Streetwise Professor

Trump’s ongoing war against Harvard is fascinating. As is typical, I largely agree with his choice of target (the “objective” in military parlance), and find his tactics over the top. But these tactics are typical of him. As with tariffs, immigration, and pretty much everything else, he is making maximalist demands, for a variety of reasons.

One reason is that the process is the punishment. Forcing Harvard to fight on many fronts is draining, financially and psychologically, and inevitably creates intense tensions within the university. This sets up a battle of wills that Harvard is not well positioned to win.

Another is that like almost all legal confrontations, this one is a framework for negotiations. And Trump’s negotiation style is to make myriad maximalist demands not in the expectation that all will be met, but that enough concessions will be extracted that he will be satisfied, even though his apparent concessions will lead to idiotic TACO taunts.

As for the substance of the demands that have been made and sanctions that have been imposed, there are deep ironies. One irony is that like the rest of the elite, Harvard harrumphs about Trump trampling the rule of law, but the justification for Trump’s assault is that Harvard flouts the law. In particular, the Supreme Court ruled that Harvard nakedly engaged in Constitutionally barred discrimination on the basis of race in admissions, but continues to engage in discrimination in other policies. Another legal issue is whether Harvard is in compliance with laws and regulations regarding disclosures about foreign funding and foreign students.

Substantively Harvard is on weak grounds on these issues. Whether the sanctions levied by Trump will survive legal challenge is doubtful, but again the mere litigation of these issues is very problematic for Harvard.

Another irony, which has received little attention, is that the richest educational institution in the world, with the richest endowment and richest group of alumni, and which is institutionally a big proponent of redistributive policies, as is the vast bulk of its almost uniformly leftist faculty, somehow thinks that it deserves billions of funding wrested from the US taxpayers. That is, Harvard and its acolytes are outraged that Trump is trying to stop taking from the poor to give the rich. How dare he!

And Trump very cleverly has cast a bright light on this hypocrisy by threatening to provide the funds taken from Harvard to trade schools.

Harvard of course frames this contest as one over academic freedom. But this argument only betrays Harvard’s sense of entitlement. It is entitled to government money, and how dare the piper call the tune!

Harvard and its defenders also decry the great advances in knowledge that will be sacrificed if it is denied these funds. I for one am skeptical about the return on many of these grants, especially given the large overhead allocations that go to funding administrative bloat, and to subsidizing the leftist indoctrination that pervades the university.

So rather than being served up a dog’s breakfast of anecdotes, we would be better served by a rigorous, scholarly evaluation of the knowledge bang we’ve gotten for the taxpayer buck.

Amusingly, Harvard’s pose as a bastion of the pursuit of truth is rather seriously undermined by a recent anecdote, namely, the defenestration of star researcher Francesca Gino, whose research was proved to be fraudulent. (NB: Gino’s salary was a cool $1 million).

Harvard revokes tenure of Francesca Gino, once a star faculty member—a severe and rare penalty in academia https://t.co/6Vg3JnNq1R

— The Wall Street Journal (@WSJ) May 28, 2025

The treatment of another star–this one legitimate, in contrast to the fraud Gino–Roland Fryer, also gives the lie to Harvard’s pose as being the defender of the pursuit of truth regardless of where it leads.

Targeting grants that may well support beneficial research serves a tactical purpose, related to the internal tensions mentioned earlier. The rigorous faculties and researchers have a tremendous incentive to rise up against an administration dominated by non-rigorous ideologues.

The battle over funding points to a larger issue, specifically, the problematic nature of the codependence between science and the government, an issue that Eisenhower pointed out before I was born.

The most recent Trump fusillade relates to foreign students. But this matter demonstrates that Trump’s war on Harvard isn’t just on Harvard. It is on American academia.

Hard on the heels of the restrictions on Harvard specifically, Secretary of State and acting National Security Advisor Marco Rubio announced a pause on the granting of all student visas, to prepare for a far more inquisitive (not to say inquisitorial) vetting process. Moreover, he announced that Chinese applicants would be subject to special scrutiny, and that those connected to the CCP, and those planning to study sensitive subjects (i.e., scientific disciplines, rather than fluffy ones) would not receive visas.

To which the CCP lost its shit, claiming that this targeting was discriminatory.

Well, yes, yes it is! And justifiably so. Discriminating between friends and enemies is essential to survival. China is (by its own declaration) an enemy of the US, and uses students as soldiers in its asymmetric war against America. Specifically, the CCP uses students as a major component of its expansive espionage and IP theft efforts in the US. (This article in the Stanford Review about Chinese espionage there is quite interesting, but not necessarily that revealing–such espionage is an open secret).

So cry more, CCP. The more you cry the more you reveal that this hits you where it hurts.

Trump’s attack on foreign admits at Harvard is therefore not a one-off. It is part of a broader agenda. And as I’ve written before, with Trump it’s all about China.

And in fact the entire assault on Harvard is not about Harvard per se. It is pour encourager les autres. Making an example of Oberlin would hardly make a ripple outside Ohio. Making an example out of Harvard gets everybody’s attention. Meaning that this is a highly, highly leveraged battle.

It is a battle in a wider war. American academia is an isolated, elitist enclave largely out of step with the country as a whole. Indeed, it is not hyperbole to say that American academia–especially in the social sciences and humanities–is at root anti-American. And Harvard is the prime example of isolated, elitist, anti-Americanism in academia. By fighting Harvard Trump is trying to wrench academia into the mainstream, or at least closer to it.

So like pretty much everything Trump does, the purpose and ramifications go far, far beyond the policy specifics that attract virtually all the attention. Those are just tactical elements in a far broader, and in fact socially revolutionary, strategy.

“Haven’t seen you around recently. So what’s up?”, says you. “Same old, same old: Just the Trump gamma trade”, says I. (After the 2016 election I wrote that a Trump presidency meant you should be long gamma. That’s even more true after 2024).

So the tariff two step has continued. Trump caved! Xi caved!

Whatever. If you believe (as I said literally on day 1, AKA Liberation Day) that the initial tariff salvoes were a negotiating tactic, the outcome was expected. Make maximalist demands, negotiate down from there.

NB. The negotiations continue. This ain’t over.

I only remark that if Trump had announced the current (interim) levels on 2 April, the frenzy would have no doubt been about the same as it was with the 125 percent charge for China, etc. But now these levels (30 to 50+ percent, depending on how you calculate) are greeted with a huge sigh of relief and a complete reversal of the market selloff that greeted the initial announcement. In other words, if you panicked, you were played.

Another fairly recent development has been the prescription drug EO. The initial (over-) reaction has been that Trump is ordering price controls. Well, not exactly. (The irony here is that the right has been critical, and the left hypocritically silent, because Trump).

At the outset, let me say that (as I will explain in more detail below) I am ambivalent about overall policy framework. But the reason I say there has been an overreaction is that all it is right now is just a framework. The only real action item is a direction that HHS formulate a set of rules that will require pharmaceutical companies to allow consumers to purchase directly from them at “most favored nation” (“MFN”) prices. We know how long the rule process takes. We also know that the devil will be in the details of the rule, and those details will be determined in a highly politicized environment where the regulated have a huge say, so it is impossible to draw conclusions about what effects it will actually have, or when it will have them.

Trump’s basic attack–that comparisons between US and foreign prices for the same drugs prove that Americans are being ripped off–is an old one, and ironically was a talking point of Hillary in 1992-1993. The policy piece I wrote in 1993 (“Political Rhetoric and Stock Price Volatility”) addressed this very issue. (Ironically, it was that piece that put my on Hillary’s Hit List, the figurative one at least; it didn’t cost me my life, but did jeopardize my career).

Defenders of this pricing structure claim that it is purely economic conduct by pharma, specifically, price discrimination. More elastic demanders pay a lower price than inelastic American ones.

Yes, this might be why some drugs are dirt cheap in Africa, say, but it is hardly the entire story. Drug companies have to offer big price cuts to high income countries (European countries, Canada, etc.) whose demand is likely about as inelastic as the US’s, so that their national health services will buy them. One interpretation is that these countries are free riding off the innovation paid for by US consumers who pay full fare.

Which raises another issue. Presumably Trump believes that the MFN rule he has outlined will result in drug makers dropping US prices to match foreign ones. But no doubt some of the movement will go in the other direction–the companies will raise prices in other markets, and in some cases will decide to forego some smaller markets altogether rather than have their prices drive those in the really big market. Meaning that the ultimate effect on US price levels is hard to determine.

One part of the EO actually addresses this issue. It directs the U.S. Trade Representative and the Secretary of Commerce to ensure that foreign governments are not taking actions to undercut US prices. (The order incorrectly states that such undercutting raises US prices). That is, this is really a trade issue, and in particular a non-tariff barrier/IP expropriation issue that is more properly addressed in the context of trade negotiations.

The EO–as is the case with most policy proposals directed at drug prices–ignores the real drivers: patent protection, R&D costs, and third-party payments. If you think drug prices are too high, that is, the prices are in excess of what is required to induce the efficient level of innovation, then go after these issues. Examine whether drug patent protection should be attenuated (not extended as it was in recent years). Whether regulatory burdens unnecessarily inflate R&D costs. Cross-country price comparisons tell you nothing about these issues.

Insofar as third-party payment is concerned, the EO does address that issue to some degree. Specifically, the direct purchase option (subject to MFN provisions) is intended to “cut out the middleman,” namely, the Pharmaceutical Benefit Mangers (Caremark Rx, LLC (CVS), Express Scripts, Inc. (ESI), and OptumRx, Inc. (OptumRx) being the Big 3). These are accused of (a) charging high markups on drugs, and (b) excluding many drugs from their formularies.

The first issue is again related to relative prices, not price levels. That is, it is really about who captures the monopoly rent that ultimately derives from patent protection. The main concern is double marginalization–the inefficiency that results from back-to-back monopolists. Double monopolization can lead to prices that are higher than monopoly prices. Another concern could be that the PBMs exercise monopsony power, thereby reducing the returns to R&D and suppressing innovation. (This makes PBMs analogous to foreign governments).

I am always skeptical of “cut out the middleman” arguments because they ignore Chesterton’s Fence: why do the middlemen exist in the first place? If they bring cost but no benefit, how can they survive?

I don’t know the answer in this case. But (a) I am sufficiently skeptical based on long experience so as to not fully credit the seductive cut-out-the-middleman argument (which is almost always wrong, unless the middleman is a government creation), and (b) relatedly, would not be surprised if PBMs are ultimately the creation of the baroque (and broken) regulatory structure in the US. If my suspicion (b) is correct, going after middlemen attacks the symptom, not the cause, and the underlying problem will persist.

All that said, just as the case with foreign-benchmarked MFN pricing, it is naive to think that the direct purchase mandate will lead drug companies to reduce direct-to-consumer prices to the level they charge PBMs. The rules would totally change the negotiating dynamic between them. And again–and this is crucial–this is mainly about how monopoly rents will be distributed/split, not the amount of the rent (and thus not the final price to the consumer), which is driven by the underlying market power inherent in patent protected medicines.

In sum, I think this EO’s significance has been vastly overstated, because (a) it is essentially a “mission order” that sets out a broad objective, and the effects of which will be driven by the tortuous politicized rulemaking process required to carry it out, and (b) does not touch the underlying drivers of pharma prices.

Another major issue of the past few weeks is the (in Trump’s words) “Big Beautiful [budget] Bill” working its way through the House.

First off, let me say that it is almost certainly the case that nothing Big in government is really beautiful. Hell, who even knows what’s in it, precisely because it is so big? It be like “Yeah the chick in the burkha is really beautiful! And she’s actually a chick! Take my word for it!”

Its main attribute is that it will–if the legislative legerdemain works–mitigate the logrolling and secret last minute deals that corrupt the standard budgeting process. Mitigate, not fix.

The “beautiful” bill has some real warts. Hell, cancers, maybe. A sample.

• An elevated state and local tax (SALT) exemption. Elevated so high as to be virtually non-binding. A sop to high income, high tax states which seriously undermines their incentives to control spending and taxation. If California, New York, Illinois, etc., want to raise taxes and spend more, let them fuck their own citizens, not the rest of us. Maybe that will force their citizens to get their minds right, and set their governments straight.

• Serious backsliding on the rollback of Biden’s grotesque, and grotesquely named, “Inflation Reduction Act.” It should be terminated in its entirety, with extreme prejudice. But this bill–which mind you cannot bind future Congresses–delays implementation of subsidy cuts and mandates until four years from now, at the earliest.

Gee, why four years, I wonder?

The renewables subsidies and mandates make energy excessively costly in return for no meaningful environmental benefits. They are also unaffordable given America’s parlous fiscal situation.

Notably, Rumpublicans are among those pushing to save these monstrosities.

• Virtually noting meaningful on entitlement reform. Even extremely modest changes to Medicaid have elicited shrieks and wails, and not just from Democrats.

The US fiscal situation is far and away the greatest danger our to economic prosperity and national security. But nobody–least of all Trump–is taking it seriously. Like Scarlett O’Hara, they will think about that tomorrow.

Except, apropos CCR, that day never comes.

So we seem destined–doomed–to go bankrupt like Hemingway’s Mike Campbell, “Gradually and then suddenly.”

DOGE and Musk held out the (false) promise of preventing this fate by attacking “waste and inefficiency.” Even if such massive inefficiencies exist, DOGE didn’t go through them like a buzzsaw: instead, DOGE has been buzzsawed and Elon has slunk away, achieving a dime on the promised dollar at the very most.

And at the outset, I expressed skepticism–though not enough–that the supposedly “easy” route of restoring fiscal sanity through attacking waste would actually work. The brutal fact is that without addressing entitlements we are on the highway to fiscal hell.

The most depressing takeaway is that the supposedly transformative and revolutionary Trump presidency is at most tinkering with an unsustainable status quo, and even that elicits frenzied, and indeed unhinged, opposition. The nation is as unserious about addressing its existential fiscal problems as was France in the 1780s, and just as politically poisonous.

And we know how that worked out.

Debate is swirling about the cause of the Great Spanish Grid Failure of 2025. One major driver of this debate is an almost crazed desire to shield renewables from any blame. Spanish PM (and Socialist knob) Pedro Sanchez (who barely managed to get elected, perhaps due to a lack of help from Napoleon Dynamite) is especially crazed, given that Spain had become Exhibit A in the greatness of renewables, and that he has been a huge supporter of them.

All sorts of theories have been bandied about. For his part, Pedro is going with Induced Atmospheric Vibration, in which extreme temperature variations caused frequency fluctuations. (Which the grid could not handle, ahem ahem.).

Every electrical grid is a complex, highly interconnected physical system with myriad feedback mechanisms, and is characterized by “tight coupling” (everything must work together in a specific sequence or the system collapses). Indeed, the electricity grid is arguably the most tightly coupled major system in the modern world.

This is the kind of system in which “normal accidents” occur. I’ve written about them several times (hence the “again” in the title).

Normal accidents mean that there are myriad combinations of events, each one of low probability, that can combine to cause a systemic collapse. Though any individual combination may have a low probability, the vast number of possible combinations means that the probability of collapse is non-trivial.

The ex post forensics of the Spanish collapse–if not fatally compromised by politics, which is a big if–will no doubt establish a one-damn-thing-led-to-another causal chain. It is quite possible that not all of the links in this chain will be related to renewables, which no doubt Pedro and others will seize upon to vindicate their baby.

But recall from my earlier discussion of normal accidents that these links are necessary conditions–absence of any one of them would have prevented the collapse. The more links in the chain that are renewables-related means that greater reliance on renewables implies a greater probability of systemic failure.

Perhaps Pedro is right and the original shock was an IAV, which is not itself directly attributable to renewables. But as it stands now, crucial elements in the causal chain definitely appear to include tripping off of two major solar facilities in Spain, and a very small share of power production from spinning resources (due to a high renewables share) that resulted in a deficiency in system inertia. Thus, two major elements of the causal chain likely strongly implicate renewables.

Many “normal accidents” involve causal chains that came as a complete surprise to those reviewing them ex post. This is definitely not the case with respect to the electricity grid and renewables. There have been many Jeremiahs warning of impending doom from over-reliance on them. Indeed, the Spanish grid operator itself sounded the alarm as recently as February.

Will this almost real time validation of the warning lead to a major rethink of the advisability of continuing to push renewables ahead of the complementary investments (batteries, greater transmission capacity, technical mitigants of the inertia issue) necessary to prevent a severe degradation of grid reliability? Will it lead to a sober evaluation of the costs of these complementary investments and/or the cost of degraded reliability, and a recalibration of renewables plans that takes these costs into account?

Given the huge political and ideological investments made in the renewables push, I highly doubt it. Not in Europe, anyways.

In another normal accident-related story, the New York Times did a major tick tock on the Reagan Airport helo-plane collision that resulted in the deaths of 67. Again no doubt due to its massive political and ideological investment, it all but buried a crucial necessary condition. Specifically, the failure of the pilot undergoing an evaluation flight to heed the specific directions of the Warrant Officer performing the evaluation to (a) reduce altitude, and (b) make a left turn. Instead she–and that’s the important detail–continued to fly straight, high, and level right into a descending passenger jet.

If she had followed the WO’s directions, the tragedy would have almost certainly been avoided. Here, human error was a necessary condition. But since that human error was committed by someone of a protected class–a female military officer, one who had been a Biden aide no less, and noted in her obit as being an advocate for sexual harassment victims–the NYT (and myriad other media outlets) downplayed that detail.

The valence of this issue is particularly great in the current environment, where SecDef Peter Hegseth is challenging DEI in the military generally, and the role of women in the military specifically.

The lesson from these episodes? That in these abnormal times, honest assessments of normal accidents are nigh on impossible. Which means that their likelihood will be tragically higher than necessary.