Economics Links, 6/2/2025

Thomas Lenard on the FCC; President Trump on Freddie Mac and Fannie Mae; Paul Krugman on stable coins; Noah Smith on productivity and costs in services

[First, I note that Stanley Fischer has passed away. He was a classic gentleman. Small in physique, but a giant in academic and policy circles. My recollection is that he advised the Israeli government in Israel in the 1980s on stopping rapid inflation. Two decades later, when Fischer became head of the central bank in Israel (recommended by Netanyahu, I believe), stabilizing Israel’s currency could be achieved by matching U.S. interest rates, which Fischer did.

I have called him the Genghis Khan of macroeconomics, because Fischer is the ancestor of such a large portion of that subset of the profession. If you count up the number of macroeconomists that he supervised for their dissertations, and then look at the macroeconomists that they supervised, and so on…it’s a lot. I don’t think that it was good for macroeconomics to be so inbred, but you could do worse than Fischer as a top breeder.]

Thomas Lenard writes (WSJ),

As long as the FCC exists, it will continue to find new reasons to exist. The best solution is to close the agency. While agencies rarely close themselves, it has happened. During the 1970s and 1980s, the heads of comparable agencies that regulated air and surface transportation—Alfred Kahn of the Civil Aeronautics Board and Darius Gaskins of the Interstate Commerce Commission—took steps to put their agencies out of business through rulemakings and with legislative help from Congress. Those agencies’ remaining functions were transferred elsewhere, mainly to the Transportation Department.

Similarly, some of the FCC’s functions would need a home elsewhere. The Commerce Department already has spectrum-related functions, and the Biden administration housed its major broadband subsidy program there.

The spectrum-related functions also are dubious. They are based on a problem of “interference,” which has largely been solved by spread-spectrum technologies.

The Hill reports,

“I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President,” Trump posted on Truth Social.

He is referring to Freddie Mac and Fannie Mae. For years I have been writing about what a bad idea this is. I don’t hate everything Mr. Trump does, but I sure hate this. It is a recipe for private profits and socialized losses.

My alternative is here.

Paul Krugman writes,

the ownership and disposition of stablecoins, unlike the ownership and distribution of bank deposits, is anonymous. This is a highly valuable feature for those who want to engage in money laundering, extortion, purchase of illegal drugs, and so on. In other words, the only economic reason for stablecoins is to facilitate criminal activity.

The stablecoin business is going to be big. Ken Rogoff says that the underground economy is 20 percent of the overall economy. I believe (hope?) that he is talking about the world as a whole, and that the percentage for the U.S. is smaller.

I have long been saying that banking is adjacent to government and crypto is adjacent to criminal activity. A reason to stay away from playing around with crypto is the “lie down with dogs, wake up with fleas” argument. Politicians are not heeding that warning.

Nellie Bowles writes,

After Trump held a crypto dinner last Thursday night, crypto moguls who paid to be there felt scammed that the president didn’t even stick around at the event they’d hoped to do their own scams at. I saw someone describe him as the apex scammer.

Noah Smith writes,

Falling service costs should also make us more optimistic about capitalism, and about the future of the middle class. For the last decade and a half, a lot of our economic debates have been premised on the idea that the American economy is fundamentally broken, and that life just keeps getting more and more expensive for regular people. That’s looking a lot less true than it did in 2012.

For a long time, the narrative was that productivity growth in health care, education, and other services was anemic and that costs were rising. Smith shows that data from the past several years shows better productivity growth and costs remaining flat or edging down.

As usual, I am skeptical about how much of these trends reflect reality and how much they reflect measurement issues. When we observe spending for a service going up, it is up to the statisticians to assess how much of that reflects a price increase and how much it reflects a quality improvement. It could be that in the 1990s they under-estimated quality improvement and/or in the more recent decade they over-estimated it.

substacks referenced above:

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Service costs aren't exploding anymore

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TGIF: Scammander in Chief

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Digital Corruption Takes Over DC