The Costs of Chaos

What's worse than bad policy? Unpredictable bad policy.

The second Trump administration is somehow off to an even more chaotic and ramshackle start than his first, and I think it’s worth dwelling a bit on how this is not merely stressful or embarrassing, but harmful in itself, in addition to whatever harms are inherent in the bad policies being implemented.

We’re most familiar with this idea in the economic sphere, where it has long been recognized that policy uncertainty is intrinsically bad for growth and productivity—a fact currently being starkly demonstrated by the markets. The reason is the obvious one: Uncertainty interferes with the ability of both producers and consumers to plan prudently. It’s unappealing to expand widget production now if you can’t know whether your foreign inputs might suddenly become 20 or even 50 percent more expensive next month thanks to the latest round of on-again/off-again tariffs, or if the price at which you have to sell them abroad is going to spike because of retaliation. It’s risky to sign a contract to deliver widgets at $6 each if they currently cost you $4 to make but might cost $6.50 by the time the product is due. It’s riskier to invest in companies that might suddenly take a walloping as a result of such an abrupt spike. On the other side, of course, it’s risky for consumers to continue spending normally when unpredictable price increases might blow a hole in their budget at any time—doubly so if they’re drawing a government salary or other benefits that might evaporate without warning.

That’s why we’re not seeing the markets rebound as much as one might hope when Trump periodically announces that the latest round of tariffs is cancelled—no wait, delayed—no wait, back on again, and even higher, but only on alternate Tuesdays—no, wait, delayed again. If it’s a coin-flip whether your car is going to start normally or explode the next time you hit the ignition, most people are going to behave pretty much the same as they would if “explode” were a certainty. When everyone knows the rules of the game can change rapidly and radically at any time, entrepreneurs and consumers alike become more conservative, and economies contract. And global policy uncertainty, by the standard metric economists use, is currently through the roof—impressively exceeding even the previous peak it hit during the COVID pandemic.

But chaos isn’t just a liability in the economic realm. Consider the mass-scale layoffs of federal employees spearheaded by DOGE, and in particular the defenestration of 18F, the federal government’s (now defunct) in-house incubator for cutting-edge digital technology. If you were serious about streamlining government and making it operate more efficiently, these are just about the last people you would choose to fire: You’d be eager to exploit their experience and expertise, and to emulate and expand on their successes. But these are precisely the sort of people the government is now going to find it extremely difficult to replace.

If you’re a highly skilled professional in a field like law or technology, it’s safe to say you can make vastly, vastly more money in the private sector working for some tech giant or a white-shoe law firm than you’ll ever earn on a federal employee’s salary. We nevertheless find some of those people willing to take a substantial pay cut, at least for a few years, to work in the government sector—whether out of idealism or because they expect some compensating career benefit in the long run. One factor that makes this tradeoff somewhat less unattractive is the relative stability of government work. You’re never going win the jackpot like you might hope to by getting in on the ground floor at a tech startup, but the startup might be belly up in a year, whereas you can be fairly confident the federal government won’t. Or at least, you used to be able to be fairly confident.

All that’s out the window now, of course. I’ve had numerous conversations with technologists who recently left federal service—after either resigning or being fired—and the common theme is that morale in their former agencies has fallen through the floor. Everyone understands they might be fired on a whim—perhaps from jobs they recently relocated for—with no real warning, for no clear reason, and probably without the severance pay owed, since the administration has been falsely claiming its arbitrary firings were for poor performance. When, sooner or later, it becomes clear these agencies need to recruit more technically talented people, they’re going to discover that the kind of skilled professionals who have plenty of attractive private sector options are no longer willing to make that tradeoff. Idealism has its limits. People may be willing to take a pay cut to work on a mission they find personally meaningful, but very few are going to be ready to upend their lives, possibly move to DC, to live in a state of perpetual anxiety about whether a billionaire on a ketamine trip or one of his teenaged sidekicks will decide their jobs can be done by ChatGPT.

Or consider the effect on academic and scientific research. Johns Hopkins, one of our premier research universities, recently announced that it would be laying off hundreds of domestic employees and thousands more around the world, thanks to the suspension of federal grants the school had planned and budgeted around. There’s talk of a “new brain drain” as top-tier academics and gifted foreign students alike eye more hospitable overseas schools where they don’t need to worry about whether their visas will be cancelled, or their research funding yanked abruptly after they’ve hired staff and invested in equipment and lab space. Again, even once funding resumes, while universities are surely not going to refuse to apply for federal money, they will surely be more conservative in developing their research proposals. They’ll have to factor in the possibility that funding for a long term program could be suddenly cut off if, say, the president decides “transgenic” sounds too much like “transgender.”

The same logic applies to diplomacy. How eager will our allies be to commit time and energy to negotiating treaties and trade agreements—especially those where they make up-front commitments in exchange for some longer-term reciprocal benefit—when the administration has proven so willing to treat past agreements as so much toilet paper? As habitual liars tend to eventually learn, it’s hard to strike deals with people who know you can’t be trusted to keep your end of the bargain.

In each of these cases—and doubtless you can think of others—the administration’s chaotic approach causes harms above and beyond those of the underlying policies. Undermining public—and global—confidence in American stability and trustworthiness is going to impose costs we’re likely to be paying for years to come.