At Reuters David Lawder reports:

WASHINGTON, Jan 13 (Reuters) – The U.S. government posted a $145 billion budget deficit for December, up 67% or $58 billion from a year earlier due to record outlays that were inflated by calendar shifts in benefit payments and receipts, the Treasury Department said on Tuesday.

The report showed that revenue growth from President Donald Trump’s tariffs may have plateaued, as December net customs receipts totaled $27.9 billion, down from the low $30 billion range in recent months but far above ?the $6.8 billion recorded in December 2024.

Net customs receipts for the first three months of fiscal ?2026, which started October 1, totaled $90 billion compared to $20.8 billion in the prior-year period.
The Trump administration implemented some tariff-cutting trade deals in November, including 10 percentage-point reductions in duties on imports from China and South Korea. The Supreme Court also ?could soon rule on legal challenges to Trump’s tariffs under an emergency sanctions law. A ruling against those duties would further cut customs receipts.

The Treasury said that after making adjustments to December budget results in both 2024 and 2025, the December deficit would have been $112 ?billion, a decrease of $14 billion or 11% from the December 2024 budget gap.

Not to belabor the point but large deficits are a foreseeable consequence of cutting taxes without politically or structurally credible mechanisms for trimming expenditures. With entitlements on demographic autopilot, interest expense rising, and defense spending politically insulated, the notion that tax cuts would be offset by spending restraint was always fanciful. The pre-existing debt overhang already impedes economic growth by crowding out private investment and increasing the sensitivity of the budget to interest-rate shocks so you can’t expect to grow your way out of the issue. That is an empirical finding by economists that remains robust in mainstream literature.

These fiscal realities are not an abstraction. They are directly related to what Democrats frame as their “killer issue” in the 2026 and, possibly, 2028 elections: affordability.

When deficits are effectively monetized, i.e. financed through central bank balance sheet expansion rather than real resource growth, the result is inflation. When goods and services inflation outpaces wage inflation you have an affordability problem. It is always regressive: it hits renters, younger households, and fixed-income retirees first and hardest.

This is not a pathology unique to one party; it is the product of decades of bipartisan normalization of deficit finance in the service of short-term political objectives.

It has been a week since Maduro was apprehended and taken to the U. S. for trial. President Trump said the U. S. would “run Venezuela”.

Who’s running Venezuela? It appears to be the same regime that did a week ago with all of the same problems and failures.

I have seen some reports that some political prisoners have been released.

Everything seems to be proceeding much as I predicted.

If David Ignatius, the Washington Post columnist, still represents the voice of conventional Washington wisdom, they severely misunderstand what is happening in Iran. In that light his most recent column, considering Iran, reflects that misunderstanding sharply. He opens with a reflection on the Iranian regime and continues by characterizing it:

The Iranian regime is on a one-way street to disaster. A senior European diplomat in Tehran shared that assessment with me several years ago, and it remains true. Iran has powerful security tools, but they’re getting rusty. The regime couldn’t protect its proxies Hamas in Gaza, Hezbollah in Lebanon, and President Bashar al-Assad in Syria. And most important, Iran couldn’t shield itself from Israel’s systematic assault in June. The regime is on a losing streak.

“The Islamic Republic is today a zombie regime,” argues Karim Sadjadpour of the Carnegie Endowment for International Peace. “Its legitimacy, ideology, economy and leader are dead or dying. What keeps it alive is lethal force. It kills to live and lives to kill. Brutality can delay the regime’s funeral, but it can’t restore the pulse.”

concluding:

The wild card this year is whether the regime’s hard-liners have lost their edge. Like the Soviet Union during its last years, the security agencies may have lost their ideological commitment and discipline. They’ve watched helplessly as their proxy forces were crushed in Gaza, Lebanon and Syria. And they’ve suffered the same scourge of inflation and economic stagnation as the rest of the nation. They’re not broken, but they appear more fragile than in the past.

Let’s think again about what’s going through the heads of those 12 members of the Supreme National Security Council. They know Iran is stagnant. Their budget for the next fiscal year will likely raise taxes and cut subsidies to fund defense spending. They’re waiting for the political transition that will come when Khamenei dies, but for the moment they are lurching forward as a wounded dispirited nation.

As the council members look south across the Gulf to Saudi Arabia and the United Arab Emirates, they see their neighbors racing to embrace artificial intelligence and a dynamic economic future. Meanwhile, they cling to a repressive, retrograde regime that can barely feed its people. Revolutions are impossible to predict. But when you look at Iran, it’s obvious that eventually something is going to crack wide open.

The highlight is mine. I’m afraid he has several misconceptions. The Iranian regime is theocratic. It bases its authority on religious beliefs not popular support. In their own light they are not decaying institutions; they are custodians of divine mandate. As long as Iran is governed by True Believers, they will hold onto power by whatever means necessary. They must. Secular Westerners find that very difficult to understand.

Also, the analogy he considers in the body of the column, to the last days of the Soviet Union in the passage highlighted above, is correct but he does not take it far enough. A Marxist regime can drift into cynicism. A theocracy cannot. When belief dies, so does authority. Until then, repression is not a policy choice it is a theological obligation. The Soviet Union persisted until it was no longer governed by anyone who remembered the revolution. When that happened it collapsed rapidly.

The Soviet gerontocracy governed out of habit. The Iranian leadership governs out of covenant.

Sadly, Iran is still governed by actual religious revolutionaries. The question is not whether they will suppress unrest but whether they can.

I was composing a longer post on the situation in Iran but I just wanted to quickly make a few points.

There is a growing tendency to claim that “Iranians are not Muslims.” That strikes me as analytically sloppy. Opposition to the clerical regime is not the same thing as abandonment of Islam. One can plausibly argue that most Iranians are not Khomeinists; it is far less plausible that they are not Muslims. A few online polls don’t tell us much. Those notoriously oversample people who are young, educated, urban, and tech-savvy. That does not describe anything like the majority of Iranians.

Second, I don’t think we really know what’s going on in Iran right now. If the violent protests are large enough, they’re probably visible from orbit. Western human intelligence in Iran has been degraded over the period of years and much of what we know is inference layered on social media noise.

Third and this didn’t occur to me until recently, one factor that may matter more than is being discussed is the effect of Israel’s war with Hamas and Hezbollah on the Basij militia. The regime’s internal security apparatus does not exist in a vacuum; it draws legitimacy, manpower, and ideological energy from the same ecosystem that has been mobilized externally. Whether that has strengthened the Basij through mobilization or weakened it through distraction and attrition is an open question but it is unlikely to be neutral.

Megan McArdle lays out a very good case in her column in the Washington Post on the killing of a woman in Minneapolis by an ICE agent and the subsequent feces-flinging contest. She opens with a warning about police states and follows that with this anecdote:

In 2012, a group of law professors published the results of an experiment they had run on 202 adults who were shown a video of protesters. Participants were given the text of a law regarding protests at sensitive facilities and asked to determine whether the police had been justified in shutting down the protest.

Half were told that the video showed pro-life demonstrators at an abortion clinic. The other half were told the protest occurred outside a college career-placement office where military recruiters were conducting interviews, and that the protesters were rallying against the military’s “don’t ask, don’t tell” policy for gay and lesbian service members. The results were depressing, if not entirely surprising.

People disposed to support abortion rights and oppose “don’t ask, don’t tell” thought the police were justified in clearing protesters away from the abortion clinic but not the recruitment office. Those whose views went the other way reached the opposite conclusion from the same facts.

She then contradicts her own point by trying to analyze the various videos of the events.

The only pertinent question under the law is what was the state of mind of the ICE officer who fired the shots? The killing was unmerciful and unjust but was it illegal? That is entirely dependent on the state of mind of the ICE officer and the only evidence we have of that is his own testimony. It cannot be inferred from videos.

That is why I have taken the position that I have: that the officer should be prosecuted to the full extent of the law, that he is likely to be convicted because the jury is composed of people who will behave just as the “202 adults” did, viewing the events through their own peculiar prisms rather than as “reasonable persons”, and that the conviction is likely to be overturned on appeal.

We have built a legal system that depends on rational actors, and a political culture that ensures they do not exist.

At his Substack Tomas Pueyo has a lengthy and interesting analysis of Venezuela’s economic plight. Here’s the opening paragraphs:

The world is in shock after the US took Venezuela’s leader Maduro, and the takes keep piling up, but they each focus on a tree rather than the forest. Why? What does it all mean? What will happen with Venezuela and the Venezuelans? Was this a legal or legitimate action? How does that affect the US, Russia, and China? How does it rewrite the rules of the world?

At the heart of all these questions is one thing: oil. So today, we’re going to look at Venezuela’s economy, why it’s mostly centered around oil, and why it has caused the situation we’re in. In the next article, we’re going to look at the ramifications.

I’m looking forward to his next installment. Regardless of what President Trump implies, I don’t think there’s a quick and easy solution to Venezuela’s economic problems.

I found a letter to the editor from biotech executive Mark Warner in the Wall Street Journal thought-provoking:

Your report “Boston’s Biotech Engine Is Sputtering” (U.S. News, Dec. 30) rightly notes that highly trained Ph.D.s are struggling to find work as Boston’s biotech sector contracts. But the problem isn’t an oversupply of scientists or a temporary venture-capital cycle. It’s a deeper structural failure in how the country builds industries.

The U.S. excels at funding discovery and celebrating breakthroughs, then neglects the hard work of manufacturing them at scale. When commercialization stalls, capital retreats, companies collapse and top talent is left without a place to apply its skills. We have seen this before in semiconductors, solar energy and nuclear power. Research leadership remained but manufacturing—and economic strength—moved elsewhere.

Biotechnology faces the same risk. The real bottleneck isn’t the lab; it is the lack of domestic biomanufacturing capacity to carry innovations across the “valley of death” from proof-of-concept to commercial reality. That gap is where today’s job losses are felt most acutely.

Warner correctly identifies a structural failure, but his causal chain is backwards. There is a practical, organic progression. When production moves elsewhere so does production engineering. Production engineering follows production. Design engineering follows production engineering. Research follows design engineering. What remains behind is not an innovation ecosystem but an academic one, unmoored from economic realities. There is always a lag, because engineering capability takes time to migrate. But it always migrates to where production actually occurs. As Mr. Warner himself notes, this pattern has already played out in semiconductors, solar energy, and nuclear power.

For some time we have been operating under the fantasy that the United States economy can thrive as a service economy on the basis of services, tertiary production, and retail alone, leaving the messy and energy-intensive production to other countries, preferably countries far, far away. That is a pleasant fantasy but it is a fantasy. The reality is that is the path to poverty which Mr. Warner’s letter highlights. You can export production for a while and still pretend to be an industrial power. You cannot do it indefinitely and remain one.

In reaction to President Trump’s remarks on improving the affordability of housing by getting corporate landlords out of the market the editors of the Washington Post declaim:

One of the most common types of small business in the United States is to own rental property. The median landlord owns two properties. It’s a side gig where people can make some money in addition to their full-time job by providing someone else a place to live.

Large investors, those with over 100 properties, own 1 percent of U.S. homes. Yet, detractors on the left and right have made them into villains who are scooping up houses from hard-working families.

concluding:

The problem with housing is that there isn’t enough of it. Government shouldn’t care who buys it. It should be looking for ways to make it easier to build more of it, which will mean getting out of the way. Scapegoating investment bankers is always politically popular, especially in an election year, but it won’t do anything to make housing more affordable.

I concur with the editors but I would go one step farther. They are pretending this is a purely market problem, when in fact it is a governance coordination problem. Repurposing the “Micawber Principle“:

Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Construction permits an increase of .5% of housing stock, annual “natural increase” .5%,—result happiness; construction permits an increase of .5% of housing stock, total population increase including “natural increase” and immigration 2%—result misery.

In any market, when supply is locally constrained and demand is nationally determined, the locus of political control becomes the problem. That is precisely the structure of U.S. housing. Construction permits impose a hard ceiling on the pace of housing supply. When construction permits are scarce, markets do not equilibrate through building they equilibrate through price.

If housing completions grow at roughly the rate of natural household formation, but population growth is driven materially higher by immigration, the arithmetic guarantees rising prices. This is further complicated by the reality that increases in the demand for housing are not uniform throughout the country. It may increase by .5% in Cook County but increase by 5% in Dallas Texas’s Main County. Even a national immigration policy that is statistically manageable becomes locally catastrophic when its effects concentrate in a handful of metros.

Even aggressive housing reform operates on a 5–10 year horizon. Immigration policy operates on a 6–12 month horizon. When those are misaligned, shortages are guaranteed. Yes, some immigrants work in construction. That does not negate the arithmetic of net demand, nor does it eliminate zoning, land, and infrastructure constraints. This is not an argument about who should be allowed into the country. It is an argument about whether the federal government should impose demand shocks on local systems it does not control.

My preferred solution is for state and local governments to streamline and increase the number of construction permits issued while the federal government constrains the increase in the immigrant population to something we can support. A nation that nationalizes demand while localizing supply has chosen permanent scarcity. That is not compassion. It is policy malpractice.

The other topic I wanted to discuss this morning involves the several incidents of people being shot by federal law enforcement officers. First, a woman was killed by an ICE officer in Minneapolis. Victoria Albert, Alyssa Lukpat, and Joseph Pisani report at The Wall Street Journal:

A U.S. Immigration and Customs Enforcement officer fatally shot a woman during an operation in Minneapolis on Wednesday, leaving federal and city officials sparring over what caused the deadly encounter.

The Department of Homeland Security said that the woman attempted to run over law-enforcement officers and that an agent fired in self-defense. Minneapolis Mayor Jacob Frey said he had seen a video of the incident and in fiery remarks disputed the department’s version of events as “bull—t,” telling ICE to get out of the city.

“This was an agent recklessly using power that resulted in somebody dying,” he said during a news conference Wednesday. He said the woman who died was 37 years old. When asked if the woman was using her vehicle as a weapon, as DHS alleged, he said “that does not appear to be the case at all.”

These incidents are not isolated. They are the predictable result of an unstable mix of inconsistent border enforcement, sanctuary policies, aggressive federal enforcement, and an increasingly confrontational public culture.

My parents taught me that when a law enforcement officer tells you to stop you do it. Tragically, the woman who was killed did not follow that advice.

They also taught me that authority does not excuse recklessness, and that those who wield state power bear a higher burden of restraint.

IMO the ICE officer should be placed on administrative leave, the federal district attorney should investigate the incident, and, if probable cause is found, the officer should be prosecuted to the full extent of the law. Experience suggests that no one will be satisfied by the outcome.

That seems to be very much what is happening in the case of another ICE shooting in Oregon. Claire Rush and Gene Johnson report at the Associated Press:

PORTLAND, Ore. (AP) — Federal immigration agents shot and wounded two people in a vehicle outside a hospital in Portland on Thursday, a day after an officer fatally shot a woman in Minnesota, authorities said.

The shooting drew hundreds of protesters to the U.S. Immigration and Customs Enforcement building at night, and Oregon Attorney General Dan Rayfield vowed to investigate “whether any federal officer acted outside the scope of their lawful authority” and refer criminal charges to the prosecutor’s office if warranted.

The Department of Homeland Security said the vehicle’s passenger was “a Venezuelan illegal alien affiliated with the transnational Tren de Aragua prostitution ring” who was involved in a recent shooting in the city. When agents identified themselves to the occupants during a “targeted vehicle stop” in the afternoon, the driver tried to run them over, the department said in a statement.

It has also been reported that the state authorities are investigating the incident.

In addition to supporters of different political parties taking opposing views of the incidents there appears to be a recurring argument between those who think the laws should be enforced and those who do not. That as made quite clear in the mayor of Minneapolis’s statement, quoted above.

Under our present circumstances, every enforcement action is perceived as provocation, every protest as insurrection, and every tragedy as evidence of bad faith.