There’s a conundrum around the politics of “affordability.” The issue is that prices are rising while incomes are stagnating, a crushing combination for most people. But there’s little the government can do about either in time for the 2026 midterms, and even the 2028 presidential election. Exacerbating matters, the president and Congress insist on making it worse.  

President Donald Trump famously promised to lower prices “on Day One” in his 2024 campaign. That was bluster, of course, and to be charitable, he meant he would reduce the rate of inflation. Yet he’s dead set against the standard way to do it—keeping interest rates elevated to slow demand. The Federal Reserve hiked interest rates 11 times under Joe Biden, and it worked: inflation slowed from 9 percent to 2.9 percent. 

But cutting rates won’t satisfy voters, because recent inflation hasn’t disappeared from prices. From December 2019, just before the pandemic, to today, overall prices in America rose 25 percent, including 25 percent increases for eggs, pork, milk, cars and trucks; 30 or 31 percent increases for housing, rent, food overall, and bread; 37 percent increases for electricity; and 55 percent increases for beef. The relative bargains—items whose prices increased notably less—have been prescription drugs, up 6 percent; and medical care, gasoline, and potatoes, all up 15 to 17 percent.  

The government can make some purchases more affordable by subsidizing them, as it often does for health care, energy, and food. Yet Trump and Congressional Republicans have taken aim at those subsidies, making healthcare less affordable by cutting Medicaid and Obamacare supports, making food less affordable by cutting SNAP benefits, and making energy less affordable by cutting support for wind and solar energy.  

On top of that, Trump’s mindless tariff policies have increased prices on thousands of products. Inescapably, today’s MAGA government is really MALA, Make America Less Affordable.  

The other half of our affordability conundrum is income, because the median income of Americans, after inflation, has been stuck since 2019. In 2024 dollars, the median household income was $83,260 in 2019, and $83,730 in 2024—and prices for food, housing, rent, and electricity have risen faster than overall inflation.  

To more fully grasp the affordability story, consider that incomes have two major components: earnings from work (“labor income”) and income from assets (“capital income”).  

Typically, people earn more when they become more productive, and over the past five years, productivity has increased at a healthy rate. Those productivity gains depend on businesses investing in new technologies, equipment, and facilities, and workers making the best of those investments. The government does its part by subsidizing both business investment and people’s education and skills. The rise of the American middle class and decades of broad-based upward mobility have rested on wages and salaries rising with productivity.  

But here’s another affordability puzzle: Productivity increased 10.4 percent from 2019 to 2024, or about 2.1 percent per year, but incomes stalled. That’s stronger than the 1.7 percent average annual productivity gains in the 1980s, when incomes rose nicely, and nearly as strong as the 2.4 percent average gains in the 1990s, when incomes grew at the fastest rate in decades.  

In one respect, Americans’ earnings behave as expected—people with more education and skills continue to earn more. In 2024, real median earnings were 24 percent higher for people with advanced degrees than for college graduates, 66 percent higher for college graduates than for high school graduates, and 26 percent higher for high school graduates than for high school dropouts. 

But at every level of education, those real earnings increased from 2019 to 2024 not by 10.4 percent or even half that, but by a total of 0.7 percent for college graduates, 0.5 percent for those with some college but no bachelor’s degree, 1.5 percent for high school graduates and high school dropouts. And for those with advanced or professional degrees, real earnings declined 0.8 percent.  

Weekly Earnings by Education, 2019 to 2024, By Educational Attainment 

At the heart of the affordability problem: productivity gains didn’t translate into higher earnings.  

Why not? Incomes have two major parts: the earnings people receive from working and the interest, dividends, and capital gains they receive from their financial and other assets.  

While most Americans’ earnings after inflation virtually stagnated from 2019 to 2024, capital income after inflation increased nearly 30 percent over the same period. And while earnings in America are distributed unequally, capital income is in a class by itself. 

The Treasury reports that capital income in 2024 totaled $4.5 trillion, and that the bottom 50 percent of Americans received just 2.5 percent of it. But the top 10 percent pocketed 88 percent of that fast-rising capital income, including 52 percent ($2.3 trillion) for the top 1 percent and 32 percent ($1.4 trillion) for the top one-tenth of 1 percent.  

The uncomfortable irony is that most of the capital income came from businesses that increased their labor productivity by an average of 10.4 percent. Yet most of it did not go into people’s earnings but into capital payments to owners and shareholders.  

This is not new. Numerous economic studies have found that labor’s share of all national income—the earnings by working people—declined slowly and fairly steadily since the 1970s, while the shares received as capital income (or transfers, mainly Social Security) increased.  

It becomes the treacherous political problem it is today for the president and Congress when inflation keeps exceeding or matches income growth, and within incomes, gains in earnings slow or stop, while gains in capital income surge.  

And in this context, Trump has compounded his economic malpractice. His tariffs and subsidy cuts not only make America less affordable for most people; they also finance $1 trillion in tax cuts for the sliver of people who collect most of the fast-rising capital income.  

That’s today’s crisis of affordability in a nutshell. I was an architect of Bill Clinton’s economic program for ordinary people that produced the 1990s boom, which included market-based reforms and government investments. Yet when the economy shifts, new politics usually follow. Today’s affordability crisis is tailor-made for populism. Given the hollowness and failures of rightwing populism under Trump, the door is wide open for Democrats to champion populism from the left.  

The post Affordability: How Trump Has Made It Worse appeared first on Washington Monthly.

Zohran Mamdani, the mayor-elect of New York, met with President Donald Trump in the Oval Office today in what might have seemed like an improbable love fest. Though the 34-year-old democratic socialist and the 79-year-old Republican would seem to have nothing in common, they do share a couple of important ties. Both have called the borough of Queens home, and both were catapulted to office on the issue of affordability.  

Before the meeting, the two men traded insults, calling each other “communist” and “fascist.” Afterward, Trump said of Mamdani, “I feel very confident that he can do a very good job. I think he’s going to surprise some conservative people, actually.” Mamdani was civil, too: “It was a productive meeting based on a place of shared admiration and love, which is New York City, and the need to deliver affordability for New Yorkers,” he said. The early pundit consensus for this surprising turnabout is that Trump loves a winner. This is certainly true, but their topic of conversation also reflects the Trump administration’s recognition that rising prices have become a political burden. 

Mamdani won what’s been called “the second-hardest job in America” by relentlessly harping on the cost of living for average New Yorkers and ways to drive it down, from free buses to easing regulations on Halal food carts. Mikie Sherrill and Abigail Spanberger won gubernatorial races in New Jersey and Virginia with a similar message about taming high prices. Republicans, who swept to power in 2024 primarily out of frustration with inflation, recognize that the Democrats’ new strategy rests on a simple truth: Fairly or not, the cost of living gets blamed on whoever’s in charge. 

Or at least they should. Instead, Trump has been criticizing the Democrats’ mantra of affordability as misappropriation. “It should be our word, not theirs,” he said this week. He might have seen the Oval Office meeting as a way to reclaim the word by embracing its best-known exponent. Meanwhile, his administration is throwing out a raft of explanations for rising prices in hopes that one might work. In a live interview on Thursday at the neoclassical Andrew Mellon Auditorium in Washington, D.C., with Breitbart News, Vice President J.D. Vance cycled between denial, justification, bargaining, and blame. 

“The new buzzword, if you will, is affordability,” Breitbart’s Washington Bureau Chief Matthew Boyle said, referencing Mamdani’s campaign. “People out there feel like the economic situation isn’t that great.” He added, “Look, we’re 10 months to the day here since [Donald Trump’s second] inauguration. But they want to see more. They want to see more action. … What’s your message to those out there who feel like they haven’t seen that yet?” 

I sat in the audience and counted eight different answers from Vance, a Yale Law graduate. 

First, it’s the congressional Democrats’ fault. The government shutdown, an act of “economic terrorism,” slowed the momentum we would see now.  

Two: “We get it, and we hear you.”  

But, three, “the Biden administration put us in such a very, very tough spot.” Vance used the familiar example of high egg prices. If it went from $2 a dozen to a high of $8 during Biden’s term, he noted, that it remains at, say, $6.50 now is still a significant problem. (Explanation four. Also, egg prices are actually back to $2 a dozen, and it was primarily avian flu that drove the increase.) “And,” he added—point five—“the thing that I’d ask for the American people is a little bit of patience.” The economy wasn’t harmed over 10 months, he said; it was four years of importing foreign workers under Biden (six) that followed a 40-year policy of offshoring American jobs (seven). And finally (eight), hope is around the corner: “It’s going to take a little bit of time for every American to feel that economic boom, which we really do believe is coming.” 

To be fair, several of those answers fit into one refrain: a decades-long betrayal of the American worker is being reversed by Trump, who needs a little more time and forbearance to finish the job. But if you consider a previous response of Vance’s, there is even a ninth: There is no problem.  

A few hours before Vance’s interview, the Bureau of Labor Statistics released a long-delayed report from September that showed 119,000 new jobs—respectable growth, and more than anticipated. “If you look below the surface, I think the numbers are actually better,” Vance said. Why? Well, the Biden numbers were worse than you thought: Wage growth was eaten up by inflation (true, though you could spin that as wages keeping pace with record inflation), and because all the jobs were going to the foreign-born, “there wasn’t any job growth at all.” (False.) In that context, September’s jobs and growth in post-inflation wages aren’t just modest improvements: they’re the first real growth in years. 

The mood in the Mellon Auditorium was defiant and jubilant: Vance took the stage to a standing ovation and received applause for his immigration remarks that echoed throughout the Beaux-Arts interior. Boyle’s questions were appropriately obsequious for an editor who, apparently, Vance once urged Jeff Bezos to hire at The Washington Post.

But outside that room, Trump’s approval ratings remain as low as they’ve been, with 76 percent of respondents holding a negative view of the economy and 61 percent disapproving of the president’s economic policies, according to a recent Fox News poll. Not so long ago, another administration was trumpeting the strength of its economy, touting statistics that didn’t square with the experience of angry voters. 

That the Trump administration’s affordability problems are self-created could be considered a strength. Joe Biden didn’t have many palatable answers for a pandemic supply shock and a grinding war in Europe. But Trump could, if he chose, reverse his tariffs—which will cost the average household $1,200 this year and $1,600 the next, according to the Tax Foundation—and direct ICE to stop arresting contractors and restaurant workers without criminal records.  

Instead, Vance and Trump are staying the course. And they’re eagerly elevating Mamdani, certain that not only their base but swing voters will recoil from his socialist label and big-government policies. Maybe so. But they’re picking a politician relentlessly focused on the cost of living as their foil, while offering shifting explanations for their own performance.  

Vance did share one tidbit on Thursday: There’s a “great” new Republican health plan coming, one that is “going to get Republican and Democrat support.” (The Trump administration has made promises like this one before.) So, voters who suffered through the shutdown and are now eyeing health care premium increases need only a modicum of patience. Like that big economic boom, lower prices are just around the corner. 

The post Affordability Wars appeared first on Washington Monthly.

Donald Trump has never polled well. While in office, in the Real Clear Politics job approval averages, he has never cracked 50 percent, save for a brief period at the beginning of his second term. His average favorability rating—which, unlike job approval, is measured while out of office—never has at all. 

But in a polarized era, in elections including third-party candidates determined by the Electoral College and not the popular vote, keeping these numbers above 45 percent has been for Trump—shall we say—good enough for government work. About three weeks before his 2024 presidential victory, Trump managed to push his favorability rating above 45 percent for the first time since the spring of 2022. And Trump kept both his job approval and favorability numbers above 45 percent throughout this year. 

Until now. 

Trump’s favorables dipped below 45 percent in August and have tracked around 44 percent since then. More striking is the decline in Trump’s job approval rating since the run-up to the shutdown. Since September 21, the president’s approval rating has declined by four points, from 46.3 to 42.3 percent.  

The low 40s is where Trump was for most of his first term. During the midterm election year of 2018, Trump largely held steady at 43 percent, ticking up to 44 just before Election Day, with his favorability lower at 42 percent. Then Republicans got clobbered in House races, losing 40 seats and control of the chamber. 

Trump actually cleared 45 percent in the spring of 2020, at the onset of the COVID-19 pandemic. But he squandered that goodwill with his response to the murder of George Floyd and his bizarre public health messages, sending his job approval down to 41 percent in July 2020, partially recovering to 44 percent through most of October before losing re-election. (Technically, in the RCP average, Trump passed the 45 percent threshold the day before the November 3 election, but that calculation appears to have been based on a relatively small number of polls sampled in very late October.) 

Of course, with a year before the midterm elections, Trump has time to regain three points or more and give the GOP a puncher’s chance to hold the House next year. And to get there, he’s hardly above gimmicky ideas—recently, he mused about $2,000 government checks sent to most Americans.  

Yet what should unnerve Republicans is that Trump’s second-term agenda is already firmly in place—including tariffs, deportations, civil servant layoffs, and the One Big Beautiful Bill—and the public is unimpressed. Only 36 percent of Americans say the country is on the “right track,” down seven points since June.  

Despite entering office on a promise of cutting prices, the most recent poll from The Economist/YouGov asked voters what their most important issue is and—surprise, surprise—the number one response is “inflation/prices.” Trump may have flinched from his most extreme tariff proposals, but tariff revenue has still more than doubled this year, and that’s a tax hike on us all.  

The next two top issues for voters are “jobs and the economy” and “health care.” The unemployment rate remains relatively low, but concerns about the impact of artificial intelligence on the future of work are widespread. And Trump’s Director of the National Economic Council, Kevin Hassett, didn’t help matters on CNBC yesterday when he praised the state of the labor market by claiming, “firms are finding that AI is making their workers so productive that they don’t necessarily have to hire the new kids out of college and so on.” Unlike Hassett, most people think it’s a bad thing that AI is making it harder for college graduates to enter the workforce. 

And then there’s health care, which, as I noted last week, is poised to derail the GOP’s midterms once again. Trump and the GOP hoped voters would applaud the tax cuts in the One Big Beautiful Bill. But its cuts to Medicaid and the Affordable Care Act are inflicting real harm on working-class households. Granted, some of these cuts are delayed until after the midterm, but spikes in premiums are already happening. Republican policies are exacerbating the problem, and Republican politicians have no consensus plan that would undo the damage. 

Trump’s best issue in polls is immigration, but that’s only the seventh most important issue to voters. And “best” is relative. According to the RCP averages, approval of Trump’s handling of immigration is slightly underwater. Plus, we have hard evidence of immigration backfiring on Republicans among swing voters. Consider Bucks County, Pennsylvania, where Trump won by 291 votes in 2024. Bolts reported that the incumbent Bucks County Sheriff, Republican Fred Harran, lost re-election this month by 11 points to a Democrat who attacked his eager partnering with ICE.  

We also saw immigration play a big role in the Aurora, Colorado city council elections. Denver’s Fox News affiliate reported, “Aurora has long been led by a conservative-leaning council and has a Republican mayor, but voters in Colorado’s most diverse city, which was thrust under a national spotlight on immigration enforcement, rejected three conservative incumbent council members and elected progressives in their places … One of the [defeated] incumbents, Danielle Jurinsky, had made a name for herself aligning with President Donald Trump on immigration issues, calling attention to what they had called a takeover of the city by Venezuelan gang Tren de Aragua.” 

That’s what happened downballot this month when Trump’s job approval sank below 45 percent. Without a change in trajectory, expect more Republican carnage on Election Day 2026. 

The post Trump’s Poll Numbers Just Entered the Danger Zone  appeared first on Washington Monthly.

As one of President Joe Biden’s top economic advisers, I frequently made my way out to the White House North Lawn to give interviews to the media about the state of the U.S. economy. Especially as the pandemic-induced recession faded in the rearview mirror, I was out there hundreds of times touting how the unemployment rate was at 50-year lows on the back of remarkably strong job growth. Inflation was falling and inflation-adjusted pay was rising.

And yet in every single interview, I got the same question: So why aren’t people feeling it? Why so much good data amid so many bad vibes?

In fact, the question was not hard to answer. It comes down to one word, a word that defines the dominant economic challenge with which American families have been struggling for years: affordability. Whether it’s housing, child care, health care, groceries, utilities, insurance, or other costs, significant numbers of Americans have found that these and other critical goods and services are either out of reach or so pricey that, after they’ve paid for them, they don’t have enough money left to even think about getting ahead.

This duality between the data and how people experience the economy is the subject of The Mismeasurement of America, by Gene Ludwig, a former comptroller of the currency during the Clinton administration. Focusing on unemployment, wages, inflation, and the growing economic distance between Americans at the top and the bottom of the income scale, Ludwig argues that the problem is that the numbers I was touting were, if not quite wrong, then “profoundly misleading.” He then develops his own set of numbers, which he argues better explain why people have long felt a lot worse about the economy than you’d glean from the government’s top-line statistics. While Ludwig is right that top-line numbers, all of which are broad averages, fail to present a full picture of how the different income classes are faring, that’s not a “mismeasurement” problem. It instead reflects the impossibility of encompassing in just a few numbers something as complex and disparate as the U.S. economy. A better title for his book might have been “The Incomplete Measurement of America.”

Ludwig’s critique of inflation statistics is particularly germane to the affordability crisis. The Consumer Price Index is an overall metric that averages out the changes in prices faced by 90 percent of the population. (The CPI does not include prices in extremely rural areas, farm households, and religious communities, among other exceptions.) Ludwig reasonably worries, however, that the average obscures important differences in inflation between income groups.

The Bureau of Labor Statistics, which publishes the CPI, has itself been looking into this and they find that from 2005 to 2024, prices rose 66 percent for those in the bottom fifth of the income scale but just 57 percent for those at the top. This disparity is a double disadvantage: Such households face both lower incomes and higher prices. Ludwig’s adjusted CPI, which he calls the “True Living Cost,” or TLC, captures this dynamic by significantly up-weighting in the index the goods and services that dominate the consumption basket of less-well-off households, including housing, health care, food, and child care.

While this is the right way to drill down on the affordability challenges facing low- and middle-income families today, Ludwig misses one of the more important positive price developments of our time. For technology goods, like computers and smartphones, the TLC registers large price increases while the CPI registers the opposite. The CPI has it right, reflecting a rare cost decline that’s actively making us better off. The BLS statisticians adjust for the fact that computers and cell phones are remarkably more powerful than they used to be. Decades ago, it would have cost millions of dollars for a computer to do what a $700 laptop can do today. Adjusted for quality, the cost of such technology has fallen sharply over the years, and this decline has improved consumer welfare. Yet the TLC appears to ignore these quality improvements and somehow has technology costs soaring over time.

For another example of how Ludwig offers an overreaching solution to a real measurement challenge, consider unemployment. Ludwig argues that instead of the 4.3 percent unemployment rate for August reported by the BLS, what he calls the TRU—the “True Rate of Unemployment”—is 24.7 percent. Anyone with even a passing familiarity with the history of unemployment in America will realize that Ludwig has either made a mistake or is aggressively redefining unemployment. The last time unemployment was that high was during the Great Depression.

Ludwig’s “unemployment” rate, however, includes a lot of people who are, in fact, working, both part-timers and low earners. His terminology is thus off, as is his critique of the current measurement system, which is clearly, transparently, and consistently measuring what it says it’s measuring. If you looked for a job and you didn’t find one, you’re unemployed. That simple and intuitive definition has revealed important information about labor market conditions for many decades.

But as Ludwig’s adjustments reveal, there were a lot more underemployed and underpaid people in the American labor force in August than 4.3 percent. That doesn’t make the official unemployment rate wrong or misleading. Though Donald Trump, who recently fired the commissioner of the BLS, might claim otherwise, our statistical agencies continue to rigorously churn out valid, reliable numbers. (Trump doesn’t like that they show the tariffs raising prices and cracks forming in the job market, but that’s actually a testament to their accuracy.) But Ludwig’s metric helps to bridge the gap between what the official jobless numbers say and the struggle that many working Americans go through every day.

Extracting from these weedy details, and recognizing that the current system is not mismeasuring America, Ludwig’s book provides an important bridge between good data and bad vibes. As he shows, in an economy where inequality has been on the rise for decades, where millions are underemployed, where poor people’s inflation rises faster than that of the rich, averages increasingly fail to tell the full economic story.

Of course, many authors, most notably Thomas Piketty in Capital in the Twenty-First Century, have made this point before. But by looking at the problem through the lens of jobs, hours worked, wages paid, the costs of housing (and utilities, such as electricity), child care, health care, and so on, Ludwig’s measurements help to shine a light on a policy agenda to address the affordability crisis. His underemployment rate would come down, for example, if we helped involuntary part-timers move to full-time schedules. (Ludwig would correctly note that such a change would not show up in a lower unemployment rate.) An affordability agenda, which Neale Mahoney and I describe in a new brief from the Stanford Institute for Economic Policy Research, would help make it easier for economically stretched families to afford housing (by making it easier and cheaper to build), child care (through targeted subsidies), and health care (reversing coverage cuts, Medicare buy-in) in ways that would directly feed into Ludwig’s alternate cost-of-living measure.

What we should take from this book, then, is not that America is mismeasured. It’s that the gap between what the top-line numbers report and how folks feel about their economic situation is, in part, a function of the increase in economic inequality, of how far they’ve fallen relative to the average. Should we want to better understand how America is really doing, we must dig deeper into the numbers.

The post Measuring the Vibecession appeared first on Washington Monthly.

As one of President Joe Biden’s top economic advisers, I frequently made my way out to the White House North Lawn to give interviews to the media about the state of the U.S. economy. Especially as the pandemic-induced recession faded in the rearview mirror, I was out there hundreds of times touting how the unemployment rate was at 50-year lows on the back of remarkably strong job growth. Inflation was falling and inflation-adjusted pay was rising.

And yet in every single interview, I got the same question: So why aren’t people feeling it? Why so much good data amid so many bad vibes?

In fact, the question was not hard to answer. It comes down to one word, a word that defines the dominant economic challenge with which American families have been struggling for years: affordability. Whether it’s housing, child care, health care, groceries, utilities, insurance, or other costs, significant numbers of Americans have found that these and other critical goods and services are either out of reach or so pricey that, after they’ve paid for them, they don’t have enough money left to even think about getting ahead.

This duality between the data and how people experience the economy is the subject of The Mismeasurement of America, by Gene Ludwig, a former comptroller of the currency during the Clinton administration. Focusing on unemployment, wages, inflation, and the growing economic distance between Americans at the top and the bottom of the income scale, Ludwig argues that the problem is that the numbers I was touting were, if not quite wrong, then “profoundly misleading.” He then develops his own set of numbers, which he argues better explain why people have long felt a lot worse about the economy than you’d glean from the government’s top-line statistics. While Ludwig is right that top-line numbers, all of which are broad averages, fail to present a full picture of how the different income classes are faring, that’s not a “mismeasurement” problem. It instead reflects the impossibility of encompassing in just a few numbers something as complex and disparate as the U.S. economy. A better title for his book might have been “The Incomplete Measurement of America.”

Ludwig’s critique of inflation statistics is particularly germane to the affordability crisis. The Consumer Price Index is an overall metric that averages out the changes in prices faced by 90 percent of the population. (The CPI does not include prices in extremely rural areas, farm households, and religious communities, among other exceptions.) Ludwig reasonably worries, however, that the average obscures important differences in inflation between income groups.

The Bureau of Labor Statistics, which publishes the CPI, has itself been looking into this and they find that from 2005 to 2024, prices rose 66 percent for those in the bottom fifth of the income scale but just 57 percent for those at the top. This disparity is a double disadvantage: Such households face both lower incomes and higher prices. Ludwig’s adjusted CPI, which he calls the “True Living Cost,” or TLC, captures this dynamic by significantly up-weighting in the index the goods and services that dominate the consumption basket of less-well-off households, including housing, health care, food, and child care.

While this is the right way to drill down on the affordability challenges facing low- and middle-income families today, Ludwig misses one of the more important positive price developments of our time. For technology goods, like computers and smartphones, the TLC registers large price increases while the CPI registers the opposite. The CPI has it right, reflecting a rare cost decline that’s actively making us better off. The BLS statisticians adjust for the fact that computers and cell phones are remarkably more powerful than they used to be. Decades ago, it would have cost millions of dollars for a computer to do what a $700 laptop can do today. Adjusted for quality, the cost of such technology has fallen sharply over the years, and this decline has improved consumer welfare. Yet the TLC appears to ignore these quality improvements and somehow has technology costs soaring over time.

For another example of how Ludwig offers an overreaching solution to a real measurement challenge, consider unemployment. Ludwig argues that instead of the 4.3 percent unemployment rate for August reported by the BLS, what he calls the TRU—the “True Rate of Unemployment”—is 24.7 percent. Anyone with even a passing familiarity with the history of unemployment in America will realize that Ludwig has either made a mistake or is aggressively redefining unemployment. The last time unemployment was that high was during the Great Depression.

Ludwig’s “unemployment” rate, however, includes a lot of people who are, in fact, working, both part-timers and low earners. His terminology is thus off, as is his critique of the current measurement system, which is clearly, transparently, and consistently measuring what it says it’s measuring. If you looked for a job and you didn’t find one, you’re unemployed. That simple and intuitive definition has revealed important information about labor market conditions for many decades.

But as Ludwig’s adjustments reveal, there were a lot more underemployed and underpaid people in the American labor force in August than 4.3 percent. That doesn’t make the official unemployment rate wrong or misleading. Though Donald Trump, who recently fired the commissioner of the BLS, might claim otherwise, our statistical agencies continue to rigorously churn out valid, reliable numbers. (Trump doesn’t like that they show the tariffs raising prices and cracks forming in the job market, but that’s actually a testament to their accuracy.) But Ludwig’s metric helps to bridge the gap between what the official jobless numbers say and the struggle that many working Americans go through every day.

Extracting from these weedy details, and recognizing that the current system is not mismeasuring America, Ludwig’s book provides an important bridge between good data and bad vibes. As he shows, in an economy where inequality has been on the rise for decades, where millions are underemployed, where poor people’s inflation rises faster than that of the rich, averages increasingly fail to tell the full economic story.

Of course, many authors, most notably Thomas Piketty in Capital in the Twenty-First Century, have made this point before. But by looking at the problem through the lens of jobs, hours worked, wages paid, the costs of housing (and utilities, such as electricity), child care, health care, and so on, Ludwig’s measurements help to shine a light on a policy agenda to address the affordability crisis. His underemployment rate would come down, for example, if we helped involuntary part-timers move to full-time schedules. (Ludwig would correctly note that such a change would not show up in a lower unemployment rate.) An affordability agenda, which Neale Mahoney and I describe in a new brief from the Stanford Institute for Economic Policy Research, would help make it easier for economically stretched families to afford housing (by making it easier and cheaper to build), child care (through targeted subsidies), and health care (reversing coverage cuts, Medicare buy-in) in ways that would directly feed into Ludwig’s alternate cost-of-living measure.

What we should take from this book, then, is not that America is mismeasured. It’s that the gap between what the top-line numbers report and how folks feel about their economic situation is, in part, a function of the increase in economic inequality, of how far they’ve fallen relative to the average. Should we want to better understand how America is really doing, we must dig deeper into the numbers.

The post Measuring the Vibecession appeared first on Washington Monthly.

Everyone who has ever used a dating app knows the disappointment when an online picture doesn’t match reality. Sometimes, economic reports suffer from a similar gap. On Wednesday, the Bureau of Economic Analysis (BEA) reported that the country’s Gross Domestic Product (GDP) grew at a 3 percent annual rate in the second quarter. That sounds like good news, but the underlying data tell us that the U.S. economy is stumbling—and that’s before President Donald Trump doubled down last week on his destructive tariffs.

GDP captures everything the U.S. economy produces, whether it goes into consumption or savings and investment. The BEA data show that Americans’ private consumption grew in the second quarter at an anemic 1.4 percent rate—half the rate in 2024 and half the annual average since 1990. Business investment was also weak in the second quarter, increasing at a 1.9 percent rate, again barely half last year’s rate and one-third the average rate since 1990.

There’s more bad news from other economic fundamentals. Residential investments declined at a 4.6 percent annual rate, compared to 4.2 percent gains in 2024 and average annual gains of 2.5 percent since 1990. And government consumption and investment were nearly flat.

The latest jobs numbers from the Bureau of Labor Statistics also show a weak economy. So far this year, employment has increased an average of 85,000 jobs per month, falling to 32,000 jobs per month over the past three months, versus monthly increases averaging 216,000 jobs in 2023 and 168,000 jobs in 2024.

The official 3 percent growth report for the second quarter does not reflect the economy’s fundamentals. So, where did it come from?

I have an advantage here because I oversaw the BEA as Bill Clinton’s Under Secretary of Commerce and learned precisely how the Bureau builds the GDP measure. The answer is that the 3 percent growth number was an artifact of how it technically accounts for changes in imports, which fell dramatically in the second quarter.

Trump’s tariffs initially took effect on April 1, 2025, also the first day of the second quarter. Over the next three months, our imports fell at a virtually unheard-of 30.3 percent rate because markets worked as they were supposed to. As the tariffs began to raise import prices, as confirmed by the recent uptick in inflation, businesses and consumers pulled back sharply on those purchases—an important reason why overall consumption and investment weakened.

That’s what always happens when a country imposes high tariffs. Less well-known is that falling imports are counted as a positive for GDP growth under the BEA’s growth accounting. The approach here logically follows BEA’s larger framework for tracking GDP. Growth represents how much the value of domestic production—the DP in GDP—increases, whether it goes to private or public consumption or savings and investment. Imports present a special case because households, businesses, and the government use them without producing them. So, BEA subtracts imports from its measure of the value of output produced here, and when imports fall sharply, as they did in the second quarter, the decline is counted as a positive for growth. Similarly, when imports rise, the increase is counted as a negative for domestic production.

BEA’s treatment of exports follows the same logic. When we produce and export goods or services, they don’t appear as part of consumption or investment. Accordingly, when exports rise, the increase is seen as positive for growth; when they fall, the decrease is a negative for growth.

That’s how the dramatic decline in U.S. imports since Trump’s “Liberation Day” drove the 3 percent official growth rate for an economy that by every basic measure is weakening.

A simple comparison of past years and decades illustrates today’s economic weakness and how Trump’s tariffs have distorted our import and export flows. (I exclude the years of the financial crisis and pandemic here as Black Swan outliers.)

The weakness in the second quarter came after the economy’s substandard performance in the first quarter, when BEA found that GDP contracted at a 0.5 percent annual rate. Again, consumer spending was weak, and residential investment and government consumption and investment declined. Again, Trump’s tariff plans also played a role: U.S. businesses sharply increased their investments by stockpiling foreign-made equipment, technologies, and inputs before his tariffs raised prices. So, imports surged 38 percent in the first quarter, and under BEA’s accounting, that sharp increase turned sluggish growth into a technical quarterly contraction.

What happens next for Americans will depend on many unknowns, but the outlook seems bleak based on what we know today. Trump just announced higher tariffs on imports from 28 countries, including Canada, Brazil, Taiwan, India, and other important trading partners, and a new survey by the Federal Reserve Bank of Atlanta confirms that most businesses plan to respond to the tariffs by raising prices. So as they take hold, inflation will accelerate, further slowing or contracting consumption and investment. This nexus between tariffs and inflation is the main reason the Federal Reserve hasn’t cut interest rates as the economy has weakened.

As conditions deteriorate later this year, the Fed will cut interest rates at least modestly, but that won’t boost growth much. The Fed directly controls only very short-term rates, while markets determine longer-term rates. As I noted recently in these pages, the most likely direction for those longer-term rates for business loans, mortgages, and most Treasury securities is up, not down. Our coming budget deficits under Trump’s ill-considered tax program are so large as a share of the economy that attracting domestic and foreign capital to fund them—and new private lending financing them—will require higher rates, especially with inflation rising.

Reversing Trump’s tariff and tax program is the only reasonable way to restore healthy growth for the United States. Since that won’t happen, our most likely prospects for 2026 are stagflation or recession.

The post The U.S. Economy Is Stumbling Badly appeared first on Washington Monthly.

America could be on the cusp of an economic downturn, thanks to the self—defeating, destructive policies of president Donald Trump. Inflation is rising while the dollar is falling, and Trump’s just-passed One Big Beautiful Bill Act is projected to add a whopping $3.4 trillion to the federal deficit. Add to this the uncertainty caused by Trump’s tariffs and immigration policies, along with his threats to fire Federal Reserve Chairman Jerome Powell.  

The result, says economist Robert Shapiro, is that the United States economy has become dangerously unstable and vulnerable to financial shocks. Shapiro spoke with Senior Editor Anne Kim for the Washington Monthly podcast. This transcript has been edited for length and clarity.  

*** 

Anne Kim: 
You were on the show a few months back, actually at the start of the Trump administration. And in fact, you were one of our very first guests, so thank you very much for returning! 

I want to ask you first about your most recent piece for the Monthly, titled Trump’s Budget Could Break the Economy, which sounds pretty dire. And you conclude that “for once, the deficit hawks are right.” I take it that you haven’t always been one of those deficit hawks in the past, so what has changed in your mind? What is in the “One Big Beautiful Bill Act” that worries you so much? 

Robert Shapiro: 
Deficits that are equivalent to 7% of GDP—that’s what bothers me. For some perspective, in the 1990s, the deficit averaged about 2% of GDP. From 2000 to 2007, it was 1.2% of GDP. Through Trump’s first term, it averaged 3.6% of GDP.  

We are now at double the highest rate we’ve seen in a non—recessionary year in our history since World War II. The problem is that deficits have to be funded by somebody’s savings—they can’t be funded by consumption. American households save about 4 or 4.1% of their total disposable income. Businesses save through retained earnings, which is about 3% or 3.6%, I believe. All annual savings in the U.S. economy comes to 7.7% of GDP, and if the Treasury is claiming 7% of GDP, that means there’s nothing left for business investment, mortgages, car loans, or very little—and interest rates spike.  

However, we don’t only depend on domestic savings. We live in a global economy, and foreign governments and investors invest in our securities and our economy. 

Right now, foreign investors and governments own 33% of our national debt in Treasury securities. They also own 30% of all corporate debt and 27% of all U.S. stocks on all exchanges. So this is how dependent we are on foreign investors. 

It means we are totally dependent on foreign investors to fund business investment, car loans, mortgages, credit card debt—all debt. If those countries Trump is trying to punish with tariffs call his bluff, all they have to do is significantly slow their purchases. That will send interest rates across the board substantially higher, slowing the economy. 

And if they were to stop buying U.S. securities, the U.S. economy would crash because interest rates would skyrocket. That’s where we are. It’s just the numbers. This is not an interpretation. 

Anne Kim: 
Can you explain why slowing sales or an outright stoppage of Treasury securities purchases will cause interest rates to spike? My understanding is that have to pay interest when people borrow money from us. And when people aren’t buying, we have to continue raising interest rates in order to entice more people in with higher yields. Is that what’s going on? 

Robert Shapiro: 
Yes. That is exactly what will go on. If, say, China were to say, “We’re not going to buy any more Treasury securities this year,” then in order to attract other foreign investors, we’d have to raise interest rates to make it worth their while. 

There are other economic consequences —the value of the dollar, for instance. Normally when interest rates go up, the value of the dollar goes up. That has not happened. The value of the dollar has fallen 20% against the trade—weighted currency basket since Trump took office. 

That means foreign investors are losing interest—mainly in investing in corporate paper and stocks. We haven’t seen that fully in the stock market yet, though we did once. Japan, for about a week, said, “We’re not going to invest in the U.S.” in response to tariffs. The stock market lost thousands of points. 

This is not something you take risks with. We are talking about the fundamental stability of the U.S. economy. In the worst—case—but clearly plausible—scenario, we will have our third financial crisis in 18 years. 

Anne Kim: 
I also read somewhere that the interest on the debt alone is more than what we spend on the U.S. military or the federal share of Medicaid. So it’s already an enormous amount of the federal budget and only going to get even bigger. 

Robert Shapiro: 
We pay a trillion dollars a year in interest. And we find ourselves in a period where interest on the debt is compounding at a fast rate, because both the budget deficit and the interest are growing faster than the economy. 

Anne Kim: 
And this is interest going to countries like China, Japan, the UK—whoever holds our debt. 

Robert Shapiro: 
Yes. One—third of that interest is going abroad. We are sending over $300 billion in interest abroad—that’s more than our trade deficit with China. 

Trump doesn’t understand how economies operate. He only wants to hear affirmation of what he already believes. That’s why respected economists and finance people are saying nonsense on TV about tariffs and inflation. 

The only thing that will correct this policy is when the costs become a huge political issue.  

The U.S. has always depended on the kindness of strangers to finance investment and deficits. Maybe foreign countries will give us slack because they don’t want to take enormous losses if the U.S. economy crashes. But Trump is attacking those countries politically and economically, so if they don’t give us slack, we pay a terrible price. The first casualty of spiking interest rates is employment and income. 

So this is not simply about what the yield curve shows. I think everybody is kind of living right now in a fool’s paradise because the deficit hawks have always been wrong before. 

Anne Kim: 
You mentioned the Fed, and I want to ask about that in a bit. But let’s turn to other threats to the economy. We’ve talked about the deficit, we’ve talked about the falling dollar. When you were on the show a few months back, you also talked about some inflationary pressures posed by the tariffs, but also Trump’s immigration policies. So what is your thinking now, six months into the administration? 

Robert Shapiro: 
Well, we had seen inflation steadily move down—and it stopped moving down and has begun to move up. We have not seen the full brunt of the tariffs and inflation for two reasons. 

One is that lots of businesses stockpiled inventories. Half of our imports are inputs for U.S. manufacturing, and the other half are finished goods and services. You can’t stockpile services, but you can stockpile everything else. 

The other reason is that companies—large companies, particularly those dealing in big—ticket items like autos—have been reluctant to raise prices, despite high tariffs on cars and auto parts throughout this period. That’s because of TACO—that is, Trump always changing his mind—because he has gone back and forth so many times on tariffs. 

Companies like Ford or BMW that make cars in the U.S. have been reluctant to alienate customers by raising prices until they see the final lay of the land. But that’s running out. The inventories are running out. And it’s become clear that we will have substantially higher tariffs. 

Before Trump, we had an average 2% tariff rate. We are now at 15 to 20%. 

Anne Kim: 
Right. So for example, the latest so—called “agreement” with Japan sets a baseline of 15%, which the Trump administration is spinning as a victory. But the original tariff rate was a lot lower, right? 

Robert Shapiro: 
Yes, the original tariff rate with Japan was about 3%. So it’s five times higher. We haven’t seen the details yet. The largest—selling auto company in the United States is Toyota, and most of those cars are made in the U.S.—but with parts made in Mexico, Canada, Japan, and elsewhere. We don’t know yet what the new tariff rate will be on those parts. 

And this is not a “deal.” It’s an agreement to continue to negotiate. We haven’t seen the full impact yet. 

As for deportations—we are beginning to see increases in the cost of domestically produced fruits and vegetables. We’re also seeing this in construction. The largest number and share of undocumented immigrants is in construction. Second is personal services. Agriculture is actually fourth or fifth. Some people are being deported, but a lot of other people are staying away from jobs out of fear that ICE will find them. 

And it’s not just unauthorized immigrants—this campaign doesn’t distinguish between authorized and unauthorized. It arrests people based almost entirely on racial profiling. 

Anne Kim: 
He’s also converting authorized immigrants into unauthorized ones by revoking temporary protected status, for instance, and threatening to revoke visas for others. 

Robert Shapiro: 
Right. So we will continue to see some cost—push inflation from employment. Look, we’re still creating net new jobs—but at a significantly slower rate than last year. So we are seeing some impact on employment. 

There are very few things that virtually all economists agree on. The destructiveness of tariffs for both sides is one. It’s the only thing that Adam Smith and Karl Marx agreed on. The only thing that John Maynard Keynes and Friedrich Hayek agreed on. I certainly know that Adam Smith was a supporter of immigration. Why? Because growth equals increases in employment times productivity increases. That’s the formula. 

Smith, Keynes, Hayek, Marx, John Stuart Mill, Milton Friedman—all agreed on that. 

Anne Kim: 
But not Trump. So I want to ask—as if we didn’t have enough nails in this coffin—about one more, and that is the independence of the Fed and the threats to it. Rob, you were a senior official in the Clinton administration. You’ve dealt with presidents and Fed officials. But have you ever seen anything like the threats Trump has leveled against Chairman Powell? 

Robert Shapiro: 
No, we’ve never seen anything like this—except by Trump in his first term, when he attacked Janet Yellen, and later when he attacked Jerome Powell. 

Trump has this notion that if you cut interest rates, growth will increase. That’s true—unless you have significant inflationary pressures and a strong economy. Right now we have a weak economy. 

The first quarter contracted after growing at a 2.8% rate in the last quarter of the last administration. Biden may have gotten some things wrong, but he didn’t get the economy wrong. 

Under those conditions, no Fed chair who cares about their reputation would cut rates. What Trump is doing is making the Fed chair a poisoned chalice for whoever he nominates. The markets are going to assume the Fed won’t be independent. 

He’ll nominate a loyalist—maybe [Treasury Secretary Scott] Bessent, [National Economic Council Director] Kevin Hassett, or someone else we’re not even looking at. And the markets will assume that person won’t be independent.  

I think you’ll get a negative response to virtually anyone he names. You’ll see that response start to kick in as we approach the nomination. The markets will build in the expectation that policy will be inflationary. So even before the Fed does anything, there will be upward pressure on interest rates—and downward pressure on employment and incomes and growth. 

Anne Kim: 
And that brings us back full circle—meaning that foreign investors will have one more reason to lose confidence in the US economy, which will have ripple effects throughout the economy. 

Robert Shapiro: 
Right. It all feeds into the deficit—based pressures on interest rates and the economy. This is an economy that runs on credit. That’s why we’re big. That’s why we’re rich. 

Trump seems to believe that by force of will, he can mold reality. And that’s true in the response of the people around him. He governs by threat and intimidation. 

But it’s the responsibility of mature leadership to step back and say, “I have to govern in the interests of the country based on evidence.” That’s patriotism. 

That’s something Trump—and sadly, those around him—don’t seem to understand or care about. 

Anne Kim: 
I have one final question: Do you think what’s going to happen with the U.S. economy is a slow downturn like a balloon losing air, or are we going to see a crash? 

Robert Shapiro: 
It’s predictable in a general sense. Crashes require shocks. A shock destabilizes the economy because it’s not expected, and so individuals and businesses don’t prepare. A shock creates enormous uncertainty. 

The example I like is the difference between Lehman Brothers and General Motors. They both went bankrupt. One destabilized the global economy. The other didn’t—because we saw it coming and prepared. 

What I’ve been writing about is the potential shock from the difficulty of financing the deficit. If our big foreign lenders lose patience, or need to take a stand for their own political reasons, we could see something like 2008—2009. 

If not, then we get something like 1981—1982: a very serious recession, or a less serious one, followed by years of higher inflation and higher interest rates. 

It’s not only about the severity of the break, but the kind of economy we’ll have afterward. 

Anne Kim: 
Well on that note, thank you, Rob, and we look forward to seeing you again. 

The post An Economic Crisis Is Inevitable appeared first on Washington Monthly.

Elon Musk’s still-hypothetical third party could become reality because, as I discussed yesterday, combining historically high debt levels with an economic downturn could stoke public frustration with both parties. We saw this in 1992 when independent billionaire Ross Perot exploited rising debt to garner nearly 20 percent of the presidential popular vote.  

But it’s not a given that a large faction of voters will blame both parties for today’s rising debt. With nearly every Republican in federal office having voted for the red-ink-laden budget reconciliation bill, Democrats have a political opportunity to exploit.  

Besides, the winning political party in the 1992 election was the Democratic Party. 

Bill Clinton didn’t position himself as an austerity-minded candidate in that year’s primaries. On the contrary, he savaged the fiscal scold in the race, former Senator Paul Tsongas, for his “cold-blooded” economics. And he touted a “middle-class tax cut,” breaking from past Democratic nominees Walter Mondale (who pledged to raise taxes to balance the budget) and Michael Dukakis (who said tax increases to balance the budget would be a “last resort.”) 

But in the general election campaign, feeling some heat from Perotistas and needing to woo Tsongas voters, Clinton nodded more toward deficit reduction. In his nomination acceptance address, delivered soon after Perot (temporarily) suspended his campaign, Clinton said: 

[President George H. W. Bush] has raised taxes on the people driving pickup trucks and lowered taxes on the people riding in limousines. We can do better. He promised to balance the budget, but he hasn’t even tried. In fact, the budgets he has submitted to Congress nearly doubled the debt. Even worse, he wasted billions and reduced our investments in education and jobs. We can do better. So if you are sick and tired of a government that doesn’t work to create jobs, if you’re sick and tired of a tax system that’s stacked against you, if you’re sick and tired of exploding debt and reduced investments in our future, or if, like the great civil rights pioneer Fannie Lou Hamer, you’re just plain old sick and tired of being sick and tired, then join us. 

Clinton’s rhetorical framework glossed over the tension between pursuing deficit reduction, lower middle-class taxes, and future-oriented investments. But once in office, Clinton prioritized deficit reduction with higher taxes on the wealthy (when Democrats ran Congress) and spending restraint (when Republicans ran Congress) while jettisoning the middle-class tax cut. While Clinton took initial political heat for the broken promise, a growing economy fueled by low Federal Reserve interest rates helped him get re-elected. He had a rare string of annual budget surpluses in his second term.  

In a 2008 debate with his Republican opponent John McCain, Obama weaponized the higher debt accumulated by the incumbent George W. Bush: 

When President Bush came into office, we had a budget surplus and the national debt was a little over $5 trillion. It has doubled over the last eight years. And we are now looking at a deficit of well over half a trillion dollars … And, frankly, Senator McCain voted for four out of five of President Bush’s budgets. 

Obama promised to run a tighter ship but steered clear of specifics, and also stressed the need to immediately pump money into the economy to deal with the “economic crisis,” while also arguing “we’re not going to be able to go back to our profligate ways” after the crisis is over. 

As president, Obama enacted an enormous economic stimulus package. But his signature legislative achievement, the Affordable Care Act, is a deficit reducer thanks to tax increases and cost efficiencies. Also, like Clinton, once Republicans claimed control of the House and the Great Recession subsided, Obama accepted more spending restraints. The annual deficit as a percent of GDP plummeted during his presidency from 9.8 percent in 2009 to 3.1 percent in 2016. 

While both Clinton and Obama narrowed or eliminated annual budget deficits throughout their presidencies, neither was succeeded by a Democrat, raising the question of whether budget balancing had any political benefit.  

During his one presidential term, Joe Biden was far more concerned about spending than saving. He enacted massive pandemic relief, vastly expanded the child tax credit (though the stingy Senator Joe Manchin blocked an effort to extend the costly expansion beyond one year), secured significant infrastructure investment, and implemented student loan forgiveness by executive order (though losses in court limited the total amount). Whether or not it’s fair to blame Biden’s spending for the period of high inflation on his watch, the high inflation was the main driver of Trump’s election victory and has given big spending a bad name.  

And now it’s Trump piling on the debt with massive tax cuts skewed to the wealthy, paired with, but not offset by, huge cuts to health care, food aid, and clean energy. And any relief for working stiffs from tax cuts may be undercut by Trump’s tariffs. The issue will be challenging to ignore with debt at historically high levels relative to the economy. Democrats will be sorely tempted to whack Republicans as fiscally irresponsible, and rightfully so.  

The electoral successes of Clinton and Obama remind us that it’s easier to level attacks on high debt in the campaign than produce a deficit reduction plan that squares with other party priorities and yields electoral victories. For example, Democrats will have no problem arguing for higher taxes on the wealthy. But how much will they want to commit additional tax revenue to deficit reduction when there is health coverage, food aid, and clean energy tax incentives to restore? What other big-ticket ideas will they fund, such as baby bonds or vocational and higher education support? Is it better to launch programs that deliver direct benefits, or indirectly improve the cost of living by reducing deficits and making it easier for the Federal Reserve to lower interest rates? 

As the successful Clinton and Obama campaigns show, such tensions don’t need to be resolved until after Democrats regain power. But until then, the tension will percolate. 

The post Democrats Should Prepare for the Return of Debt Politics  appeared first on Washington Monthly.

During a March 9 Fox News interview, President Donald Trump was asked, “Are you expecting a recession this year?” His response was so disturbing the stock market tanked the following day: 

I hate to predict things like that. There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing. And there are always periods of—it takes a little time. It takes a little time. But I don’t—I think it should be great for us. I mean, I think it should be great. 

“No pain, no gain” can be good advice. But it’s hardly without limit. A regimen of daily jogging will tire your legs at first but eventually strengthen them. It’s not an argument for a gunshot to the thigh.  

Most presidents, as a general rule, don’t go out of their way to egg a recession on, for good reason. Recessions hurt people, and they don’t necessarily come out of them stronger. Once one starts, they may not be easy—or cheap—to stop, as Barack Obama found out. Granted, not all recessions are multi-year “Great Recessions” driven by global financial system collapses. They are usually shorter in duration and—depending on the timing—can end fast enough to avert political consequences. But as George H.W. Bush learned the hard way, sometimes a recession can technically end with a return of positive economic growth, yet lingering negative effects such as elevated unemployment can still harm voters and befall politicians.  

In theory, a strong leader can convince constituents to embrace a policy in which folks will have to weather a difficult period with a plausible argument that better times will follow. Trump, who has long sold himself as the most extraordinary businessman on the planet, surely believes that reputation is sufficient to convince the public he knows what he’s doing. “We’re bringing wealth back to America. That’s a big thing,” he assured, adding that during his last presidency, “I made the deal with China on farmers where they had to buy $50 billion worth of product, $50 billion, from 15 to 50. And it was great.” 

First, and I know this might shock you, Trump was not telling the truth about that China deal. FactCheck.org addressed that claim in January 2020, “China agreed to increase agricultural purchases by $12.5 billion [in 2020] and $19.5 billion [in 2021] compared with 2017 levels … But there is no requirement that China increase purchases beyond 2021,” only projections.  

Moreover, the size of the American economy, as measured by Gross Domestic Product, is nearly $30 trillion. Several billion dollars more in agricultural exports would benefit some farmers. But such a deal is hardly enough to offset the impact of an economy-wide contraction and help the vast majority of Americans who are not farmers. Even if similar bilateral deals materialized for other industries, they would likely be too small to influence the economy’s overall trajectory.  

Trump’s factually dubious bravado is incapable of assuring average Americans, regardless of occupation, that they will be the ones who will ultimately benefit from his radical tariff strategy and come out ahead after any recession. If it were, the stock market wouldn’t have tanked. 

And stock traders are a community of people presumably willing to give Trump the benefit of the doubt. Just last week, in a New York Times column, Steven Rattner, a  Treasury Department official in the Obama administration and investment  CEO, said, “Many, maybe even most, of the people I’m talking to in private are still quietly cheering his move-fast-and-break-things approach.” While most corporate executives don’t like higher tariffs, “they argue that these moves are mostly negotiating ploys.” Granted, Rattner cautioned, “I’m not so sure.” The market moves would indicate that his friends—after concluding that Trump is willing to bring on a recession in pursuit of higher tariffs—are now not so sure either. 

The notion that Trump knows how to manage an economy was always ludicrous. Despite his cultivated image as a business genius, before he became a politician, he had filed for bankruptcy six times. After his first presidency, we got definitive proof that his reputation was built on lies. His Trump Organization was convicted of criminal tax fraud and deemed liable for civil fraud. He nevertheless managed to maintain a reputation for deft economic stewardship because the economy hummed in the first three years of his presidency before the COVID-19 pandemic hit. But he was only riding the upward trajectory handed off to him following Obama’s hard work digging out of the Great Recession. That so many corporate executives had been convincing themselves that the Trump of recent weeks was a clever negotiator and not a clueless megalomanic makes one doubt their wisdom. 

Determining the motivation for Trump’s economic recklessness is a challenging, perhaps impossible, exercise. Logic can’t anticipate his actions. But taking his words at face value, he seems to cling to an outdated—and by outdated, I mean 19th century—view of the economy: when America was largely agrarian, manufacturing had yet to discover assembly lines, and the world’s nations were barely connected.  

Asked on Sunday about the declining stock market, Trump bristled, “Not much,” and proceeded to complain that “we don’t make ships anymore.”  

He pines for a return to the William McKinley era when the federal government was funded mainly by tariffs, ignoring that in the late 19th century, America didn’t have the expensive obligations of maintaining Social Security, Medicare, and global military supremacy—all of which he says he embraces. And while Washington’s coffers may have been flush during the Gilded Age, many people were destitute and rebelled against the regressive tariff system. Yet Trump insists tariffs, which the federal government collects, are “bringing wealth back to America.” 

That’s even harder to argue when you admit what’s next is a loss of wealth for many individuals. Glibly musing about a recession as a mere “period of transition” is as foolish as dismissing high inflation as mere “transitory effects.” We all know how that worked out. 

The post I Regret to Inform You That Donald Trump Does Not Understand the Economy appeared first on Washington Monthly.

America and the nations of the world are on the verge of suffering four years of an unrestrained Donald Trump presidency, little checked by the Republican-controlled Congress or the conservative-dominated Supreme Court. And the obsequious response to Trump’s election from many foreign leaders did not provide much hope that our allies would contain Trump.

But bowing down to Trump does not serve anybody’s interest on either side of America’s borders, save for autocrats like Vladimir Putin, who want Trump to undermine international norms, and any corporate leaders who believe they can preserve their profits by cooperating with a corrupt kakistocracy.

The world needs some elected leaders who are willing to stand up to Trump.

And this week, the impulsive incoming president has given two leaders a golden opportunity to expose the empty nature of Trump’s bullying tactics and sap him of power.

“On January 20th, as one of my many first Executive Orders,” threatened the typographically challenged Trump on his social media website, “I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders. This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!”

For Trump to train his initial fire on America’s closest allies is both illogical and expected, as he was always more interested in punishing democratic friends while coddling dictatorial adversaries. A rational president would not need to threaten Canada and Mexico. They already cooperate with the United States on immigration and drug trafficking, and Trump did not specify what exactly he wants them to do differently. After much bluster during his first term, Trump negotiated a new trade agreement with the bordering nations to replace the North American Free Trade Agreement (NAFTA). He touted his United States-Mexico-Canada Agreement (USMCA) at the time as “the largest, most significant, modern, and balanced trade agreement in history.” Yet now the 78-year-old is poised to violate his signature accord unprovoked.

Assuming Trump follows through on his threat, the ball will be in the courts of President Claudia Sheinbaum of Mexico and Prime Minister Justin Trudeau of Canada. Obviously, they need to be sensitive to the economic needs of their constituents. But they would be doing themselves—and the world—a favor by responding to Trump’s tariffs in kind and pressuring him to stand down.

Trump is vulnerable because he is misreading his mandate, and his mandate shapes his negotiating leverage. If a majority of the public—and most Republican officeholders’ constituents—insist Trump impose high tariffs with a complete understanding of how that would increase prices on imported goods, then Trump can wage a trade war without intra-party blowback. But poll after poll tells us that the vast majority of voters, of course, want lower prices. The most reasonable explanation for the 6-point shift towards Trump in the margin of victory from the 2020 to the 2024 presidential elections is swing voters thought Trump would get prices down.

Trump may take some solace in a recent CBS poll that showed a narrow 52 percent majority support higher tariffs. He shouldn’t. The same survey showed 79 percent believe Trump should make lowering the price of goods and services a “high priority,” with another 16 percent saying it should be a “medium priority.” Pretty much every American wants stuff to be cheaper. Still, some don’t understand that tariffs literally raise prices—perhaps because Trump never admitted tariffs raise prices and pretended only other countries would suffer. (Nor do many Americans understand that broad price deflation would risk an economic recession.) Price hikes soon after Trump’s swearing-in would jolt the public.

In other words, Trump is not wielding fearsome leverage when he threatens Canada and Mexico with tariffs. He is pointing a gun at his feet, ready to inflict his own wound.

Meanwhile, the newly inaugurated Sheinbaum enjoys a honeymoon with a 74 percent approval rating. She has some political capital to burn. And standing up for Mexico’s autonomy may deepen the 62-year-old’s initial bond with the public, even if it means some immediate economic upset. Sheinbaum may be making that calculation, as evidenced by her initial response to Trump. “One tariff would be followed by another in response, and so on until we put at risk common businesses,” she said, threatening retaliatory tariffs, “If tariffs go up, who will it hurt? General Motors.” She further blamed America for its own drug problem and for allowing gun smuggling into Mexico.

Trudeau’s political position, at 52, is much more precarious. After serving as Prime Minister for nine years, the once captivating and charismatic leader is scraping the bottom with a job approval of 30 percent, putting control of the government by his Liberal Party in jeopardy before next year’s federal elections. The only politician Canadians may hate more is Donald Trump; only 21 percent wanted Trump to win the election. A fight against Trump may stir Canadian pride and buoy the Liberals.

But the long-term substantive need to constrain Trump’s worst impulses is more important than any short-term political consideration. Allowing Trump to get away with rank bullying will only lead to more irrational policymaking and global instability.

Granted, it is possible that Trump does not care about public opinion. He can’t run for president again (no matter what dark insinuations he makes). He won’t be impeached. The Supreme Court has given him broad criminal immunity for any “official” acts. We have no reason to believe he cares about the future fates of other Republicans or what historians will write about his legacy. A price spike and a tanking of Trump’s job approval may not change his behavior. But it could well change his relationship with other Republicans, who do have to fear accountability in the 2026 midterms and lead to a more robust internal opposition.

Moreover, we have experienced Trump climbing down when he’s gone too far on the political ledge, such as when he ended a government shutdown without securing nearly as much border wall funding as he demanded and when he issued an executive order abandoning his policy of migrant parent-child separations after a few months of public outrage. He’s perfectly capable of using Orwellian language to describe a loss as a win and then move on to instigate a new drama.

Sheinbaum and Trudeau should not fear Trump’s tariffs and beg for mercy. They should exploit his political impetuousness and ineptitude. Trump has a weak hand. Sheinbaum and Trudeau should call the bluff.

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