Updates & Erasures:
Another week, another funky datacenter funding vehicle, aka an SPV. The latest example of "hide the AI datacenter capex", which I've been on about repeatedly, comes from xAI. It is working with Valor, the WSJ says, trying to help it raise money to buy more chips and such for Grok-type things. And that, it seems requires an SPV.
Why? Well, the tricky bit requiring the SPV, other than it's fun to hide debt off-balance sheet is that xAI apparently has debt covenants prevented it from raising more than an additional $5b. But with $12b (what it wants to raise) being materially larger than $5b (what it is allowed to raise), there is a problem. Bankers, being nothing if not creative, enter the idea of using a legal artifice to attach the debt to something that is not xAI, but is, for all practical purposes.
This will all work out well, boosting GDP and such, of course, until it doesn't.
Rough Notes:
Tariffs Are Just Stupid Enough to (Almost) Work
Tariffs are dumb. They distort trade, favor inefficient local producers, cause trading partners to retaliate, and make people worse off than a world without them. On these points, economists almost universally agree¹.
¹ This is weak. Saying that "most economists agree on XYZ" can be like saying that it is common sense, like backing out of your driveway quickly is a bad idea. Totally, yes, 100%. Didn't need you to tell me though, etc.
But tariffs are not useless. They may even be sort of, almost, kinda, a ... good idea in these very weird U.S. circumstances.
Hear me out, because three things are going on, so it can get messy:
- The U.S. is, as the line goes, an insurance company with an army, which has straitjacketed its budget, which I've written about previously.
- The U.S. hates taxes, and most voters are innumerate, so it finds silly ways to hide them.
- Tariffs are a kind of horrible, second-best solution to the above problems.
The first two points are mostly self-explanatory. Entitlements plus defence are now around 70% of the U.S. budget—see also, insurance company with an army—leaving little room to do much other than cut, unless you find new revenue. But new revenue is hard, because Americans hate income taxes, and have long resisted carbon taxes or a value-added tax (VAT). They aren't coping well with what I've called life under 2%.
Enter tariffs. They raise money because consumers buy things. We can argue about whether the producing companies pay the tariff (they mostly don't), or whether consumers pay it via higher prices (they mostly do), but the effect is the same: consumers buying things increases government revenue. That is tariff income.