, political realism should improve the policy. It should not be an excuse for paralysis.

Trade, Industrial Policy, and the Return of Hard Questions

Trade policy is another area where yesterday’s political realism may no longer be today’s.

A generation ago, the elite consensus in favor of free trade was very strong. It was not entirely wrong. Trade increases efficiency, lowers costs, expands markets, and raises living standards overall.

But the distributional effects were too often minimized. Some communities paid a very high price. Some workers were told, in effect, that the economy was better off even if they were not. That may be true in a narrow economic sense, but it is politically poisonous.

Trade also became the political face of economic disruption that was often driven at least as much by technology and automation. Factories did not just move overseas; they also became more productive, more automated, and less labor-intensive. Even if the United States had closed itself off from trade, many manufacturing jobs would probably still have disappeared. The timing and location of the losses might have been different, and trade clearly played a role in some communities, but the deeper force was not trade alone. It was the combination of global competition, technological change, automation, and changing consumer demand.

That distinction matters because blaming trade alone can lead to the wrong cure. If the real pressure is partly automation, then tariffs may raise costs without bringing back the world people remember.

Now the pendulum has swung toward protectionism and industrial policy. Some of that is understandable, especially given China, supply-chain fragility, and national-security concerns. But broad protectionism is not a serious answer either. It can raise costs, invite retaliation, protect inefficient firms, and reduce economic growth.

A politically realistic position has to hold more than one thought at a time.

We should defend the benefits of trade. We should take national-security vulnerabilities seriously. We should be cautious about industrial policy becoming a pork barrel. And we should stop pretending that workers harmed by trade, immigration, automation, or some combination of all three can be placated with empty retraining rhetoric.

That is not as satisfying as a slogan. But slogans are part of how we got here.

The Misuse of “Politically Unrealistic”

The phrase “politically unrealistic” can be useful. It can also be lazy.

It is useful when it forces people to ask hard questions:

Can this policy pass?
Can it survive the next election?
Can it be implemented competently?
Can voters understand it?
Can the losers be treated fairly?
Can the policy survive contact with interest groups, courts, bureaucracy, and the budget?

Those are serious questions.

But “politically unrealistic” becomes lazy when it is used to avoid argument.

I have heard people dismiss market-based climate policy as unrealistic when they really object to energy taxes. I have heard people dismiss entitlement reform as unrealistic when they really do not want to identify who should pay more or receive less. I have heard people dismiss immigration compromise as unrealistic when they really do not want compromise. I have heard people dismiss basic-income proposals as unrealistic when they really do not want to rethink the welfare state.

Sometimes “politically unrealistic” means “voters will never accept it.”

Sometimes it means “interest groups will kill it.”

Sometimes it means “I do not like it.”

Those are not the same argument.

What CIVPAC Means

When CIVPAC describes public policy as politically realistic, the point is not that politics should be reduced to polling.

The point is that governing requires consent.

A policy that cannot be explained cannot be sustained.
A policy that ignores obvious losers will create backlash.
A policy that depends on voters being fooled will eventually fail.
A policy that treats half the country as morally illegitimate is unlikely to produce stable government.

But political realism also requires courage.

It requires telling voters that some things cost money. It requires telling interest groups that they cannot have everything. It requires telling activists that intensity is not the same as majority support. It requires telling moderates that compromise is not always available, and telling reformers that good ideas still need political strategy.

Political realism is not an excuse to avoid hard arguments. It is a demand that we make them honestly.

That is the standard CIVPAC tries to apply.

CIVPAC will not always get the balance right. No one does. But the goal is to be clear about the tradeoffs, honest about the constraints, and open to changing our view when public opinion, evidence, or circumstances change.

“What is politically realistic?” should not be the end of the conversation.

It should be the beginning of a better one.

Endorsements Underway: Our Approach and What to Expect

We have begun issuing endorsements for the 2026 election cycle, starting with our recent endorsements in Georgia and continuing with our evaluation of Greg Stanton in Arizona’s 4th Congressional District. Additional endorsements will follow over the coming weeks.

Our goal is not to endorse the largest number of candidates, but to apply a consistent framework across a range of competitive races. We evaluate candidates based on the same principles that guide our policy positions: economic efficiency, fairness, personal freedom, and political realism—within the context of strong democratic institutions and a stable international order. In practice, this means placing particular emphasis on a candidate’s willingness to engage with tradeoffs, work across party lines, and operate effectively within existing political constraints.

We are proceeding methodically through a set of races identified from a variety of sources, including publicly available candidate lists and our own review of competitive districts. Our initial focus is on U.S. House races, where candidate quality and governing approach can vary widely and where elections can influence the overall direction of policy.

The order in which endorsements are issued is driven primarily by practical considerations. We are starting with candidates for whom sufficient information is available to make a clear assessment, including incumbents and well-established challengers. In many races, particularly those involving newer or lesser-known candidates, we will defer judgment until more information is available.

In some cases, we expect to endorse candidates in primary elections where there is a clear contrast between a governing-oriented candidate and a more ideological alternative. In others, our focus will be on the general election. We will also take into account the structure of each race, including the presence of independent or third-party candidates and the likelihood that those candidates can compete effectively.

We support efforts to expand voter choice and improve electoral competition, including independent candidacies where they have a credible path to success. At the same time, we believe it is important to consider the likely impact of each vote on the final outcome, particularly in races where non-competitive candidates may influence the result without a realistic chance of winning.

Our endorsements are intended to be transparent, consistent, and grounded in a realistic assessment of both candidates and electoral dynamics. We welcome feedback as this process continues and encourage readers to share their views through the feedback links on each endorsement page. We expect that our approach will evolve as we apply it across additional races.

More endorsements will be posted soon.

How We Evaluate 2026 House Endorsements

A framework for evaluating 2026 House endorsements: balancing principles and political constraints.

As we begin evaluating candidates for the 2026 U.S. House elections, I want to be transparent about the principles guiding our endorsement decisions.

This post outlines how we evaluate candidates for our 2026 U.S. House endorsements.

Our goal is not to advance one party over another. It is to encourage a more functional, less polarized political system—one that produces policies that are economically efficient, fair, and respectful of personal freedom—while recognizing the practical constraints of the political system.

Opposing Sabotage, Supporting Strategic Voting

We reject the increasingly common practice of supporting extreme candidates in the opposing party’s primary in the hope that they will be easier to defeat in the general election. While tactically tempting, this approach contributes directly to polarization and dysfunction.

At the same time, we recognize that voters—particularly independents—often face imperfect choices. In some cases, strategic voting may be appropriate: supporting the candidate who is most likely to produce a better governing outcome, even if that candidate is not an ideal match with my policy preferences. This differs from “sabotage” strategies: the goal is not to weaken the opposing party, but to improve the quality of the likely winner.

In open or semi-open primary systems, this logic may also influence which primary a voter chooses to participate in. Even for voters who typically lean toward one party, if their preferred primary is effectively decided while the other party’s contest is competitive, it can make sense to vote where the outcome is still in doubt—particularly when doing so may help a more moderate candidate prevail over a more extreme alternative.

Support for Bipartisan Problem-Solving

We place a high value on candidates who demonstrate a willingness to work across party lines.

Membership in the bipartisan Problem Solvers Caucus is a strong positive signal. While not a guarantee of alignment with our views, it reflects a commitment to negotiation, compromise, and governing—qualities that are essential to a functioning democracy.

Ideological Alignment and Its Limits

We are less likely to support candidates closely aligned with highly ideological factions.

Membership in the Freedom Caucus is a strong negative signal. Alignment with more ideological factions on the left is also a negative factor, including candidates supported by organizations such as the Democratic Socialists of America or the Working Families Party.

At the same time, labels are imperfect indicators. The fact that some members belong to both the Congressional Progressive Caucus and the bipartisan Problem Solvers Caucus illustrates the limits of ideological labels and the importance of evaluating governing behavior.

Endorsements and Political Incentives

Endorsements provide useful signals about the coalitions a candidate depends on.

A Trump endorsement is viewed as a negative factor in our evaluation, reflecting alignment with a style of politics that we believe has contributed to increased polarization and institutional strain. That said, we also recognize political realities: in some districts, such endorsements may be effectively required for electoral viability. Our evaluations will take this context into account.

Similarly, endorsements from organizations such as the Democratic Socialists of America or the Working Families Party are viewed as negative signals, reflecting alignment with policy approaches that we generally believe move away from economically efficient or politically sustainable outcomes.

Demonstrated Independence

We place significant weight on demonstrated independence.

Candidates who show a willingness to depart from their party leadership—particularly when it reflects a willingness to support moderation or bipartisan compromise—provide a strong signal of a governing mindset. While such votes can carry political risk, they are often essential to producing durable policy outcomes.

A Pragmatic, Case-by-Case Approach

No single factor determines our endorsements.

We evaluate candidates holistically, considering:

  • Their policy positions
  • Their demonstrated willingness to govern
  • The political realities of their district
  • The likely consequences of their election

In some cases, this may lead us to support candidates who are imperfect but represent a clear improvement over the alternatives. In others, we may decline to endorse at all.

A Note on the Current Environment

I have found it increasingly difficult to identify candidates in the House—and among those running for it—who consistently reflect a moderate, centrist approach. This is not a criticism of any one individual so much as a reflection of the incentives embedded in the current system.

Rising polarization has narrowed the space for pragmatism, while partisan redistricting has made many districts effectively noncompetitive in general elections. As a result, primary elections often become the decisive contest, where more ideologically committed voters play an outsized role. In those environments, candidates who emphasize moderation or compromise often struggle to gain traction, while more ideologically driven candidates can succeed.

I find this trend troubling and, at times, disheartening. A system that makes it harder for pragmatic, solutions-oriented candidates to emerge is one that struggles to produce effective governance. The struggle to bring moderation and reason into our politics can seem increasingly quixotic, but it has also become increasingly important.

Our Objective

Our objective is not ideological purity. It is progress—incremental, durable progress toward a more functional political system.

If enough voters and organizations reward cooperation, pragmatism, and good-faith governance, those behaviors will become more common.

That is the incentive structure we aim to support.

Tariffs, Presidential Power, and the Assumption of Good Faith

I have been trying to make sense of the recent use of tariffs by the Trump administration. The stated objectives shift from day to day—protecting American industry, punishing adversaries, raising revenue, or forcing concessions from allies. Sometimes the tariffs are imposed. Sometimes they are threatened and withdrawn. Sometimes they are increased, and then partially reversed.

At some point, it becomes difficult to argue that this is strategy rather than improvisation.

The details change, but the underlying issue does not. We have handed a great deal of authority over trade policy to the President of the United States. That authority was granted with an implicit assumption: that it would be exercised in good faith, with discipline, and with some degree of consistency.

That assumption now appears to be breaking down.

The Original Logic Behind Delegating Tariff Authority

The Constitution gives Congress the power to regulate trade. Over time, Congress delegated a significant portion of that authority to the President. There were good reasons for doing so.

Trade negotiations require:

  • speed
  • flexibility
  • and a degree of confidentiality

It is difficult to negotiate complex agreements through a 535-member legislature. So Congress created mechanisms that allowed the President to negotiate and, in some cases, impose tariffs under specific statutory authorities.

The expectation was not that the President would act unilaterally without constraint. It was that he would act:

  • within a defined framework
  • with a clear objective
  • and in a manner broadly consistent with U.S. economic and strategic interests

In other words, the system assumed competence and good faith.

This Is Not Entirely New

It would be a mistake to pretend that this problem began in 2025.

Presidents of both parties have stretched the statutory authorities governing tariffs. Democratic administrations have also used trade tools—antidumping rules, targeted tariffs, and “national security” justifications—in ways that expanded executive discretion.

But there is a difference between:

  • stretching a tool
    and
  • using it as a general-purpose instrument of economic policy

What we are seeing now is not simply an extension of past practice. It is a step change in both scope and unpredictability.

Tariffs as a Tool vs. Tariffs as a Weapon

There is a legitimate role for tariffs.

They can be used:

  • to respond to unfair trade practices
  • to enforce agreements
  • or to address genuine national security concerns

But there is a difference between using tariffs as a tool and using them as a weapon of general economic policy.

When tariffs are applied broadly, unpredictably, and without a clear framework, they create uncertainty. Businesses do not know:

  • what their input costs will be
  • where to invest
  • or how long current conditions will persist

This is not a subtle effect. It is the primary effect.

Incentives Matter

If firms believe that tariffs will:

  • appear suddenly
  • change frequently
  • and be driven by short-term political considerations

then they will respond accordingly.

They will:

  • delay investment
  • shift production in ways that are not economically rational
  • or demand higher returns to compensate for policy risk

This is not a failure of the private sector. It is a predictable response to unstable policy.

Erratic tariff policy is, in effect, a self-imposed tax on investment—and one that falls most heavily on long-term planning.

The Problem of Using Tariffs for Everything

Tariffs are now being used—or threatened—to achieve a wide range of objectives:

  • reducing trade deficits
  • pressuring allies on unrelated issues
  • influencing domestic political outcomes
  • and reshaping entire supply chains

No single policy tool works well when applied to every problem.

Using tariffs this way blurs the line between:

  • economic policy
  • foreign policy
  • and domestic politics

It also makes it difficult for other countries to interpret U.S. actions. Are tariffs a negotiating tactic? A permanent shift? A political signal? Increasingly, the answer appears to depend on the news cycle.

The Erosion of Predictability

Markets can adapt to almost any policy, good or bad, as long as it is stable.

What they cannot adapt to easily is unpredictability.

When tariff policy becomes:

  • highly discretionary
  • personalized
  • and subject to rapid change

the result is not simply higher prices. It is a reduction in the willingness to commit capital.

Over time, that matters more than any individual tariff decision.

Congress and the Problem of Delegated Power

Congress delegated tariff authority to the executive branch for practical reasons. But delegation always carries risk.

It works when:

  • the executive branch operates within understood norms
  • and when Congress is willing to reassert its authority if those norms are abused

If neither condition holds, the delegation becomes something closer to an abdication.

We are now in a situation where:

  • the scope of presidential authority is broad
  • the use of that authority is increasingly aggressive
  • and congressional oversight is, at best, inconsistent

That combination should concern people across the political spectrum.

A System Built on Assumptions

The American constitutional system relies heavily on informal constraints:

  • norms
  • expectations
  • and assumptions about behavior

When those constraints weaken, the formal powers written into law become far more consequential.

Tariff authority is a clear example.

What was intended as a flexible tool for advancing U.S. interests can, under different assumptions, become a mechanism for imposing broad and unpredictable economic costs—both at home and abroad.

Conclusion

The debate over tariffs is often framed in terms of whether they are “good” or “bad.” That is not the most important question.

The more important question is how much discretionary economic power we are comfortable placing in the hands of any President—and what happens when that power is exercised without discipline or consistency.

If the assumptions that justified delegating that power no longer hold, then the structure of the system—not just the current policy—deserves a second look.

Click on the link to see CIVPAC’s position on the broader issue of Trade Policy.

What Would Putin Want?

I have not been posting much this year. Every time Trump, or members of his administration, take some bizarre position, they either reverse directions in a day or two or advance some even more bizarre position a day later that diverts my attention. Sometimes, I think he seems evil. At other times, I think he is just stupid. Often, he seems petty and vindictive. On many occasions, he appears to be cognitively impaired. But as I search for a unifying principle to explain his actions, and those of his administration, I keep coming back to the simple question: What would Vladimir Putin want?

Putin’s View of the World

Vladimir Putin has a world view stuck somewhere in the 19th and first half of the 20th centuries, in which Russia is a great power that shares the world stage with other great powers. In his view he should be allowed to control, either directly or indirectly, all of Eastern Europe, much of Central Europe and perhaps Western Europe, too. The United States can, in return for deferring to Putin in Europe, control the Western Hemisphere. China, in Putin’s mind, is entitled to control Asia and the Western Pacific.

Trump’s Apparent World View

Donald Trump seems to share Putin’s world view. His “peace” proposals for Russia’s war against Ukraine lean heavily in favor of Russia’s long-term objectives. His efforts to undermine NATO, by waffling about America’s commitment to the organization and to Europe’s defense, fit nicely into this interpretation. His saber rattling about Greenland and Canada, alienating our NATO allies, and his intervention in Venezuela, including a stated intention to run the country, are spot on in reflecting the kind of division of world power that Putin envisions.

The Make America Small and Mean Spirited Movement

The net effect of all of this is to take America from a respected world leader to a greedy regional power. It is the opposite of making America great. Sadly, Trump is not alone within his administration, or the MAGA movement in general, in following this path. JD Vance, who I once had high hopes for, has embraced this world view. Pete Hegseth has tilted America’s vast military power away from the support of our allies and toward an aggressive, and most likely illegal, attempt to impose Trump’s will within the Western Hemisphere.

The tilt towards Putin-friendly positions in foreign policy is fairly obvious, but it does not stop there.

Immigration

America, unlike Russia, has been a much admired country. This is in part because of our role in defeating the Axis powers in WWII (in which the Soviet Union, admittedly, played a role), rehabilitating post-war Europe with the Marshall Plan and successfully containing the Soviet Union until it collapsed under the weight of a bankrupt political and economic system. It is also because we used to embrace values that others admired: constitutional democracy, including freedom of religion, speech, and of the press, and the rule of law (including relatively limited corruption).

JD Vance has asserted that being an American is not, principally, about embracing these values but rather about a shared culture and history. By this line of reasoning new immigrants, even legal ones who have been here for a generation, can be viewed as less than fully American.

Almost all developed countries face a demographic decline that threatens their economic and political stability. America, because it used to be an attractive place to emigrate to, was far less at risk to this phenomenon than Russia. The Trump administration, through its campaign against illegal immigrants and by its anti-immigrant rhetoric, has signaled that America is not a welcoming place to new immigrants (legal or illegal). With that door closed we begin to look more demographically threatened, just like Russia.

Trade Policy

The benefits of trade are well established. Russia, by virtue of its aggressive military actions, has been repeatedly sanctioned and has had much less access to the benefits of trade. They have, for example, had to sell their oil at steep discounts to distant countries. Trump’s on again/off again tariffs have limited America’s access to the gains from trade, a sort of self-imposed sanction. Pushed hard enough, they could hurt America as much as Western sanctions have hurt Russia.

Civil Discord and the Challenges of True Democracy

Trump, through his rhetoric and actions, has enraged Americans on the right against their fellow citizens: through false claims about election fraud and exaggerated claims about the damage done by illegal immigration. He has enraged the left and the center, by the head spinning, more or less daily violations of political norms, including threats to use the military against U.S. citizens and his wholly unnecessary use of Immigration and Customs Enforcement to intimidate whole communities. Through his outrageous and repeated lies and misinformation he has made civil debate increasingly difficult, since he has armed his supporters with their own set of Trumpian “facts.” I can only imagine the delight that this gives the likes of Putin and Xi, since it demonstrates the weakness of true democracy. Why should the Russian or Chinese people long for democracy when Trump makes American democracy appear to be a sham and does everything he can do to make democracy itself appear synonymous with chaos.

Climate Change

Climate change is generally thought to adversely affect the entire world. But the impacts are not uniformly harmful. Russia has vast territory, in Siberia, that is largely uninhabited and under-developed because it is too cold. Russia’s northern ports and sea lanes are often impassible because of ice. It does not take much imagination to see that Putin would applaud Trump’s denial of climate change and Trump’s efforts to undermine attempts to combat climate change. Maybe Trump’s seemingly nutty attitude toward wind turbines has an actual rational intent. Russia is also almost totally economically dependent on the export of oil and gas. What could be better, from Russia’s point of view, than to have America work hard to slow the transition away from fossil fuels?

Elections

For many years Russia, under Putin, has held sham elections in which the outcome is never in doubt. Trump, with his false, and often ridiculous, claims of voter fraud has created the impression among his supporters, and perhaps others around the world, that America is no different from Russia. I can only imagine the pleasure it gives Putin every time Trump repeats his malign claims about American elections.

The next time you encounter absurd behavior from Trump, you should ask yourself . . . What would Putin want?

Trump 2.0: Cabinet Appointments

Three Highly Controversial Nominations

At first, some of Trump’s proposed cabinet appointments seemed plausible; Marco Rubio for State, and Elise Stefanik for the United Nations. I have reservations about both of these appointments based on their weakness on American support for Ukraine, but that is part of Trump’s world view so we had to expect that his appointments would share it. His proposed appointment of Matt Gaetz as Attorney General, Tulsi Gabbard as National Intelligence Director, and Robert Kennedy as Secretary of Health and Human Services are appalling. Matt Gaetz is a distressing choice as nominee for the crucial position of Attorney General. My suspicion is that Trump was frustrated by the ethical qualms of his first two Attorneys General, Jeff Sessions and William Barr. These men may have had unimpeachable conservative credentials, but they failed the test of unquestioning loyalty to Trump. I suspect that Trump thought, for some reason, that Matt Gaetz would have lower ethical standards. Can’t imagine why he would have thought that. Tulsi Gabbard is thought of, in some circles, as a Russian dupe or asset. Those are pretty serious charges, which may or may not be true. Why would anyone who was suspected of Russian sympathies be nominated to the role of National Intelligence Director? Not surprisingly, Russia has already praised both the Gaetz and Gabbard nominations. Kennedy is notorious for spreading disinformation about vaccines. So does that make him the logical choice for Secretary of Health?

Why Would Trump Nominate These People?

I think part of the reasoning behind these nominations was simple payback. Gabbard and Kennedy allowed Trump to say that former Democrats supported him, so pay no attention to those notable Republicans who were endorsing Harris. I also think that all three of these nominations are meant to shake the tree of the federal professional workforce. I suspect that there are many senior and mid-level professionals in the federal government who will retire or resign from their posts rather than report to these people. The result could mean a rapid and voluntary evisceration of the “deep state” that Trump despises so deeply. I also think that Trump feels that by nominating some extremely outrageous people he can deflect attention from what would otherwise be controversial but not absurd nominations. He may be right about that. In addition, Trump may also be testing just how far he can push the Senate. Finally, all of these nominations will endear Trump to Putin. If the Senate says “no way,” as I sincerely hope they will, Trump can say to Putin that he tried.

Cabinet Appointments and the Senate

Trump has asked the new Senate Majority Leader, John Thune, to allow him to make “recess appointments” that bypass the need for consent from the Senate. One can only hope that Thune will turn down this request. I suspect that if Trump really wanted this request to be granted he would have opted for less controversial appointments. If Thune gives Trump a free hand, it will strip the Senate of one of its most crucial powers. I would say this is “unthinkable,” but that sounds like the character in the movie “The Princess Bride,” who kept saying that everything was “inconceivable” even though those things were clearly conceivable.

Many Republican Senators may feel like caving to Trump because they fear being primaried during the next election cycle. I would remind these folks that a third of the electorate is centrist. If they cave to Trump on these absurd and dangerous appointments, they will face near certain defeat in the general election. Caught between the devil and the deep blue sea, they should do the right thing and reject these nominations. They could have avoided this dilemma by voting to convict Trump during the impeachment trial, but they chose the “safe” path. The point of having power is to use it when it matters. It mattered then and it matters now!

Trump 1.0 vs. Trump 2.0

Some of my friends held their noses and voted for Trump, because “the Democrats were so much worse.” They often said “how bad can he be, we already had four years of Trump.” To those folks I would like to note the difference between these nominations and Trump’s nominations during his first term: Jeff Sessions and William Barr at Justice vs. Matt Gaetz; Dan Coats vs. Tulsi Gabbard for Director of National Intelligence; and Tom Price vs. Robert Kennedy for Health and Human Services. None of these first term nominations would have been my choice for these positions, but none of them are as bad as the current slate. I would hope that after the euphoria of success wears off, a feeling of regret will overcome the “how bad can he be” Trump supporters.

Other Nominations

As time goes on, I am confronted with other controversial nominations that deserve comment. Among these are: Mike Huckabee for Ambassador to Israel; Stephen Miller, Deputy White House Chief of Staff for Policy; Tom Homan as “Border Czar”; Lee Zeldin at the Environmental Protection Agency; Steven Witkoff as Special Envoy to the Middle East; John Ratcliffe at the CIA; Pete Hegseth at Defense; and Kristi Noem at Homeland Security. All of these nominations deserve a separate focus. Each is troublesome in its own way. Some do not require Senate confirmation. I will attempt to comment on them in subsequent posts.

If you have a reaction to what I have said above or have something that you would like to add, please comment at the bottom of this post.

Trump 2.0: Foreign Policy

Trump and Foreign Policy

There is no area of Trump’s second term in office that worries me more than his impact on U.S. foreign policy. Trump’s tag line on this is “America First.” It is not clear at all that this tag line really helps explain his positions, since in my view many of them run starkly counter to long-term U.S. national interests. I will take them one at a time. The key areas include: Ukraine, NATO, Israel, and Taiwan.

Ukraine

Trump claims he will end the war in Ukraine even before he takes office. What I think he means is that Trump’s obvious antipathy to aiding Ukraine will force them to accept Putin’s terms for ending the conflict. Putin will, of course, demand control over all of the Ukrainian territory he currently occupies, and demand guarantees that Ukraine will not seek to be admitted to NATO and possibly even the European Union. If Putin gets that agreement, he will merely pause the conflict until he has time to rearm and then proceed to swallow the rest of Ukraine when he gets the chance. The only alternative for Ukraine to retain notional independence will be to become a vassal state like Belarus, doing Putin’s bidding and selecting leaders he approves of.

NATO

The only difference between the various Eastern European countries that were once part of the Soviet Union, or part of the Warsaw Pact, and Ukraine, is that many of these states now belong to NATO. Putin has indicated a desire to directly or indirectly regain control over these countries and enlarge the Russian Empire. Trump has indicated a willingness to withdraw from NATO and has invited Russia to attack those members who are not living up to there defense expenditure commitments. The best face that can be put on these comments from Trump is that they are transactional and meant to force these countries to increase their defense expenditures. The worst face is that he really wants to see the collapse of NATO and is indifferent to Putin’s ambitions in Eastern Europe. In some ways it does not matter what he really wants. His words weaken the alliance and tempt Putin toward further aggression. In the absence of a firm commitment on the part of the U.S. to the NATO alliance, we can expect some of those states to hedge their bets and accommodate Russian ambitions. This is a nice example of why the business skill of extracting financial concessions in negotiations with people you never have to do business with again is a poor training ground for foreign policy.

Israel

The current conflict in the Middle East between Israel, Hamas, Hezbollah, and Iran gave Trump a wedge to weaken the Democratic Party. Putting aside the strategic and humanitarian issues, the conflict created domestic political problems for Harris and the Democrats. Voters of Palestinian descent were a key voting block in Michigan and Michigan was important, if not essential, for a Harris victory. Members of the Progressive Left also had outsized sympathy for the Palestinian cause. American Jews have traditionally been loyal supporters of the Democratic Party. It was difficult for Harris and the Democrats to give full throated support for Israel without offending Democrats sympathetic to Palestine. It was also difficult for Harris to empathize with the Palestinian cause without offending American Jews. In the end, she tried to thread the needle, which satisfied few. Trump, for his part, was able to embrace Netanyahu’s moves without reservation which made him appear more authentic, even to those who did not care about the issue.

I am not smart enough to know what the right strategy is for Israel. I do know that unquestioning defense of Israel’s actions regardless of the humanitarian consequences will adversely affect America’s position with other countries from Pakistan to Indonesia. It is not at all clear to me how Trump’s position on this issue squares with the “America First” tag line.

Taiwan

During the Nixon administration, the United States began the process of improving relations with the People’s Republic of China. As part of that process, the United States acknowledged the Chinese position that there is only one China and that Taiwan is part of China, but it did not formally recognize Chinese sovereignty over Taiwan. Formal diplomatic recognition of the People’s Republic of China came later, under President Carter, in 1979.

Since then, the United States has maintained a deliberately ambiguous policy. We recognize the People’s Republic of China as the sole legal government of China, maintain unofficial relations with Taiwan, and provide Taiwan with defensive arms under the Taiwan Relations Act. We do not formally commit ourselves to defend Taiwan in every circumstance, but we leave open the possibility that we might. This policy of strategic ambiguity has helped preserve peace by making a Chinese attack costly while avoiding an explicit U.S. guarantee that might encourage Taiwan to declare formal independence. Taiwan has prospered under that uneasy arrangement and has become crucial to the world’s supply of advanced computer chips.

Strategic ambiguity has sometimes helped preserve peace, but it also has a checkered history in diplomacy. Wars can begin when one side misreads ambiguity as weakness or restraint as lack of commitment.

The sad thing is that conflict here could have been avoided. China took control of Hong Kong in 1997, when Britain’s long-term lease of the territory expired. At that time, the Chinese Communist Party (CCP) promised a “one-country, two systems” policy in which Hong Kong would retain a significant degree of autonomy over its economy and internal affairs. Xi Jinping found this unacceptable and Hong Kong has been stripped of all autonomy. If the CCP had been willing to honor the agreement, it is very likely that they could eventually have persuaded Taiwan to accept a peaceful re-unification, which would have benefited both countries economically. Sadly, this did not happen.

Trump, not surprisingly, views this situation as a transactional opportunity. He wants Taiwan to pay the United States for continued support. I am not sure what this means exactly. I am also not sure who Trump wants them to pay and for what. They already pay for the weaponry that the U.S. supplies them. Perhaps Trump wants a contract in which Taiwan pays for insurance, in the form of a Treaty, that requires the U.S. to protect them from a Chinese invasion in the future, in exchange for billions of dollars today. Given Trump’s record in business transactions, I don’t think I would enter into any agreement with him to do something in the distant future in return for something today. Also, given Trump’s willingness to undermine the longest and most successful military alliance in history, NATO, I think I might find the proposed transaction unattractive. But maybe that’s just me.

If you disagree with me about any of this or would like to add something, please post a comment at the bottom of this page.

Trump 2.0: Inflation

Trump Economic Proposals during 2024

Donald Trump has proposed a wide range of economic policies during his quest to be re-elected. It is hard to know which of these to take seriously and which were just campaign rhetoric. (The same could also be said for Kamala Harris.) For now, I think we need to assume that he was serious about all of them and evaluate their consequences. It appears that he is likely to have a Republican Senate and House. You might think that the filibuster rule will prevent some of his proposals from becoming law, but many of them can be passed through reconciliation which is not subject to the filibuster rule. In addition, Trump has argued in the past that Republicans should dispense with the filibuster rule, if they get the chance. He also has considerable latitude as President to pursue some of these policies without congressional approval. He also transformed the Supreme Court during his first term in office and is likely to face a sympathetic audience there, if there are conflicts about the range of his authority.

Tax Policy

Trump has proposed a number of tax cuts which include excluding tip income, overtime pay, and Social Security income from taxation. He has also suggested removing the cap on deductions for State and Local income taxes, a move that is not popular within his own party. He would like to extend those portions of his 2017 tax cuts that are about to expire and he hopes to further reduce corporate income taxes. He plans to replace the lost revenue from these tax cuts with increased revenue from across the board tariffs of 10% to 20% on all imports and 60% tariffs on imports from China.

Immigration

Illegal Immigration

Trump has proposed a mass deportation of all illegal immigrants. His own VP, JD Vance, has attempted to “sane wash” this proposal by suggesting that they would start with those who have criminal records. It is certainly the case that the federal government does not have the manpower or the facilities to round up, detain, and process 10 to 15 million people (Trump claims it is 20 million). Trump has suggested using the U.S. military to assist in this mass deportation. My own view is that this violates the 1878 Posse Comitatus law prohibiting the use of the military to enforce domestic law, but this Supreme Court might disagree. In any case, that law does not restrict the use of the State National Guard units with the consent of the governor in question. This clearly poses a problem for Trump in California and New Mexico, but not so much in Texas. Trump may also face resistance from the home countries of illegal immigrants that may refuse to accept them back. In that case, Trump would have to fund and create long-term detainment facilities. Putting aside all of the logistical and humanitarian aspects of mass deportation, it has major economic consequences. The construction, agriculture, and home care sectors are heavily reliant on this labor force.

Legal Immigration

Trump also appears, based on his previous administration and rhetoric, to be unsympathetic to legal immigration. This has major consequences for the technology, finance, and medical sectors.

Outsourcing

Trump appears to oppose the technological outsourcing of labor, although this conclusion requires some reading between the lines. If you restrict imports, reduce the labor force through significant deportation, and restrict technological outsourcing, you will definitely raise domestic wages and prices. There will be some winners here, but the American consumer will almost certainly be worse off and the economic growth rate in the U.S. will decline.

Inflation

None of the above policies have to increase inflation. As Milton Friedman said, inflation is “always and everywhere a monetary phenomenon.” This requires some explanation. It does not mean that price shocks like the pandemic supply disruptions or aggressive fiscal policy play no role in igniting inflation. It does mean that if the central bank, or in the case of the U.S. the Federal Reserve Board (Fed), chooses to, it can prevent these factors from causing sustained inflation by restricting the rate of growth of the money supply and raising interest rates. In general, these shocks “cause” sustained inflation only if the Fed accommodates them with loose monetary policy. This is what happened in the mid 1970s following the oil price shocks and in 2020-2021, as we began to emerge from Covid.

Donald Trump has said that he wants to play a role in setting monetary policy. Political involvement in monetary policy generally means looser monetary policy. In the presence of the supply side constraints and the fiscal stimulus from tax cuts mentioned above, we are likely to see significantly higher inflation. How high the inflation gets depends on how far he pushes these agenda items.

The one thing that could mitigate the inflationary impact of these proposals is the revenue raising impacts of the tariffs. This will offset the fiscal stimulative effects of the tax cuts. There are many negative consequences to the tariffs, but in this context they help soften the impact of the tax cuts on inflation.

Do you have a different perspective or something to add? If so, please leave a comment below.

Post Mortem on the 2024 Elections

What Happened and Why?

Donald Trump is a widely unpopular and flawed Presidential candidate. He just won re-election despite his offensive rhetoric, criminal convictions, and condemnations from many senior officials who had served with him during his first term. He won not just the Electoral College, by a substantial margin, but for the first time, the popular vote. The popular vote victory ran counter to the predictions of most national polls but arguably within the the margin of error, although just barely.

There will be a lot of finger pointing within the Democratic Party over this defeat. Most of the culprits deserve to have the finger pointed at them but, in my opinion, some don’t.

Joe Biden should have accepted his own declining capabilities as a candidate and bowed out earlier. I suspect his reluctance was partly because he was boxed into supporting a Kamala Harris candidacy and he knew she had significant liabilities. For that he has no one to blame but himself, for selecting her as his running mate in 2020.

Kamala Harris lacks the political skills of Bill Clinton and Barack Obama, or even a Pete Buttigieg. When a difficult question is posed to her, she stalls and tends to fall back on platitudes unrelated to the question. Clinton, Obama and Buttigieg see the trap hidden in the question and deftly use the opportunity to make a related point that at least appears to be answering the question. Harris’ lack of skill in this area might come from her experience as a prosecutor and Senator. In both cases, she was always the one asking the difficult questions. She also had baggage from the 2020 primaries that was used to brand her as a far-left liberal on immigration and other issues. She re-enforced this impression by embracing the policies of the Progressive wing of the party on anti-gouging (price controls), and soaking the rich and corporations, i.e. making them “pay their fair share.” The bounce in the stock market after the election suggests that many thought these proposals would adversely affect valuations and, therefore, the value of 401(k)s and IRAs owned by many who do not view themselves as rich.

The Biden/Harris administration made some mistakes. They waited too long to address the illegal immigration issue. They were too sloppy in the choice of fiscal tools to address the Covid induced recession, leaning on spending that stimulated demand in the face of disrupted supply chains. They relied on unpopular and inefficient regulatory methods to promote a response to climate change, pushing the transition to EVs faster than the market could accept. They also used this legislation to reward favored groups like labor unions, undermining the claim that climate change is an existential issue and, rightly, acquiring Elon Musk’s opposition. But the worst thing was that Harris refused to acknowledge that mistakes had been made and offer a better path forward.

Many, including myself, would respond to these observations by saying Trump was so much worse. That may be true, but he had the benefit of being out of power.

What Can We Expect from Trump 2.0?

Trump not only won the Presidency, he also appears likely to have a Republican Senate and a Republican House. By virtue of his previous term in office, he has also transformed the Supreme Court so that it is likely to be sympathetic to his actions. He has learned from his first term in office to select aides who value loyalty to him above any other duty. In the case of aides who require Senate confirmation, he may well avoid what little constraint a Republican Senate would impose by appointing people as “acting” officials. All that being said, I fear we are likely to see a fully unrestrained Trump. What might this mean?

Foreign Policy

Trump is likely to favor unrestrained support for Israel and Netanyahu in the conflicts against Hamas, Hezbollah and Iran. Where that will lead, no one knows.

He is likely to abandon support for Ukraine, or at least limit it. This might cause European countries to step up their aid to Ukraine. More likely, it will force Ukraine to negotiate an unfavorable settlement with Putin, which will give Putin time to rearm and attempt to seize all of Ukraine at some future date. In the meantime, Trump will probably undermine U.S. support for NATO, or even withdraw from it. If that appears to be happening, Putin will likely wait for it to occur before expanding his aggression to include NATO countries. Sadly, some NATO countries may respond to weak American support for NATO by accommodating their domestic and foreign policies to Russia, a process sometimes called Finlandization. (This is a reference to Finland’s method for dealing with threats from the Soviet Union during the height of the Cold War.) Some might even “voluntarily” withdraw from NATO. Trump will claim “victory” for the brief period of peace that will accompany this pause in active conflict.

I am not sure what to expect with respect to Taiwan. Some in the Republican Party, like Vivek Ramaswamy, favor abandoning it. I would watch who Trump appoints as the Secretary of State and Defense for hints about the direction the Trump administration will take.

Tax Policy

Trump tossed out plans for tax cuts like candy on Halloween during the campaign. These proposals included excluding tip, overtime, and social security income. He has also suggested lifting the cap on state and local tax deductions and lowering the corporate income tax . All of these are ill advised for many reasons, not the least of which is the impact on the deficit. He has suggested that he would replace this revenue with hefty, across the board, tariffs on imports. Most economists agree that these tariffs will result in higher domestic prices, lower growth, and higher unemployment. They might well spark a round of retaliatory tariffs and a global recession. The best that can be hoped for here is that he gets some push back on these from Congress. Given the hold Trump and Trumpism have on the Republican Party, at this point, I would not count heavily on Congressional restraint.

Immigration

Immigration is, and has been, a signature issue for Donald Trump. He claims to want a mass deportation of illegal immigrants and a virtual sealing of the border against new illegal immigration. He might favor using the U.S. military to assist in this, despite the constitutional problems associated with that. The consequences for the economy if he succeeds in this effort would be dire in the agricultural, construction, hospitality, and home care sectors. If he gets push back, he is likely to just be far more aggressive in deporting or confining illegal immigrants with criminal arrests or convictions. He is also likely to be far more restrictive with respect to legal immigration, with negative impacts in the technology, medical, and finance sectors.

Diversity, Equity and Inclusion

I suspect that DEI programs within the federal government will disappear during Trump 2.0. He may go further and attempt to use the power of the federal government to discourage these programs in academia and the private sector. The Supreme Court’s decision on affirmative action will probably facilitate efforts to limit the scope and effectiveness of DEI programs and the Trump administration will probably use that decision to accelerate the decline of DEI. While the motivation for DEI programs may have been noble, they have sometimes resulted in reverse discrimination or just become too offensively preachy to be effective. It will be interesting to see if dismantling these programs has a measurably negative effect on diversity in the workplace.

What is a Centrist Independent to Do?

Where to go from here for centrist independent voters depends on the reaction of the Democratic Party. In one scenario, the Progressive wing of the Democratic Party successfully persuades Democrats that they lost because they did not go far enough left. I am sure Sanders, Warren, and AOC and the rest of the “Squad” will argue this point of view. In another scenario, the Democratic Party places the blame on having gone too far left in its policy positions and offering candidates tied to far left positions.

If the first scenario happens, independent voters should start a third, centrist party, or try to turn “No Labels” into one. That party should offer centrists from both parties and thoughtful progressives a better alternative to long-term Trumpism. Progressives would be welcome but not the far-left policy positions that currently cripple the Democratic Party. There are risks to this solution, but an even more “Progressive” Democratic Party would have little chance for electoral success and would generally support bad public policies. The upside is a viable, centrist party that could govern long-term with a super majority.

In the second scenario, centrist independent voters should become active in the Democratic Party and attempt to pull it toward the center. This, too, could result in a super majority party capable of governing in a centrist fashion for the indefinite future.

In either case, I see no future in which an even more left-wing Democratic Party returns to power for an extended period of time.

Those are my views this morning. If you disagree, or would like to add something, please comment below.