Easy Sunday: Year-end reverie.

Be of good cheer. 

"We are stardust, we are golden
We are billion-year-old carbon
And we got to get ourselves
Back to the garden."
     Joni MItchell, Woodstock, 1970

We are a speck in the universe and everything ends.

The odd thing about existential nihilism is that it doesn't necessarily destroy meaning and purpose for our lives. It focuses it. It doesn't lead me to despair. It leads me to try to live well. 

Red giant 

The Sun appears constant and dependable. That steadiness tempts us to imagine permanence in an eternal story with good guys and bad guys: conflicts that must be resolved now or never; a present moment that decides if things are going to plan; an arc leaning toward justice. 

We read the news today, oh boy. 

Astronomy reminds us to lengthen our perspective from the crowded today. In deep time, the Sun will swell into a red giant and erase Earth and everyone on it. Nothing in the news changes that. It ends, and everything is erased.

I have reconciled to understanding that we have a brief window of coherence in a vast, indifferent universe. We are all aboard the Titanic, and we know its fate. Meaning must be local: in kindness offered and the care we take with one another. I can live with that. Wasn't that Jesus' message, the one I grew up hearing? 

I don't need the magic parts of the big stories that religions posit to make us feel better about the reality of an indifferent universe. I am OK with the here and now, because that is what there is, and it is on us. 

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Be careful out there

"I get the willies when I see closed doors."
     Joseph Heller, opening line from the novel, Something Happened, 1974 

 

There is always something to worry about. Most of it won't come true. Some will, though.

Don't mind me. I am an old man with too much experience.

Americans who watch financial markets know the warnings about a tech stock bubble. People with money or careers at risk during the internet boom and bust understand the risk. The potential is that artificial intelligence will unlock giant gains in productivity. The worry is AI companies won't earn monopoly profits from AI anytime soon, therefore the stock prices of companies spending money to create AI platforms are running ahead of their current value.  

Deutsche Bank asked its customers to list the biggest risks to market stability in 2026. Fifty-seven percent listed a tech bubble. The second was the fear that the new Fed chair would try to please the president who had just appointed him by lowering interest rates too far and too fast. Well down the list are other things readers have heard about: a crypto crisis, a China attack of Taiwan. Russia-Ukraine escalation, energy infrastructure failure, and a global trade war. Here is a chart, oriented in two directions for readabilty.

 

 

The best evidence that there is no AI bubble is that people worry about a bubble. If prices reflect nervous, skeptical investors, it is less likely to be a bubble. Bubble prices come from unchecked optimism.

Impending disasters are obvious -- in hindsight. Anybody can see that making mortgage loans to people without assets, income, or jobs is foolish, but from 2004 to 2007 bankers imagined that as long as they packaged bad loans with other bad loans, the resulting sausage was perfectly safe and AAA-rated and could be sold to pension funds or held on their own books. People were making great money creating those loans; it is hard to knock success. Nobody likes a naysayer. Same with people worried about the Magnificent Seven stocks. So far, so good on them.

There is no shortage of hazards and warnings. Many people distrust the U.S. dollar as a storehouse of wealth -- a reasonable fear. Readers who have scrolled social media this week are learning about a new reason for worry: a short squeeze on silver. An ounce of silver has gone from $30 to $80 in a year, and from $40 to $80 since September. Silver prices aren't reflecting industrial and jewelry supply and demand. They reflect stress in the financial markets.

Bank trading desks with short futures positions on silver must deliver silver. Funds that contracted to match ounce-for-ounce in physical silver their investors' deposits in their funds also need physical silver. It isn't available. What could go wrong?

I worry about the optimistic people holding crypto "assets." Crypto money is the equivalent of electronic baseball cards, but without the nostalgia. Crypto assets are valuable as long as people think the price of fairy-dust will go up. The prices reflect a social consensus that if there is a price there must be value, at least one that can be captured if sold to someone else. Banks go where the opportunities are and where federal regulators permit risk-taking. Banks are loaning money collateralized by crypto. What could go wrong?

There is a mismatch between incomes and home prices. President Trump's solution is more leverage and debt, now in the form of 50-year mortgages. What could go wrong?

There could be a geopolitical crisis. The U.S. has had 24 years where we are  doing the bombing: Iraq: Afghanistan: Iran: this month Venezuela; this week Nigeria. We dish it out; we feel both invincible and entitled. No one has bigger aircraft carriers. What will go wrong will likely be a surprise. It probably wont be an airliner crashing into a building. It will be something new. The U.S. does not have a monopoly on shock and awe. 

I am glad there are young people with optimistic entrepreneurial spirit starting new enterprises in garages and dorm rooms. I am glad there is competition among the companies creating AI platforms. I am glad Americans see opportunity and are racing to take advantage of it. 

I reflect a different perspective. I am OK with my age and situation. I hedge my bets. My goal is to survive bad times. I don't consider that pessimistic. I think it is realistic and good. If bad times come, the U.S. will need survivors. 

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Christmas wishes from Steve Martiin

So many serious things to consider.

Let's not today.

It feels self-indulgent to post something short and funny when there are so many serious things happening.  But it isn't self-indulgent. It is staying sane. Enjoying our families. Enjoying a holiday. Laughing, because that is what humans do, even in serious times. Maybe especially then.

In the heart of World War II, in March of 1943, Winston Churchill said, 

"There is no finer investment for any community than putting milk into babies."

So, on the advice from Winston Churchill not to neglect simple acts that sustain our humanity, here are three minutes of Christmas wishes from Steve Martin on YouTube from an old Saturday Night Live sketch. 

https://youtu.be/_uVUSBi3u0E?si=CC0NO9x2y4rEJTDb

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Be happy.

"Happy Holidays."

I say it with a smile. I intend a "Happy Holidays" greeting to be neutral, pleasant, and inclusive. 

But "Happy Holidays" isn't neutral because neutral isn't really neutral. 

L. A. Times

Fox News still talks about the "War on Christmas" because many Americans feel that Christmas traditions are under attack. They say "Merry Christmas" on Fox. When used as the universal greeting,"Merry Christmas" affirms Christianity's status as first and default. Who could object? Aren't we all Christians here in America?

"Feliz Navidad" is a complication. It is Christian, celebrating Jesus' nativity, but in Spanish, therefore recognizing the presence of the other: brown-skinned, presumably "not their best," criminal, and probably in the U.S. illegally. But Christian. Depending on the context, Hispanics are either an ally against secularism or a defilement of American blood, language, and heritage.

"Happy Holidays" is inclusive of everyone who celebrates any of the many holidays of this season. I am comfortable with the greeting, but should not be. Some Americans consider it an implied insult and aggressive secularism. Either Christianity is the common denominator religion, and therefore unique, or it is just one of many. Equal respect is implied disrespect, when neutral equality is a demotion. 

Tucker Carlson, back when he had a very popular show on Fox, explained the situation to Democrats. 

  "If you are wondering why so many Christians are willing to support this president, despite his personal life, this is why: because whatever his flaws he has made it clear he is not the enemy of Christians. In fact, under certain circumstances, he will protect Christians. For people whose values are under assault every day by powerful forces in America, and that’s not overstating it, and if you are one of them, you know that means everything. . . .Christians don’t feel they have a duty to be destroyed by people who hate them."

I don't consider diversity and equality to be an attack on White Christians, but Tucker Carlson does, and he speaks for a great many people. They feel "powerful forces" are eroding their status, and they are right. The country is becoming more ethnically and culturally diverse. Polite respect in the modern era leads us to avoid voicing presumptions about others. Don't presume religion, ethnicity, gender, marital status, nationality, or politics. But I recognize that this comes across to some as stripping them of an important part of their identity, and is therefore disrespectful, indeed hateful. How dare I not presume they are Christian?

It can be a minefield out there. 

I don't presume that people are Christian. I presume they could be any religion or no religion, and that is OK with me. 

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Memorable Christmas Gifts

There is a theme to Christmas memories. 

Bittersweet. 

"So we beat on, boats against the current, borne back ceaselessly into the past."

           Final lines of The Great Gatsby.

"Nostalgia isn't what it used to be."

           Classic joke.

"You can't go home again."

           Title of a book by Thomas Wolfe

I thought I would have an easy-to-write, holiday-themed blog post reporting readers' descriptions of favorite gifts. It turned out to be hard. People reported long-held memories. They are moments of joy, a moment that is past and gone. 

Bittersweet mixes joy and loss. A bittersweet memory persists as an ache-y spot. Edgar Allen Poe wrote about this in "The Raven:" "Nevermore" is the saddest word in English, he said. 

One reader, a neighbor of my farm, got a toy tractor of his own, with heavy metal construction and thick-treaded rear tires. 

A few readers got Lionel brand electric trains in young boyhood. They set them up with their fathers. One reader begged his parents to help him buy a Lionel train to give to his grandfather -- just what grandad wanted.

A few readers got bicycles. Bicycles are liberation. You could go places on your own. One reader still had his at college, when it was stolen from where it was chained to a fence in front of his Harvard dorm.

One reader got a transistor radio. It was an introduction to electronic communication. Sixty years later he builds data centers for a mobile-phone company.

A young reader (yes, I have one Gen Z reader) said her favorite gift was something she got a few years ago, a mini-Segway.

She is still creating childhood memories and the Segway and the parent who gave it to her are still around. Too early for bittersweet. The nostalgia comes later.

One reader reported wanting dolls designed around a theme of bug-eyes babies in poverty. She said she just had to have it, and her parents came through.

People who were poor in their childhoods remember Christmas as a standout moment, a tiny exception to the rule of not-having, or as a moment when felt what they didn't have. However small, a treat was memorable: a salvaged tree repaired and decorated with little lights or a story of Santa Claus having eaten the cookie, proof that he came and left, even if all he brought was an orange for the stocking.

A reader well into his 80s, now in end-of-life care and on oxygen, told me his favorite gift was a winter jacket his late wife gave in 1964. He still has it and wears it.

One reader mentioned disappointment at age seven. He wanted a blackboard and chalk, and got the gift. The disappointment was that "Merry Christmas from Santa" was written on the blackboard in his mother's handwriting. What? Santa is really just Mom??!! 

The best stories were stories of gifts given. A reader gave her husband, then in the end-stage of hospice, a copy of a book he had owned then lost in a move, the National Lampoon 1964 Yearbook parody. He received it in time to read it again in his last two weeks.

Grandparents enjoyed passing down a happy family keepsake, a rocking chair for toddlers in the form of a boat.

My own best memory is the long Christmas Eve evening of frustration while I tried to figure out how to assemble a sit-in-it pedal car for my four-year old. It looked about like this, except mine was yellow: 

The box said it was easy to assemble. Ha! Perhaps if one has assembled three of them, then the fourth would be easy, but the first one was confusing and there were lots of parts. The joy of the memory was that I managed to complete the job about midnight, a deadline met. Whew. Santa could go to bed. It would be five hours before Dillon would wake up and go downstairs to see what was under the tree. 

That was 30 years ago. A good memory of a time here and gone.

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Who gets hurt by tariffs?

Some people benefit from tariffs. Some people are hurt.

Economist Jim Stodder explains the economics of it in this guest post.

French Pinot Noir: $29.99/bottle

My amicus brief to the Supreme Court on tariffs cited where I will be hurt by tariffs. A tariff on empty wine bottles increases my costs. That lowers the competitiveness of my Pinot Noir wine against its primary competition, red wines from France, Italy, and Spain. But, I might come out ahead in a tariff war if European wines faced tariffs of, say, 30 percent. My wine would be cheap by comparison. I could sell more wine, or could raise my prices 30 percent, or a little of each. Great!!!

Who would pay that tariff? U.S. wine drinkers. They wouldn't know they were putting money into my pocket; they would just know that Oregon Pinot Noir wines look like a better deal than European wines, while noticing that wine has become expensive. Maybe that is the policy goal: help out U.S. producers and raise money for the government with this hidden sales tax -- although at the cost of higher inflation. 

How to get such a favorable tariff? Maybe U.S. wine producers need to send a delegation to the White House to present President Trump a chunk of gold in the shape of a wine bottle.

Jim Stodder is a college classmate. He left school for a while amid the anti-war disturbances of the era, then returned to complete college and then get his Ph.D. in economics from Yale. He taught international economics and securities regulation at Boston University.

Stodder

Guest Post by Jim Stodder 

Who Gets Hurt Most by Tariffs? 

This question has been asked thousands of times since Trump imposed them, but seldom answered correctly. The correct answer is the one you’d expect from a damned economist. So I’ll give it – “It depends.”

I’ll try to explain. Like any tax, tariffs fall hardest on those least able to avoid them – those with the fewest options to the thing being taxed. This means the side that is less price-sensitive, whether it’s buyers or sellers. (Economists say “price-inelastic,” but I’ll avoid the jargon.)

Think of a heroin buyer. It doesn’t matter what the price is, he needs his fix. The seller knows it, so he passes on 100 percent of any price rise. But a tariff can hurt sellers as well. Think of a farmer. Once his crop is in the ground, he’s got to take what the market gives – even if it means selling at a loss. Better to cover half the cost of your crop than to get nothing.

Consider two cases of supply and demand: On the left, the sellers (exporters) are less price-sensitive, so their supply curve is steeper. On the right the buyers (importers) are less price-sensitive so their demand curve is steeper. If supply or demand is completely insensitive, that curve is vertical. The tariff is absorbed with no change in quantity, and that side pays 100 percent of the tax.

Losses for each side can be measured and are shown by the colored areas above – pink for the buyers and green for the sellers. The rectangles show the share of the tariff bill each pays for the quantity they still buy or sell. Triangles show their losses from what they can no longer buy or sell – benefits they had before the tariff at the pre-tariff price, P*.

It’s exporters who are most screwed in the first graph, paying about 80 percent of the tariff and deadweight costs. Think of U.S. farmers now selling at a loss because China has retaliated with its own tariffs and global export prices have plummeted.

In the second graph it’s the importers who pay about two-thirds of the tariff costs. Think of American consumers buying hard-to-replace electronic components. It all depends on who’s least price-sensitive.

So much for the theory. What’s the actual evidence on price-sensitivity?

A December 15 speech by Stephen Miran, a governor of the U.S. Federal Reserve, cites a major study showing that for 70 percent of U.S. exports by value, U.S. exporters bear at least 70 percent of the total burden of tariffs imposed by the importing country. This means most U.S. suppliers are price-insensitive – they look like those exporters in the first graph.

It breaks better for U.S. importers. Another Federal Reserve study shows that U.S. price sensitivity on Chinese imports is very low in the short-run – especially for hard-to-replace goods like electronic components. But consumers will get more selective in a year or two, as they find substitutes. So U.S. consumers start out looking like the miserable importers in the second graph, but in a few years they shift more burden onto the Chinese companies.

I see three direct political impacts. Number one is that Trump’s tariffs really could hurt China more than the U.S. – just so long as China doesn’t retaliate! But of course, it has. Trump supporters say that since we buy more from China than they buy from us, damages to our exporters from their tariffs aren’t as big as the damage our tariffs are doing to their exporters. Maybe so, but try telling that to American farmers.

Number two is that the impact of Trump’s tariffs on consumer prices will be much larger in the short run – once they get finalized – than in a year down the line. This helps explain why Trump was eager to announce his “Liberation Day” tariffs right out of the gate. Now he’s "adjusting" them.

But even if one side of the market gets hurt more, remember that both sides always get hurt. In this, trade wars are like real ones. Don’t start one unless you think you can win it quickly. History shows such confidence is often wrong. 

This raises point number three. Come what may, there is one party that always benefits from tariffs – Donald Trump himself. Not for what tariffs do for the country, but what they do for him. Countries are busy courting, and in many cases bribing, Trump to get tariffs lowered. (If they buy Trump Coins, that bribe is hard to trace. They can still show him the receipts.) Never mind other people’s losses. For Trump, tariff is “the most beautiful word to me in the dictionary.”

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It is Trump's economy.

"I planned each charted course
Each careful step along the byway
And more, much more than this, I did it my way.

Paul Anka, "My Way," sung by Frank Sinatra, 1969

"You break it, you bought it."
          The Pottery Barn Rule

Donald Trump is center stage in American life. For better or worse -- credit or blame -- it is Trump's economy.

And remember: "It's the economy, stupid."

President Trump took political responsibility for the economy on "Liberation Day," April 2. Prior to then, Trump could get away with blaming everything on President Biden in a reprise of his strategy when he took office in 2017. Trump defined the economy he inherited from Obama as "carnage." In fact, the economy was on a persistent uptrend: Inflation low. Unemployment low and declining. Gross domestic product rising. Trump claimed credit for a supposed turnaround in the economy. That was dishonest, but smart. It worked until Covid hit. 

Trump once again defines his starting point as misery, but now it's a harder sell. Trump is the man of action, the guy in charge of everything. They are Trump's tariffs and trade wars. He's doing it his way.

Trump is selling the idea that working people should feel prosperous. He said gasoline is $2.00/gallon. It isn't. He said grocery prices are down. They aren't. Car prices are up. Rents are up. Restaurant prices are up. The zeitgeist vibe is that "things are expensive." 

Consumer confidence has fallen since Trump has been in office. It rebounded briefly when he appeared to reverse himself on tariffs, then fell again when he reimposed tariffs.

For partisans, consumer confidence switches along with the president's party. The red and blue lines are predictable, but notice independent voters. They switched from tracking with Republicans to tracking with Democrats.

This is a very good sign for Democrats. It is the Pottery Barn rule. You break it, it's yours. 

Trump made a choice with his brand and political coalition. He switched sides. He sold out for money, billions of dollars, not the chicken feed that Hunter Biden collected. In 2016 Trump said he was draining the swamp of crony capitalists. Now he is one.

I don't think the country was ready for the Bernie Sanders message in 2015. Medicare-for-all is more plausible now than it was then. The ACA was a step toward universal health care, now that we have seen a patchwork system and that it fails to control costs. Sanders also said that the economy was rigged to help billionaires, not working people. That seemed extreme to too many people in 2016. Now it seems reasonable and descriptive. Trump demonstrates what crony capitalism looks like. The rich get richer. The poor cannot afford their daily lives. The economy-rigging is right out in the open.

2028

It takes a messenger to sell a message. A new, updated version of Sanders may emerge from the Democratic bench. Trump has platted out the lane for that person. One need not scare people by calling the lane "socialism." Trump has already linked government and the means of production -- socialism -- far beyond anything Democrats propose. A Democrat can reform the economy with a populist appeal by calling it what it is, a rejection of corrupt crony capitalism.

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