Economics Links, 5/16/2025
Scott Winship and Brian Riley on the China shock that wasn't; Tobias Peter and Major Ethan Frizzell on housing scarcity; Yuval Levin on the Republican Budget; Chris Rufo on Musk's failure
Scott Winship and Brian Riley write,
the effects of the China Shock in some recent papers have been positive rather than negative (for instance, because they better account for the possibility that cheap imports lower the costs of manufacturers relying on them for inputs, which may make the firms more competitive than before).
Tobias Peter and Major Ethan Frizzell write,
Los Angeles offers a stark case study of how scarcity becomes policy. Attainable housing has become an endangered species. Dominated by single-family detached zoning, Los Angeles has built just 19,000 new single-family houses since 2014—many of them luxury “McMansions.” This is a drop in the bucket for a county with 3.7 million housing units. The result is a slight population decline and, tragically, a surge in homelessness.
The numbers tell the story: The median value of a single-family detached home built after 1999 in Los Angeles is around $1.5 million, well above the $875,000 median value of homes sold in 2024. Meanwhile, the average local worker earns just $50,000 per year. It’s no surprise, then, that the limited housing available is far out of reach for most residents.
all domestic discretionary spending is now about 14 percent of the federal budget, while entitlement spending amounts to more than 50 percent, according to CBO figures. More importantly, the growth in federal spending is heavily concentrated in entitlement spending, while discretionary spending is declining as a share of the budget and the economy.
It simply isn’t possible to offset the coming growth of Social Security and Medicare spending by curbing domestic discretionary spending. All the painful cuts Republicans are now negotiating as offsets to the reduced revenues in their tax bill are going to be dwarfed by the growth of entitlement spending on the elderly.
It is a long rant, difficult to excerpt. The main point is that Republicans are convinced that they are cutting the deficit, yet they are deceiving themselves.
The optimistic case (and I am not an optimist) is that the Republicans will do the right thing after they have tried everything else. That is, after they have cut domestic discretionary spending as much as they care to, they will realize—next year, or the year after—that entitlements have to be reformed.
Washington’s fiscal crisis is not, at its core, an efficiency problem; it’s a political one. When DOGE was first announced, many Republican congressmen cheered Musk on, declaring, “It’s time for DOGE!” But this was little more than an abdication of responsibility, shifting the burden—and ultimately the blame—onto Musk for Congress’s ongoing failure to take on the politically unpopular task of controlling spending.
In short, the swamp drained Elon, just as the swamp drained Mr. Trump in his first term.
Rufo is just really wrong about Musk and DOGE, and the swamp got drained oceans more than it drained him, and there is more big swamp-busting on the way, stay tuned. I have a lot of respect for Rufo and think he writes with consistent intelligence and integrity, so I'll chalk this one up to his not being enough of an insider to know what's really been going on, and not having any trusted contacts at high levels in the bureaucracy to explain why extremely nerdy and boring matters no one can stand talking about are super important, and so relying on reporting while failing to remember the first law of media coverage of Republican administrations, which is that it's all lies and distortions.
I am not a Musk fanboy, but I am grudgingly compelled by the facts to give him great credit. Grading on the curve of what even the optimistis thought to be actually possible (instead of on one composed of politically impossible fantasies), what he has already brought about has been genuinely astonishing and scandalously undereported. If there was any justice in this world, Isaacson would be working on a second volume of that biography, because what Musk had been accomplishing in just months is just as impressive as any of the many other accomplishments in the book, and genuinely heroic in pace and magnitude.
Obviously, Democrats never even discuss entitlement reform and are always looking to add new entitlements, so I don't see why you blame Republicans.
Let's face facts. The median voter doesn't want it, so we aren't going to get it.
Trump is making a decent effort to enact large cuts to Medicaid. Are any of the "responsible" GOPe republicans and classical liberals rallying to his side as he makes this difficult political maneuver? No, they are attacking him as they always do.
His tariffs are also likely to raise something like 1.5% of GDP in revenue. Is anyone celebrating his fiscal responsibility? No, more attacks.
I don't know how much going after Ivy League endowments will raise, but fiscal conservatives seem to care more about their alma matters then the government taking needed revenue from a bloated cow that gets special treatment.
Here we've got a guy trying to cut your income taxes by taxing consumption and cutting a wasteful welfare program for our most bloated economic sector and the response is that we all should have voted for Harris.