When Central Planning Is Harder

In her column in the Washington Post Julia R. Cartwright makes a fairly standard libertarian criticism of James Galbraith’s book:

He is probably too optimistic about Russia’s economy, but the larger point stands: Sanctions are a case study in unintended consequences. The irony is hard to miss. Galbraith treats the failure to anticipate Russia’s adaptation as evidence against conventional economic policymaking without asking whether the same problem applies to the domestic planning he favors.

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But the real case for markets rests on a problem he never confronts: local knowledge. Galbraith writes that when profit becomes “the accepted criterion of success,” the result is “pathological.” But prices — and profits — coordinate information about scarcities, technologies and wants, information that no central authority could assemble.

That’s a fairly convention von Mises/Hayek argument. But there are others.

Namely, businesses and consumers can modify their behaviors faster than planners can adapt their plans. However good the knowledge of the planners was at the time they made their plans, by the time they’ve issued their plans the environment has changed to the degree it no longer applies to the plan that was made.

That issue is particularly acute in the U. S. where the “long tail” phenomenon dominates many sectors. A few very big businesses control much of the sector, a smaller number of medium size companies also operate in the sector, and, potentially, thousands of small companies continue to operate in the same sector. And that phenomenon applies across the entire economy, in many sectors.

Said another way, China can coordinate certain sectors more readily.

There’s another challenge as well. Over time the “experts” who rise to positions of authority in the civil bureaucracy are increasingly those who follow the prevailing orthodoxy. The Soviet Union’s problem wasn’t that they didn’t pay enough attention to their experts; it was that over time their experts were increasingly telling them what they wanted to hear.

The difficulty is not merely that planners lack information. They must make decisions before that information changes in an economy whose participants can alter their behavior faster than a central plan can be revised. And the people authorized to interpret the information will, over time, tend to be those whose judgments fit the governing orthodoxy. A planning system can therefore fail while listening attentively to its experts: it may be hearing the experts its own politics selected.

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Compare and Contrast

Compare and contrast. Chloe Taylor reported on President Trump’s visit to China in May at CNBC:

U.S. President Donald Trump has landed in Beijing for a highly anticipated presidential summit with his Chinese counterpart, Xi Jinping.

Trump is being accompanied on the trip by a group of executives from some of America’s most valuable companies, including Tesla CEO Elon Musk and Nvidia
boss Jensen Huang.

The president was greeted on the tarmac by a brass band and flag wavers, who performed as he descended the steps of Air Force One.

He was received by China’s vice president, as the accompanying illustration confirms. In other words, he (and the various U. S. CEOs) was snubbed. That forms an interesting contrast with Michelle L. Price and Didi Tang’s report on President Xi’s arrival at Associated Press yesterday evening:

WASHINGTON (AP) — Chinese President Xi Jinping arrived in Washington on Wednesday, where he was met with a rare planeside greeting from President Donald Trump after their top officials agreed to extend a trade truce until January.

Trump’s Treasury Secretary Scott Bessent announced the extension of the truce — under which the countries agreed to scale back tariffs and refrain from imposing new trade restrictions — during a Fox News Channel interview as Trump welcomed Xi at Joint Base Andrews just outside Washington.

“I don’t know whether a bigger deal can be done. I don’t know whether we will just roll the current deal,” Bessent said in the interview, noting the extension to Jan. 10 could give the leaders more time to talk about the issues at upcoming international summits in China in November and Florida in December.

Xi did not meet Trump’s plane in Beijing; Vice President Han Zheng did. Yesterday Trump went further in one conspicuous respect: he personally met Xi’s plane. Whether Trump considered the earlier reception a slight is unknowable, but the difference in rank at the airport is plain. Xi has already received a rare public honor without having to alter China’s negotiating position. What, if anything, Trump obtains in return remains to be seen.

For man who is claimed to be so thin-skinned and quick to seek retribution against those he perceives slight him, that is a remarkably warm and expansive greeting. Either President Trump did not see his reception in China as a slight, it didn’t matter to him, he genuinely respects President Xi, he wants something from him, or several of the foregoing. President Xi can accept the honors without visibly changing China’s position, while Trump has already made the gesture. That gives Xi the immediate symbolic gain. That all may seem trivial to Americans but it’s interpreted differently by a Chinese audience.

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Next Stop: Skagway

Skagway Scenic Railway


We left Juneau that evening and by morning had docked in Skagway. Skagway is a small tourist-y Gold Rush town a little farther north.

We avoided the curio shops in town and immediately headed for the scenic railway. The railbed was an engineering marvel, winding its way up the steep side of the mountain, passing over trestles and through tunnels. We were told that one of the tunnels was the longest train tunnel in the U. S.

View from the railway


The train climbed the mountain all the way to the Canadian border and then returned to Skagway. It was a remarkable and somewhat harrowing trip.

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Stumbling Inexorably Into a Good Question

I found this report from Global News interesting:

A rare form of sudden and potentially permanent vision loss is becoming the latest safety question surrounding blockbuster GLP-1 drugs, with patients filing lawsuits in the U.S. even as regulators overseas have already added warnings.

The condition is called nonarteritic anterior ischemic optic neuropathy, or NAION. It occurs when blood flow to the optic nerve is reduced, potentially causing abrupt vision loss that can be permanent.

The complication appears to be extremely rare. The bigger issue is that researchers still disagree over whether drugs such as Ozempic and Wegovy actually cause it.

That uncertainty is now moving from medical journals into courtrooms and regulatory agencies.

The EU has already taken action:

The European Medicines Agency reviewed clinical trials, post-marketing surveillance, scientific literature and other available evidence before concluding in 2025 that NAION should be classified as a very rare side effect of semaglutide.

European regulators estimated that it could affect up to roughly 1 in 10,000 people taking semaglutide.

Several large epidemiological studies reviewed by European regulators suggested semaglutide exposure among adults with Type 2 diabetes was associated with approximately twice the risk of developing NAION.

Warnings or information about NAION have also appeared on drug labeling in countries including the U.K., Japan and Australia.

I think that as a stop-gap measure the EU action is prudent but I saw a great opportunity for AI. Give AI everything known about both a significant number of patients who developed NAION and patients who didn’t including whether they took GLP-1 or not and whether they went on to develop NAION: retinal/OCT images, visual acuity, refraction, blood pressure and medications, A1c trajectory, renal function, sleep-apnea information, age, BMI, lipids, and so forth.

More importantly, give it the trajectories. What happened after GLP-1 treatment began? How rapidly did the patient lose weight? How rapidly did A1c fall? Did blood pressure fall while antihypertensive treatment remained unchanged? Was there dose escalation, vomiting, dehydration, renal impairment, or some other change shortly before the event?

Then use AI to look for combinations of characteristics and changes that distinguish the tiny number of patients who develop NAION from the thousands who do not. Freeze the associations it discovers and test them prospectively against a separate population it has never seen.

The useful question may not ultimately be whether semaglutide can cause NAION. It may be why semaglutide appears to cause NAION in one particular patient while having no such effect in thousands of apparently similar patients.

That should be doable nearly as quickly as the data can be collected.

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How Not to Implement a VAT

I found Peter Tanous’s piece at The Hill advocating a value-added tax (VAT) frustrating for a number of reasons. The first reason is that I agree with him. We do need a VAT. Just not structured or implemented as he suggests. His argument, basically, is that if you eliminate Medicare, Medicaid, and Social Security it still doesn’t mean we won’t be running the federal government at a deficit, i.e. adding to the debt:

Start with the hardest number in Washington. Medicare costs about $1 trillion in fiscal 2026. Eliminate it entirely — as politically unthinkable as that is — and you close only about half of the current deficit. Social Security, at $1.7 trillion and rising every year, is even further off the table. Wipe out every domestic federal agency most people call “waste” — the EPA, the Department of Education, the State Department, foreign aid, all of it — and you’ve touched only 13–14 percent of the federal budget. There is no spending-cut path that closes this gap. The math forces the conversation onto revenue.

Here’s the full picture. The Congressional Budget Office’s fiscal 2026 baseline shows total federal spending of roughly $7.7 trillion. Of that, 73 percent, about $5.6 trillion, is mandatory spending set by law — no annual vote required — and covers Social Security, Medicare and Medicaid. Discretionary spending, the part Congress actually votes on each year, is roughly $2.0 trillion: about $900 billion for defense, about $1.1 trillion for everything else, “waste” categories included.

Since Mr. Tanous never defines what he means by a VAT, I will assume he means a conventional credit-invoice VAT rather than merely a federal retail sales tax collected at the point of final sale.

Although Mr. Tanous mentions some exemptions he fails to mention what are extremely likely to be exempt: medical service fees. Legal services are also an obvious candidate for exemption. Lawyers would have an extraordinary degree of influence over the drafting of the legislation not least because Congress itself contains so many lawyers and the historical record gives little reason to expect Congress to resist demands for preferential tax treatment from politically influential professions. That changes his mathematics considerably, I would argue to the point that it no longer solves the problem he claims it will. I would add that I find exemptions objectionable. That’s picking winners and losers which increases the incentives for lobbying to exempt your own sector from the tax. That’s a slippery slope whose endpoint is no VAT.

At present many state and local governments are highly dependent on sales taxes. According to the Tax Foundation, 35 states receive 25% or more of their revenues from sales taxes. Increasing prices by adding a VAT will decrease consumption which will in turn reduce state and local revenues. And, as I’ve mentioned before, reducing household consumption in an economy as dependent on ours will have a deleterious effect on the economy at least in the short term. History suggests that the Congress will respond to such effects either by spending more which will reduce or eliminate the effect of the tax or by eliminating the tax.

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They’re Against Social Security

The editors of the Washington Post and Wall Street Journal columnists are against Social Security. I think that’s the simplest way of explaining their editorials this week. Joseph Sternberg opposes raising Social Security max:

while the editors of the Washington Post oppose raising the payroll tax:

As Congress stares down the estimated 2032 insolvency date for the main Social Security trust fund, some politicians — even some Republicans who normally oppose tax increases — are talking about raising the payroll tax to fund the program. While some tax increases will probably be necessary to improve America’s overall fiscal predicament, the Social Security payroll tax is the worst candidate for a hike.

I don’t oppose changing the retirement benefits formula so that the higher earners who are not already retired receive lower Social Security retirement payments. Unfortunately, that won’t “save” Social Security even if you eliminate it entirely.

Neither provides a financially plausible alternative for preserving Social Security’s present function. What the Post proposes isn’t a way of saving Social Security. It’s a way of changing the subject from how to finance Social Security to what might replace much of it. It’s a proposal for what should replace part of Social Security after the financing problem has somehow been solved.

That’s a not unreasonable argument for the top quarter of income earners but it’s a lot weaker for everyone else for several reasons. The first is that roughly the bottommost half of income earners own no assets. They don’t own their homes, equities, bonds, or mutual funds. They depend on Social Security when they become too old to work. They’re not just being opportunistic.

There are two additional issues worth mentioning. First, that assets always rise in value is not a law of nature. IMO it’s an artifact and the most likely explanation is what’s called the “Greenspan put”—the operation of the Fed. That might be explained simply by the Fed’s target of 2% rather than its statutory mandate of “stable prices”. The effect of that is to hurt lower income earners and benefit higher income earners.

There are also the macronomic effects of eliminating Social Security. Social Security isn’t merely a retirement program. It is also a very large transfer of current income to a population with a substantial propensity to consume it. Reducing benefits therefore reduces consumption and aggregate demand. CBO itself projects that Social Security benefit reductions would initially reduce consumer spending, GDP, and employment. Reducing that would have a deleterious effect on an economy as dependent on consumer spending as ours.

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The Real Question About China

I think I agree with Noah Smith’s most recent Substack post on China. Unfortunately, I can’t read the whole thing because part of it is paywalled. Here’s a snippet:

Anyway, I still think building up an anti-China economic juggernaut would be a great thing to do, and I still think the U.S. would benefit from closer economic integration with its friends and allies. But I think the election of Trump shows why this strategy probably isn’t going to work. The United States is simply too internally divided to engage in the sort of far-seeing, purposeful, smart kind of international competition that we pursued so effectively in the 20th century. Americans care more about fighting other Americans than about fighting the Chinese, and that state of affairs will persist for a while.

I would phrase it a little differently. I don’t think we should worry about China—it will defeat itself. We should be more concerned about our defeating ourselves.

We shouldn’t be dependent on China for the things we use in our military or the things used to make the stuff our military uses. That part can be managed. Companies in which China plays an indispensable role anywhere in their supply chains or their vendors’ supply chains shouldn’t be eligible to bid on defense contracts. That’s harder than it sounds but the reality is that having a second supplier that is not Chinese is not really a second supplier in the context of just-in-time (JIT) inventory and manufacturing.

We shouldn’t be dependent on China for consumer goods, either. That doesn’t mean we shouldn’t buy Chinese goods. It means China shouldn’t be in a position to create widespread shortages or sharp price increases simply by withholding them or the materials we or our other trading partners use to make them. Recent experience should have taught us how quickly even temporary increases in consumer prices have political consequences.

None of that requires economic isolation from China. It requires ensuring that trade with China does not become dependence on China.

I have little problem with being more dependent on Canada or Mexico. Indeed, I think our economies should be more closely integrated. That will be harder still.

Do what we’re good at and let China do what it’s good at. Let China be China and the U. S. be the U. S.

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The Real Question

I think that Fareed Zakaria’s Washington Post column identifies a real problem but presents a solution that is far too complex and, indeed, misses the nature of the regulatory problem:

The central AI problem is not consciousness; it is agency. A system need not feel anger, ambition or fear to cause harm. It needs only a goal, enough intelligence to pursue it and enough access to the world to act. AI’s are not “going rogue”; they are trying to succeed any which way they can.

This is a systemic problem that we cannot leave to the good graces of private companies. When thinking about regulations, we should focus centrally on how much autonomy we give these systems. A chatbot that answers a question poses one set of risks. An agent that can browse the internet, execute code, obtain credentials, move money or operate critical infrastructure poses another. The principle I would propose is simple: Autonomy should expand only as our ability to monitor and control it expands.

I think the solution is simultaneously simpler and older than Mr. Zakaria imagines: strict liability that attaches both jointly and severally to the model developer, API developer, the application developer, and the corporate deployer. If that strategy were used, insurance would become an important part of AI governance.

If an AI system causes legally recognizable harm, the injured party need not establish negligence, recklessness, intent, or a defect in the model. The plaintiff must establish the harm, causation, and a legally defined connection between that harm and the entity that supplied or deployed the AI service. An insurer asked to cover an autonomous AI service would want to know about sandboxing, permissions, audit trails, model evaluations, financial authority, network access, kill switches, and incident history. A poorly controlled autonomous agent would become expensive or impossible to insure.

When liability attaches both jointly and severally the plaintiff need not identify the source of harm specifically. Only that harm was done and AI was part of the chain that produced it.

Joint and several liability is important here. The injured party should not bear the burden of determining which participant in an opaque technological supply chain was ultimately responsible for the behavior that caused the harm. Let the parties that designed, supplied, integrated, and deployed the system allocate that responsibility among themselves through contracts, indemnification, contribution, and insurance.

Zakaria’s safeguards would not disappear under strict liability. They would become the things an AI developer or deployer must demonstrate in order to obtain affordable insurance.

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Okay, I’ll Bite

I was rather disappointed by the Washington Post op-ed written by Lewis Libby and Jason Fields. They described their objectives well enough:

Coercion, not ideological fervor, buoys the Islamic republic. To sustain an unpopular regime, the core believers recruit thousands of trigger-pullers who brutalize civilians. They also pay regional proxies, in cash and in weapons, to intimidate foes and to spread an image of a hegemonic Iran. The domestic opposition calls them “mercenaries.” They don’t come cheap. Oil — and crucially, the promise of future oil revenue — greases the empire.

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The regime’s supporters are likewise reassured by steps that Washington hasn’t taken. The U.S. military hasn’t destroyed Iran’s major oil production and export facilities, as the Allies did to Germany and Japan in World War II. U.S. sailors have escorted tanker traffic through the Strait of Hormuz, but that effort has been nowhere near the scale of the operation President Ronald Reagan ordered in the 1980s. Ground troops haven’t seized the coastline or the regime’s enriched uranium stockpiles, much as the United States was willing to do in Kuwait and Iraq in the 1990s and early 2000s. America hasn’t bearded Iran’s patrons, China and Russia, either.

The shortcomings of the piece were that the authors didn’t describe how we could accomplish those goals without violating the laws of war. Which Iranian oil production and export facilities would constitute lawful military objectives under the laws of war, and on what basis? How do they suggest we “beard” China and Russia? Should we bomb them? Target their political leadership?

All of that points to the difficulties in breaking a regime’s internal coercive apparatus while maintaining the international commitments into which we’ve chosen to enter using air and naval power alone.

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The Real Bolsheviks Were Like That, Too

I found Gary Rosen’s Washington Post op-ed contrasting the Democratic Socialists of America with the historical Bolsheviks sadly amusing. Here’s a snippet:

The Democratic Party is not in the grip of a “Bolshevik revolution,” as House Majority Leader Steve Scalise (R-Louisiana) claimed from the stage of the GOP’s midterm convention last week in Dallas. Nor is it true, as President Donald Trump declared, that “it’s going to be a communist country” if the Democrats win in November. House Speaker Mike Johnson (R-Louisiana) was a bit closer to the mark when he said, “Next year the communists will be in Congress.”

What’s fair to say is that a handful of this fall’s Democratic candidates, many of whom will no doubt win seats in Congress, are proud members of the Democratic Socialists of America, which revels in Marxist rhetoric and whose ranks include a not-insignificant minority of self-identified communists. This ideological insurgency is a gift in a big red bow for Republicans, who need to overcome Trump’s abysmal approval ratings, and a political nightmare for floundering Democrats. The fact of the DSA’s radicalism cannot be disputed.

The real question is how seriously to take it. I tend to think not very.

Clearly, he has not spent enough time with Lenin’s April Theses. In April 1917 the Bolsheviks were a minority, their program seemed wildly unrealistic to many contemporaries, and Lenin himself prescribed patient persuasion rather than an immediate seizure of power. Six months later they took power.

That does not make the DSA the Bolsheviks, nor is the United States of 2026 remotely comparable to Russia in 1917. But it does expose the weakness in Rosen’s argument. He is comparing today’s DSA with the Bolsheviks as they appeared after they had seized power. The relevant comparison would be with the Bolsheviks when they were still a relatively small radical movement that many contemporaries regarded as doctrinaire, unrealistic, and unlikely to govern.

The lesson of the Bolsheviks isn’t that every collection of starry-eyed radicals eventually becomes a dictatorship. Obviously it doesn’t. It is that being starry-eyed, naive, numerically small, or even faintly ridiculous is not evidence that a radical political movement should be taken unseriously. Political circumstances change.

And Russia was hardly the only country in the twentieth century in which a radical movement changed character rapidly as it acquired political power.

As additional counter-evidence, I would submit that bona fide Democratic analysts Ruy Teixeira and John Halpin take the possibility of an ideological capture of the Democratic Party considerably more seriously than Rosen does. Their concern is not that the DSA is about to storm the Capitol and establish a dictatorship of the proletariat. It is that a relatively small but highly motivated ideological faction can exert influence over a much larger political party out of proportion to its numbers. Cf. Ruy’s most recent post.

That strikes me as the question Rosen should be addressing.

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