Political Economics

[DougMacG]

https://committeetounleashprosperity.com/hotlines/trump-is-right-about-our-trading-partners-imposing-excessive-tariffs/

We aren’t fans of the trade war, but blaming Trump (as the media and the Left are doing) ignores one key point: He’s right that other countries impose outrageous tariffs on American exports.
(chart)
Is there a path to reciprocal low or zero rates? We wouldn’t count Trump out. One idea we like would be to start immediately with a zero-zero trade agreement with Argentina, which Javier Milei is reportedly interested in. That would knock our trading partners off their high horse.

[DougMacG]

https://www.washingtonexaminer.com/restoring-america/faith-freedom-self-reliance/3348218/reversing-biden-disaster-will-take-more-than-two-months/

[DougMacG]

https://ycharts.com/indicators/industrial_production_index#:~:text=Basic%20Info-,US%20Industrial%20Production%20Index%20is%20at%20a%20current%20level%20of,2.00%25%20from%20one%20year%20ago.

https://www.reuters.com/markets/us/us-housing-starts-rebound-strongly-february-2025-03-18/

Did something change in mid to late January?

[DougMacG]

Charts at the link:
https://www.discoursemagazine.com/p/in-actual-dollars-tax-cuts-boost-revenue-time-after-time

In Actual Dollars, Tax Cuts Boost Revenue Time After Time
From the Kennedy legislation in 1964 to the Trump package in 2017, the naysayers are proven wrong again and again
Feb 14, 2022

By Jack Salmon

Historically high federal budget deficits and a mountain of debt larger than the entire U.S. economy have made the Build Back Better bill a tough sell in Congress. But proponents claim that if the 2017 tax cuts took a hatchet to Treasury revenue—President Biden says to the tune of nearly $2 trillion—then a bigger budget deficit can also finance the trillions in Build Back Better spending.

One problem: Federal revenue didn’t fall after the big Trump administration tax cuts, much less by $2 trillion. Instead, total revenue rose. In fact, after trimming the rates for five of the seven brackets and nearly doubling the standard deduction, the government collected nearly $100 billion more in personal income tax revenue for the year ended Sept. 30, 2018. That was the biggest jump in three years.

The conventional wisdom in media, political and policymaking circles is that tax cuts cost the government so much revenue that they drive the country’s enormous budget deficits, but this isn’t true. After President George W. Bush’s 2003 tax cuts, revenue rose for the next four years, with the deficit shrinking to as little as $161 billion in fiscal 2007. After the 1986 Reagan tax reform, which cut the top personal income tax rate from 50% to 28% and lowered the rates for other brackets, the deficit plummeted 32% the next year and stayed at that low level for another two years while revenue rose dramatically for three straight years.

Economists in Denial
But most economists, of all people, resist acknowledging this. The University of Chicago Booth School of Business polled 40 prominent economists in 2012, asking whether total federal tax revenue would be higher in five years if income tax rates were cut. Tax revenue has always been higher five years after a cut in tax rates, but not one economist agreed. A few were uncertain, the vast majority disagreed or strongly disagreed, with many sarcastically dismissing the idea in their comments.

Of course, revenue sometimes falls short of estimates of what it might have been if taxes weren’t cut. But these estimates, usually by the Congressional Budget Office, can’t consider the economic slowdowns that may be averted and the pandemics that come out of nowhere. When people in the press or on television talk about tax cuts reducing revenue, they’re talking about revenue compared with what might have been, not in actual terms. They like to talk about budget baselines—straight-line revenue projections that assume nothing will change—and then argue that tax cuts hurt the Treasury because the actual revenue growth didn’t meet the predicted growth.

To be sure, not all tax cuts are created equal. Merely mailing rebate checks to taxpayers, handing out child credits or offering tax breaks to businesses for dubious purposes doesn’t spur long-term economic growth. These Keynesian, demand-side tax cuts can add as much to the budget deficit as the government spends on them.

The Power of Incentives
But supply-side cuts that lower tax rates—for individuals, corporations and capital gains—do spur the economy and boost tax revenue. They offer incentives to people to work harder and invest more, therefore expanding the supply of labor, investment and savings. All big tax-cut packages contain both demand-side and supply-side elements, so they unfortunately never produce all the economic growth and increased revenue that a supply-side-only package would generate.

But no matter the type of tax cut, efforts over the decades to lighten the tax burden have never been the main culprit behind the government’s inflated budget deficits. Recent federal deficits have been driven by pandemic-related legislation, while the long-term fiscal imbalances are driven by the growth of Social Security and other entitlement spending.


Let’s take a look at the major post-war tax cuts. The first was the U.S. Revenue Act of 1964, which reduced the top personal income tax rate from 91% to 70% and the top corporate tax rate from 52% to 48%. Keynesian economists, as well as skeptical Treasury staffers, estimated that the cuts would result in a cumulative revenue loss of $32 billion by 1966 (in constant 1963 dollars).

But instead, federal receipts grew by 65%, or 32% in real terms, from 1965 through 1970. And a time series analysis published in the years following the act found that it led to a cumulative revenue loss of just $2.5 billion through 1966, compared with the estimate of what revenue would have been without the tax cuts. In fact, the economists who conducted the analysis concluded that the revenue effect was “virtually indistinguishable from zero.”

The First Supply-Siders
The impact of reining in such high tax rates may have surprised many policymakers, but market-oriented economists had long understood their negative effects. Indeed, almost 200 years earlier, Adam Smith wrote in the fifth book of the Wealth of Nations:

“High taxes, sometimes by diminishing the consumption of the taxed commodities, and sometimes by encouraging smuggling, frequently afford a smaller revenue to government than what might be drawn from more moderate taxes.”

Similarly, 50 years later, French economist Jean-Baptiste Say in his “A Treatise on Political Economy” noted that when taxation is pushed to the extreme, “the tax-payer is abridged of his enjoyments, the producer of his profits, and the public exchequer of its receipts.”


Amid a double-dip recession, President Reagan signed the Economic Recovery Tax Act in 1981. This cut the top personal income tax rate from 70% to 50% over a three-year period. Inside-the-Beltway conventional wisdom was again turned on its head as federal receipts grew by 33% in real terms from 1983 through 1989. To this day, the Reagan tax cuts are widely accused of exploding the federal deficit, but the deficit as a share of gross domestic product fell by half during this period. Give much of the credit to slower public spending, which grew by an average of 11.8% a year in the six years before 1981 but by only 7% a year in the six years after 1981.

The Bush tax cuts began with the Economic Growth and Tax Relief Reconciliation Act of 2001, which lowered the top income tax rate from 39.6% to 35%, cut three of the other four rates and created a new, lower, 10% rate. Critics bashed the tax cuts; some economists forecast that they would chop federal revenue by as much as $2.3 trillion by 2011.

Federal revenue did fall after the cuts—which were signed into law when the economy was in recession and three months before the Sept. 11 attacks—but by only $210 billion, or 10.6%, over the next two years. Market-oriented economists see these cuts as poorly designed and largely a failure, given the loss of revenue and the slow economic growth that persisted into 2002. This was because handouts such as tax rebates, expanded child credits, and other credits and deductions made up a big part of the cuts but did nothing to improve incentives to work and invest and so did not spur economic growth, according to a 2012 Mercatus Center report. These were Keynesian provisions, aimed at getting money into the hands of consumers and businesses and goosing demand, and not supply-side cuts that would increase the availability of labor and goods.


Revenue started rising again after Bush’s second round of tax cuts. This 2003 package was better designed and fixed some of the problems with the 2001 cuts, but not entirely.

The latest major tax-cut legislation is the Tax Cuts and Jobs Act of 2017, the Trump tax cuts. They lowered the top rate from 39.5% to 37% and sliced the top federal corporate tax rate from 35% to 21%. The Joint Committee on Taxation estimated that compared with the budget baseline, the act would reduce revenue by almost $1.5 trillion over the next decade. For fiscal 2021, the committee said revenue would fall $198 billion short of the baseline, but instead it came in $39 billion higher. Overall, revenue has jumped $685 billion since the tax cuts, as of the end of fiscal 2021, rising every year except for a slight drop during the 2020 pandemic year.

Here’s another way to look at this package: As of 2020, revenue since 2017 as a share of GDP was half a percentage point a year below the average for 1950 through 2017, while expenditures were 12.3 percentage points a year above the historical average. But from 2021 onward, revenue is forecast to exceed the average, while expenditures are forecast to significantly exceed the average and by a growing margin. This signals not a revenue shortfall but a serious overspending problem.


In a new research paper, Charles Blahous tabulates legislated contributions to the government’s fiscal imbalance. With the fiscal 2021 budget, he finds that 66% of the deficit was rooted in pandemic-related spending and 25% caused by pre-2017 legislation. Just 7.8% was the result of lost revenue—money the government might have collected if the Trump tax cuts hadn’t been enacted and the economy would’ve performed as well as it did with the tax cuts. Looking at the long-term fiscal imbalance, he determined that 83% of the deficit is due to spending growth (especially with Social Security and Medicare and other government healthcare programs), while 16.8% is the result of tax cuts over several decades.

The lesson here isn’t that tax cuts don’t ever add to the deficit—those Keynesian ones certainly do—but that they don’t deserve anywhere near the blame they get for those deficits. The federal government doesn’t have a revenue problem; what it does have is a terrible addiction to spending.

[DougMacG]

https://www.noahpinion.blog/p/blue-states-dont-build-red-states

Cases in point, businesses left Seattle:
https://mynorthwest.com/local/this-is-catastrophic-seattle-payroll-tax-revenues-47m-short-as-jobs-leave-city/4067765

75 Days After CA Wildfires, FOUR Building Permits Have Been Issued in the Palisades  (gatewaypundit)

[DougMacG]

Hat tip John Ellis News Items. I don't fully agree. "He wants tax cuts that will increase the budget deficit..."  - Good grief, didn't we just go through this?
 
Rebecca Patterson is a senior fellow at the Council on Foreign Relations (CFR). A globally recognized investor and macro-economic researcher with more than twenty-five years of experience across the U.S., Europe, and Asia, Patterson studies how politics and policy intersect with economic trends to drive financial markets.

Previously, Patterson was chief investment strategist for Bridgewater Associates, the world’s largest hedge fund. From 2012 through 2019, Patterson was chief investment officer of Bessemer Trust, a multi-family office where she managed $85 billion in client assets. Before joining Bessemer, Patterson spent more than fifteen years at JPMorgan, where she worked as a researcher in the firm’s investment bank in Europe, Singapore, and the U.S., served as chief investment strategist in the asset management arm of the firm, and ran the Private Bank’s global currency and commodity trading desk. Patterson's transition to finance came after several years working as a journalist, covering financial markets, policy, and politics in the U.S. and Europe.

This is another in a series of “guest columns” that appear in Political News Items and/or News Items from time to time. There’s been a lot of chatter of late about the Mar-A-Lago Accord. We’ve struggled to grok it, so we asked Rebecca to explain it.

By Rebecca Patterson, 3/25/2025:

President Trump wants to have his economic cake and eat it too.

He wants to keep the dollar globally dominant but weakened to support US exporters. He wants tax cuts that will increase the budget deficit but lower Treasury bond yields. He wants to raise tariffs on other countries to reduce the US trade deficit but strengthen America’s standing as an attractive destination for foreign investment.

Achieving these aggregate goals – aimed at increasing US manufacturing jobs and making the US economy more resilient – will be difficult enough. But even more complicated - and risky - are the proposals to bake this economic cake: the Mar-a-Lago Accord.

Named after Trump’s Florida estate, the Mar-a-Lago Accord is the moniker given to a complicated set of plans and concepts of plans from Trump’s advisors that would mark an inflection point for the global economic order.

Unlike the Plaza Accord of 1985 where five countries agreed at the New York Plaza Hotel to collectively act to weaken the dollar, Mar-a-Lago is unlikely to get the cross-border coordination required to succeed.

But even just attempting to follow this policy recipe would create material risks for the US economy and financial markets. More immediately, these include a potential dislocation in the US Treasury market that would trigger global financial contagion and weigh on economic growth. Structurally, these efforts could call into question the Federal Reserve’s independence and increase incentives for countries around the world to reduce dependence on the USD-based financial system and US marketplace.

The ideas behind the Mar-a-Lago Accord started getting broad attention through a research note published last year by Stephen Miran, now Chair of the White House’s Council of Economic Advisors. It has gotten more focus in recent weeks as the administration has quickly adopted other unorthodox policies and as the President and cabinet members have publicly highlighted that their longer-term policy goals may necessitate short-term economic and financial-market pain.

To understand the risks from Mar-a-Lago, it’s useful to consider the policy recipe, so to speak, as laid out in five main steps by Miran.

Step 1, already underway, is tariffs. Mar-a-Lago recommends previewing tariffs before implementation and then ramping up tariff levels gradually, all to give US firms room to prepare and countries time to negotiate. This is what has largely happened to date. Indeed, as Trump and his team provide hints at the next tariff wave expected sometime around April 2, what the president is calling “Liberation Day,” US companies are building inventories and foreign companies are offering US investments, the latter in hopes of getting tariff exemptions from the White House.

Historically, tariffs have often caused the home country's currency to strengthen and the currencies of tariffed countries to weaken, as consumers in the home country buy fewer of the pricier imports. Miran suggests that the weaker foreign currency allows US importers to get tariffed items more cheaply (one dollar gets you more of the weakened foreign currency). That means that even with the tariff applied, the final price paid doesn’t change much. Assuming this logic holds, which he acknowledges is uncertain, he sees tariffs as a way to bring in US revenue without material inflationary risk.

Separately, Mar-a-Lago proponents expect tariff revenue will offset lower US tax revenue, which will help manage the country’s fiscal challenges.

Step 2 is blending trade sticks with defense carrots. Mar-a-Lago, as described by Miran, posits that “national security and trade are joined at the hip.” He and the broader administration see the US security umbrella as something foreign countries should pay for in some way. That’s where the trade war comes in. Countries that want to continue benefitting from US protection could take a variety of steps to help US businesses, from reducing local subsidies, agreeing not to retaliate against US tariffs, joining the US in trade restrictions against China, or pledging major investments in the US.

Step 3 is weakening the dollar while keeping it globally dominant. President Trump and Vice President JD Vance have stated their preference for the US dollar to remain the global reserve currency. At the same time, they want other countries’ currencies to strengthen from what are seen as unfair levels which give these countries an export advantage over the US. (Never mind that a weaker dollar, as noted in Step 1, could increase inflation risks.)

Mar-a-Lago’s recipe attempts to address this “dominant-but-weaker” dilemma with multi-step, coordinated central bank intervention.

The proposal suggests that the US would consider reducing tariffs if a foreign country agreed to sell its US government bonds from central bank reserves in exchange for its own currency. This would weaken the dollar and strengthen the local currency. The goal would be to get several major countries to do this at once, similar to Plaza in 1985.

But selling such a large quantity of Treasury bonds could easily trigger a market crisis by sharply pushing up yields. To reduce that risk, the same central banks would also agree as they sell current holdings to swap into smaller dollar amounts of ultra-long Treasury bonds (say 50- or 100-year bonds with zero or low coupons). The hope here is that these steps together would get the US both a weaker dollar and longer-term financing without losing much share of global central bank reserves.

This is where the recipe falls apart. In contrast to 1985, when countries agreed to pursue a weaker dollar and backed intervention with monetary and fiscal policies geared to achieve the same goal, today there is no broad agreement on preferred currency trends or policy.

While the US wants much stronger foreign currencies, China for instance would likely prefer a gradual, modest weakening of its renminbi to help fight deflation and encourage more consumption. Japan, meanwhile, might be okay with a modestly stronger yen but is mainly focused on currency stability to help its global businesses in their longer-term planning. Europe is currently cutting interest rates to support growth; a stronger euro would work against that goal by hampering exports. If the US wants global coordination this time, it won’t come easily.

Step 4 is a fix if Step 3 fails: Tax capital inflows or buy foreign currencies to weaken the dollar. Mar-a-Lago holds that if a multilateral effort can’t be secured, the US has alternative, unilateral ways to reach its goals. One idea is to have the President use the International Emergency Economic Powers Act to impose a type of “user fee” on official foreign holdings of US reserve assets to make them less attractive and therefore reduce dollar demand. A directionally similar idea is for the US to purchase foreign currencies, potentially funded by government-held gold reserves or the Federal Reserve.

Finally, Step 5 encourages the Federal Reserve to support these government efforts and smooth over any market dislocations. Given risks of adverse market reactions to a number of these steps, a successful Mar-a-Lago Accord would require the Fed to act as supportive sous-chef. For instance, if the central banks’ shift into longer-term Treasury bonds causes panic selling of bonds by private investors, the Fed could intervene to ensure stability. It may also be required to provide short-term liquidity to central banks holding ultra-long bonds, which would likely be thinly traded and volatile.

Get 25% off for 1 year

Overall, the administration sees this recipe as a way to help deliver on Trump’s economic promises. Of course, the White House is looking at additional creative ways to bake a great American economic cake. Supporting dollar stablecoins, cryptocurrencies that act as a globally available digital dollar, could increase demand for Treasuries held in stablecoin reserves to preserve the currency “peg” and reinforce global dollar usage. This could help cap US Treasury yields and reduce market risks from parts of the Mar-a-Lago Accord.

Meanwhile, selling government assets like land or buildings could generate revenue to fund foreign-exchange reserves (or other priorities). And encouraging more energy production, if successful, could contribute to lower energy prices and offset inflation pressures that the weaker dollar could create.

What about the risks? Miran acknowledges that these policies could cause near-term economic or market pain. He highlights the potential for inflation in particular, the latter already noted by the Fed at its March policy meeting and expected by many Wall Street economists if broad tariffs are pursued at a time when US inflection expectations are already rising.

He also notes the risk of market volatility. Central banks unloading billions worth of Treasury holdings and dollars in short order would be a massive market event, creating contagion to broader markets that Miran seems to be significantly underappreciating.

The Plaza Accord itself provides an example of what could easily happen. About a year after its implementation, then Treasury Secretary James Baker said: “The Plaza Agreement achieved its purpose, perhaps too well. What began as an orderly adjustment of exchange rates threatened to become a free fall.” After the dollar lost about 40% against the Japanese yen and 20% against the German deutsche mark, policymakers had to reunite in September 1987 for what was called the Louvre Accord – coordinated action to stabilize the dollar and financial markets.

The Mar-a-Lago Accord creates more structural risks as well that could weigh on US growth - similar to what the UK experienced after its 2016 decision to exit the European Union.

A trade war would not just put US companies at risk from retaliatory tariffs but also loss of market share, as foreign firms look for more reliable partners. US farms saw such a shift from the US-China 2018-19 trade war – Chinese buyers switched more of their soybean purchases to Brazil and to date have not come back. In the European Union, meanwhile, recent months have seen new trade deals finalized with Latin and South American countries, excluding the US. The EU, in its proposed “Readiness 2030” security strategy, could strictly limit purchases of US materials, a notable shift in policy from past decades.

Meanwhile, risks arise from a potential loss of trust in the Federal Reserve’s independence and reliability of US institutions more generally. That could be reflected in foreign firms’ interest in investing in the US. (In Trump’s first term, foreign direct investment inflows slowed, even before the pandemic.) It could also emerge in a sustained, higher bond “term premium,” the extra return required over the policy interest rate to loan the US government money for longer time periods. Higher yields would mean more challenging borrowing costs for firms and households which could weigh on broader economic growth. Finally, this environment would likely increase support around dollar alternatives, including the BRICS group of emerging economies and led by Brazil, Russia, India, China and South Africa. It’s no coincidence that China this month increased the number of local sectors available to foreign investment, offering tax breaks and other incentives. It hopes to gain “market share” not just in goods but also in global capital flows.

Most Americans support the Trump administration’s goals of a stronger manufacturing sector and more resilient economy. But if they understand the risks involved, few seem likely to support the Mar-a-Lago Accord as the best recipe for reaching those goals.

[DougMacG]

A lot of these laid off federal government remote workers already had full-time private sector jobs?

https://www.marketwatch.com/story/jobless-claims-not-showing-big-surge-in-federal-workers-seeking-unemployment-benefits-02c368e5?mod=home_ln

"Jobless claims not showing big surge in federal workers seeking unemployment benefits
Layoffs in the private sector are still very low. "

(Millionth viewer to this thread gets a free forum subscription!)

[Crafty_Dog]

Closing in!

[DougMacG]

https://www.visualcapitalist.com/the-income-needed-to-be-middle-class-in-every-u-s-state-2025/

[DougMacG]

Video: Getting the CTUP band back together...  Link below.

They would like to see more pro-growth policies.

They trust that Trump understands the dangers of tariffs. He is negotiating from a position of strength. (Though he may be screwing up Canada. )

https://www.foxbusiness.com/video/6370545784112
18 minute segment.

[ccp]

only listened to first part as I cannot sit through 18 min. of economic chatter gossip etc.

but Forbes states gold going up portends inflation but I don't see it in this graph:

https://finbold.com/guide/gold-price-vs-inflation-how-well-does-gold-keep-up-with-inflation/

if true of course, we will lose in '26, '28 and forward

[Crafty_Dog]

Gold also responds to geopolitical risks. (e.g. are we getting ready to hit Iran?)

China and India can influence the demand for gold.

[DougMacG]

Gold also responds to geopolitical risks. (e.g. are we getting ready to hit Iran?)

China and India can influence the demand for gold.

1000233 Views

[Crafty_Dog]

Far out!

[Body-by-Guinness]

Asia Times piece that does a good job of framing the tariff argument. Has some nice, Laffer Curve-based charts as well:

https://asiatimes.com/2025/03/tariffs-have-a-laffer-curve-too/#

[DougMacG]

Asia Times piece that does a good job of framing the tariff argument. Has some nice, Laffer Curve-based charts as well:

https://asiatimes.com/2025/03/tariffs-have-a-laffer-curve-too/#

"Tariffs are a tax."

Good analysis if that were true. My take is that tariffs are a game played with two or more players, played by the rules of game theory. Your next move depends on what their next move in response to that will be.

[Body-by-Guinness]

Another perspective re the goals and methods behind Trump's tariffs:

But that’s not to say the media completely skipped the Outrage Machine at the gym. The latest Big Gulp-sized serving of wrath is: tariffs. The Washington Post ran the furious story headlined, “Trump aides draft tariff plans as some experts warn of economic damage.” Haha, ‘some’ experts. That tiny qualifier spoke volumes.

image 5.png
Tomorrow —April 2nd, studiously avoiding April 1st’s jovial tone— will be what Trump and his economic team have long labeled “Liberation Day.” The President is all set to impose … something. But he hasn’t said what. And that is driving the media mucho loco.

I’m not sure that anything like these “secret tariffs” has ever happened before. Tariffs are usually vetted, trial-ballooned, and announced far in advance to give everyone time to get ready. But not this time. Once again, President Trump has shattered the normal rules, coyly refusing to say exactly what “Liberation Day” actually looks like.

Historically, tariff policy is boring, bureaucratic, and negotiated to death in back rooms by lobbyists and trade representatives. Even the big protectionist tariffs of the 19th century (McKinley, Smoot-Hawley, etc.) were protracted debates hashed out publicly and in Congress.

Even Trump’s 2018 tariffs were previewed and debated in advance — nothing like this.

Trump is basically weaponizing trade policy as political theater— transforming the idea of tariffs into a global media spectacle. And he’s obviously loving it.

The talking heads of doom have two main complaints. First, like talking Ken dolls, they keep pulling their cords and grousing that Americans actually pay the tariffs, not foreign countries. But nobody is listening to them, mostly because of the obvious hysterical reactions of Canada and Mexico, who frantically stampeded to Trump’s negotiating table to avoid tariffs. It sure doesn’t look like it’s no big deal to them.

The thing is, tariffs aren’t about who pays. They are about access to US markets. The TV experts are lying. Like always.

Their second complaint is the usual sob story about all the “uncertainty” leading to market volatility. And sure, markets hate uncertainty — but this isn’t a natural disaster or a banking collapse. This is one man holding down the suspense button. When Trump rolls out the actual policy tomorrow, the uncertainty will evaporate. The wobbly markets will rally, like they always do.

WaPo’s “experts” whined about a third, more generalized complaint. In another historical first, Trump has caused the WaPo to suddenly discover the blessings of free markets and “the benefits of an open world trading system.” Good for them. But it’s not a free market. Trump has often correctly pointed out that many other countries unfairly impose tariffs on American manufacturers, so there isn’t any “free market” to talk about.

Remember, these fake virtue-signalers are the very same people who cheered every regulation, central bank manipulation, ESG mandate, and the censorship of entire industries. For decades, they celebrated that there hasn’t been a true “free market” in global trade. Europe, China, Canada Mexico, and more — they all impose tariffs, subsidies, quotas, VAT schemes, and regulatory blockades, all rigged against U.S. producers.

Trump correctly points out that any so-called “free market” only exists on our side of the deal. For decades, other countries have piled on their tariffs, quotas, subsidies, and wild currency manipulation, while our sold-out, feckless leaders grinned, waved, and handed them the keys. Trump says he’s going to shut that racket down.

And if he does, the potential economic benefits are incalculable. After a short period of moderately painful adjustment, Trump’s field-leveling will likely trigger a Rust Belt renaissance— massive re-investment in American manufacturing, reshoring of strategic industries, stronger middle-class wages, and the long-overdue collapse of the post-WWII globalist order that’s always been subsidized by American consumers.

In other words: a short-term hit will land on Wall Street. But the long-term result could be a historic Main Street revival. And that’s just the part we can see.

Trump has also hinted at a much bigger, bolder vision. In his State of the Union speech last month, he casually floated the idea of creating an External Revenue Service — a federal agency tasked with collecting revenue from foreign countries benefiting from American markets, rather than shaking down U.S. taxpayers at home.

That’s not just a tax policy tweak. It’s a shot across the bow at the entire globalist free ride. The carefully complicated system of international trade designed to enrich our arrogant élites could come crashing down. No wonder they are freaking out.

Stand by for Liberation Day.

https://www.coffeeandcovid.com/p/disclosure-day-tuesday-april-1-2025

[DougMacG]

The unified Democrat message is  that Donald Trump is failing on the economy. 'He betrayed you, the Trump voter. He cares more about Greenland then your groceries, gas or inflation.'

https://www.youtube.com/watch?v=mU1ogvKMZdo
Discussion starts at about 31:50.
Maria Cardona, Dem strategist, CNN commentator

I get why they are saying that. They lost the last election on handling of the economy and need to reverse that.

She of course mixes lies into the message.

The Republican side of it is to make sure that is not true.

A post yesterday said the markets will turn upward after April 2, today, when all this tariff uncertainty is resolved. I say the markets will turn when a great tax bill is done, and that was also waiting for today when two additional Republicans get seated in the House of Representatives.

Throughout the Biden Administration and the campaign of 2024, Democrats took selective economic data and made a strong case that the economy was fine, you people just don't know it. The majority of voters said otherwise.

In the midterm elections of 2026 and in the presidential election of 2028 Democrats are most certainly going to argue that this Trump economy sucks. No matter how good the numbers, they will argue that all the benefits went to the rich.

My point is that Republicans better get bleeping moving on whatever it is they think they were elected to do. Time is a wasting.

[DougMacG]

Too bad they levy the tariffs (taxes) ahead of the tax plan.

Reminds me of 1980, 1981-1982 Recession.  Didn't have to happen. Tax relief was delayed and phased-in, didn't fully kick in until 1983, costing Republicans the mid-terms, and costing millions of people their jobs.

https://www.federalreservehistory.org/essays/recession-of-1981-82#:~:text=Both%20the%201980%20and%201981,known%20as%20the%20Phillips%20Curve.

[Crafty_Dog]

This is a good point!

[DougMacG]

https://www.realclearpolitics.com/articles/2025/04/10/trumps_two-front_economic_fight_152633.html

Author agrees with my previous post and spells out a lot more detail, facts and figures.

The trade fight should coincide the tax package, not precede it.

In other words, Congress, get moving!

Don't negotiate from a position of weakness.

[Crafty_Dog]

https://decrypt.co/314689/bitcoin-price-ray-dalio-worse-than-recession

[DougMacG]

https://decrypt.co/314689/bitcoin-price-ray-dalio-worse-than-recession

I watched that interview and this one with Tucker Carlson, 21 minutes:
https://www.youtube.com/watch?v=W9FWcX71U7M&pp=0gcJCdgAo7VqN5tD

I was introduced to the views of Ray Dalio by someone I respect. I didn't like his views at first because he was predicting doom and gloom, collapse, and I believe decline is a choice and the people could choose otherwise. I see him now as embracing the view that this can still be fixed but only with very bold action now.

He seems slightly more optimistic now with Trump elected and doge in place but he is nonpartisan in his approach.

He tries to simplify a very complex framework into broad categories. The crucial piece within our control right now comes down to deficit, debt and debt burden.

Deficits are running at 7% of GDP. They need to be cut to 3% of GDP urgently. That also happens to be (roughly) the mission of the current administration (though they are unlikely to succeed without bipartisan public support).

You can lower the burden of deficits and debt in two ways, cut the spending and grow the economy. The so-called big bold beautiful bill coming seeks to do both.

Like me and all real economists, he draws a distinction between tax revenues and tax rates. We need revenues and we need GDP growth. We don't need further stifling of growth.

I expect the new bill and even the Doge cuts will be way too timid.

The uproar is maximum even when we barely cut from the 'baseline' and in reality cut nothing. Imagine the Uproar if we really cut a trillion a year in spending and reform taxation enough to unleash new growth and prosperity. The party of protest with all their media bullhorns will have a conniption.

[DougMacG]

https://nypost.com/2025/04/20/opinion/environment-improves-as-more-nations-prosper-the-greatest-polluter-is-poverty/

Environment improves as more nations prosper — the greatest polluter is poverty
By Bjorn Lomborg
Published April 20, 2025

(Doug).
Unleash prosperity and accept the 'unintended consequences' of improved health and  cleaner enrironment.

Strange that the people  who say they care about the environment (used to care?) oppose expanding prosperity at every turn.

[DougMacG]

https://www.manhattancontrarian.com/blog/2025-4-23-pope-francis-was-no-friend-of-the-poor

"Thinking that he was working to uplift the poor and downtrodden of the world, Francis accepted all the most destructive prescriptions of the international Left."

"If Francis ever recognized the critical role of private property in enabling the poor to lift themselves up out of poverty, I can’t find it anywhere."

[DougMacG]

Why Raising Taxes Never Works
April 28, 2025
A great piece in the WSJ by former Reagan speechwriter Kenneth Khachigian reminds us of what happened when Reagan was snookered into raising taxes 40 years ago.

“In 1988 Reagan complained that the 1982 tax increase that he reluctantly embraced was among the worst decisions of his presidency.”

“The fellas promised I would get $3 of spending cuts for every $1 of taxes I agreed to. Instead, for every dollar of new taxes we got $1.70 in new spending – the complete reversal of what I was promised.”



We would add that on several occasions when taxes were proposed to Reagan during his second term, he would fume: “I’m still waiting for those three dollars of spending cuts they promised me the last time we raised taxes.” They never came.

Reagan learned his lesson the hard way.  Will President Trump and the current Republicans in Congress?

[DougMacG]

Podcast interview with 3 never Trumpers. John Ellis is a self-described George HW Bush Republican and Joe Klein and Larry Summers come from the Clinton administration. This is long (sorry about that), not my view, but worthwhile I think. Transcript from podcast.
---------------
Larry Summers
The podcast transcript.
John Ellis
Apr 28

(Summers served as the Secretary of Treasury in the Clinton administration,
 director of the White House National Economic Council in the Obama Administration, as President of Harvard University and as the Chief Economist of the World Bank.)

Larry, thank you very much for joining us today. I think for our audience, I'd just like to start by talking about the Trump administration's economic theory of the case, if you will. The Reagan administration had supply side economics as its theory of the case. The Clinton administration had the idea that if you assuage the bond markets, you would free up capital for private investment, which would spur economic growth. Dick Cheney actually had an interesting idea, which is that deficits don't matter.

I think a lot of people are confused about the Trump administration's theory of the case. So we thought we'd start by asking you whose knowledge of public finance and economic policy is, uh, shall we say, impossibly impressive. So can you do that for us? Can you give our audience a thumbnail of the Trump theory of the case?

[00:01:49] Larry Summers: I don't know that there is a theory of a case that is rooted in economic analysis rather than the psychological imperatives of, the president that unifies, things. But if there is a theory of the case, I think it probably rests on three pillars. First, that the world is a transactional place and that all leverage one has should be used and that the United States, by virtue of being a superpower, has an enormous amount of leverage.

[00:02:34] Larry Summers: Second, that the accumulation of wealth. The accumulation of assets is the ultimate purpose of economic activity because it leads to more leverage or power rather than, living well. And third, that selling is good and buying is bad. And so it's good to have trade surpluses. And I think those are the three pillars of their beliefs.

[00:03:18] Larry Summers: And I think in embracing those, pillars, they commit four or five fallacies that we teach in almost every introductory economics course. Number one, they suppose that bilateral economic relationships prove anything. In a complicated world. I run a big trade surplus with Harvard University.

[00:03:46] Larry Summers: I run a big trade deficit with my golf club. I am not exploiting Harvard University. My golf club is not exploiting me. It is the natural order of things that things work out that way. It is entirely non probative with respect to any kind of unfairness or exploitation. Second, even aggregate trade balances do not necessarily and often do not reflect economic weakness.

[00:04:24] Larry Summers: I'm living in the state of Arizona. The state of Arizona has run a trade deficit with the rest of the United States every year for the past a hundred. That is an arithmetic concomitant of the fact that people and investments are moving to Arizona. And the only way that there can be a flow of capital to Arizona is for Arizona to spend more than it earns as people invest in it.

[00:04:57] Larry Summers: And there's a corollary of that to import more than it exports. And I, and I think most Americans would rather live in a country that capital is desperate to get into than a country that capital is desperate to get out of. And if one looks at economic catastrophes, they always have large capital outflows.

[00:05:23] Larry Summers: And as a consequence, they have more exports, than imports. And as a consequence, they are selling more than they are buying. But that is a sign of weakness, not of strength. The third. Fallacy of a Trump world is the idea that imposing tariffs is a way of changing trade balances in important ways. Once one recognizes that trade balances are the difference between what a country spends and what it earns, what it in aggregate saves and how much investment takes place within them, it's immediately clear.

[00:06:18] Larry Summers: The tariffs are not likely to have large effects on, trade deficits any more than putting a tax at certain stores that I like to buy at might or might not change the gap between my spending and my income. Putting a tariff on certain products from certain sources doesn't change the fundamental of how much a country wants to spend relative to how much it is able to produce, what logic suggests.

[00:06:56] Larry Summers: Experience confirms. Switzerland has very, very low tariffs and a huge and chronic and recurrent trade surplus. Brazil has very, very high tariffs and a chronic and sustained trade deficit, so it is neither true that trade deficits have a lot to do with, um, economic wellbeing, nor that tariffs have a material impact on trade deficits.

[00:07:32] Larry Summers: The fourth fallacy is the failure to recognize that, we now live in a world of integrated production and, uh, supply chains and show today's imports are inputs to tomorrow's exports. The United States has 60 times as many people working in steel using industries as it does in the production of steel, steel tariffs.

[00:08:02] Larry Summers: Raise the price of steel, not just imported steel, but also domestic steel that competes with, imported steel. And in the process, make other industries much larger industries than steel, like automobile production, like home building, less competitive by virtue of having more expensive inputs.

[00:08:27] Larry Summers: So tariffs do not even serve the objective of promoting the competitiveness of American manufacturing. One study done of the Trump administration's tariffs at the Federal Reserve, found that the 2018 tariffs, which are about a 10th as large as the ones we're talking about now.

[00:08:52] Larry Summers: We're net destroyers of jobs within the manufacturing sector. And the last point, and maybe the one that is most important for people to understand is that the idea that the future of manufacturing production is the future of the American economy is delusional. Yes, we need to invest in protecting our defense industrial base.

[00:09:29] Larry Summers: Yes, there are important issues of resilience that have to do with production. That's just in case rather than just in time that businesses and policy makers have perhaps paid insufficient attention to. those require specific and targeted kinds of policy responses, but the idea that across the board, tariffs on all countries and all sectors are a way of achieving that is not plausible.

[00:10:11] Larry Summers: The idea that we are somehow gonna produce some kind of economic renaissance through the production of manufacturing or the increase in manufacturing is not credible. The statistic everybody quotes is that 8% of jobs are in manufacturing. That's a small number, but it misses a crucial point that half those jobs.

[00:10:39] Larry Summers: Half are in jobs that exist in all sectors, advertising, marketing, accounting, being an administrative assistant. So we are at 4% in production work. That number has been in steady decline, not just in the United States, but in every major country. China has fewer manufacturing production workers despite its manufacturing boom than it did a quarter century ago.

[00:11:12] Larry Summers: And so the idea that we are going to produce any important employment effect through the whole scale production. Our encouragement of manufacturing is also not realistic. And so at each of these levels, the non relevance of trade deficits, the inability of these policies to impact trade, deficits, the lack of connection between trade deficits and manufacturing scale, the lack of connection between manufacturing scale and economic success.

[00:11:57] Larry Summers: This is not a serious, uh, theory. The Laffer Curve, which I regarded as a badly wrong economic theory, had internal logic. And was rooted in economic ideas that had been discussed for a long time. I have derided modern monetary theory. It has intellectual antecedents in serious thought by economists. Those who favor industrial policies in much more dirigiste ways than I would favor can point to a tradition of economic thought.

[00:12:49] Larry Summers: This set of policies is without logic or grounding in experience. The interesting proposition is not that free trade is better than protectionism. The interesting proposition is that within the scope for protectionism, the approach now being pursued is nonsensical.

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[00:13:19] Joe Klein: Was actually, that's exactly where I wanted to go, Larry.

[00:13:23] Joe Klein: on the kind of strategic level, to Trump's tariff policy? Is, is there a method, to his madness? I think we, all three of us agree, that the, the policy is mad, but does he have a plan, in terms of how he's going to lift or impose or he seems to change it every day?

[00:13:47] Larry Summers: I have not been able to, discern a, plan. There are hallmarks of things that are being done according to plan. The different actors in the drama speak from the same set of talking points. That is dramatically not the case with, uh, the Trump administration commitments made on Tuesday are honored on Wednesday and Thursday.

[00:14:19] Larry Summers: That is not a hallmark of the approach, that is being, pursued. here. No, I think there is an instinct and reckless, ego driven improvisation by the president of the United States enabled by those who have taken oaths of service, not to the president, but, to, the country.

[00:14:50] John Ellis: I wanted to ask Larry, um, uh, you know, I'm the, I'm the Chief Executive Officer of Morgan Stanley, and I see this happening.

[00:14:59] John Ellis: So I call up Larry Summers and I say, Larry, what do I do about this? I mean, how, how should I respond? What would your answer to that be?

[00:15:11] Larry Summers: It would be at, uh, a number of different levels. If you're walking down the street and somebody is walking unsteadily, just stipulating wildly with, their arms carrying a suspicious parcel, it's probably a good idea to give them a wide berth and not to engage them in a dispute if you have to act on your own.

[00:15:47] Larry Summers: And, I understand the instinct of individual CEOs and individual companies to steer, clear. I think it's also a good idea if it's in your neighborhood to try to get a group to join together to engage in some kind of confrontation to assure safety. And so I would counsel those in the business community to try to lock arms and come together in, protest.

[00:16:33] Larry Summers: And I think it is not the least of America's generalized deficiency of social capital. That there has been a failure of collective action. Somehow the nation's law firms, even though efforts are being made to ize them out of providing the services that represent the deepest ethical commitments of lawyers, have not managed to come together in resistance.

[00:17:07] Larry Summers: Individual universities, and I'm proud of what Harvard has done, have resisted, but there has not been an effective coming together of academic community. We have a president who, of all things venerates, the titans of industry and the titans have not been Titanic and have not come together collectively as a group.

[00:17:38] Larry Summers: So I would. counsel collective action on mass. And given the scale of the threat and the danger, I have been disappointed that we have not seen, more of that. Now, to be fair, it is easier to counsel courage than to be courageous, and there is. A moment when it is right to act, when the dimension of the problem has become very clear.

[00:18:17] Larry Summers: It is easier to act when there is ambiguity about the dimension of the problem, and it may well be that there is still time before the problem becomes permanent or too enormously damaging. So it may be that some of those who could be acting are biting their time. And while it seems to me that. That biting has gone on for too long.

[00:18:48] Larry Summers: I credit the possibility that wise judgment is, being, applied, but I think this is a very scary moment. I think it is always a mistake in life to think that bad cannot get worse, and I think it does bear emphasis that we have not in an unambiguous way, crossed a Rubicon where clear court orders are being blatantly defied.

[00:19:26] Larry Summers: There's always jockeying and interpretation and all of that with respect to what the judiciary does. And we are certainly close in a number of areas, notably in El Salvador. But I do think it's fair, uh, Joe and John to recognize that that Rubicon, the Andrew Jackson Rubicon of the Supreme Court has, spoken.

[00:19:59] Larry Summers: Let's see what it's going to do next. We have not crossed that Rubicon, yet, but my advice, to a business executive would be along the lines of, what I have just said.

[00:20:17] John Ellis: Let me just follow up on that for one second. So you're there with the CEO of Morgan Stanley and he says, look, I wanna bring the traders in.

[00:20:25] John Ellis: I wanna bring in the Chief investment Officer. Recognizing that you're not offering investment advice, but, given this environment, how does one trade it, if you will? if you're a Morgan Stanley or Goldman Sachs, how do you approach? What's your strategy? I guess

[00:20:42] Larry Summers: I would say that we've, we are seeing something new as a market phenomenon.

[00:20:49] Larry Summers: The American capital flight trade, there's a pattern. I saw it when I was in government, in each of the financial crises that I dealt with in foreign environments. Um, the pattern is there comes to be a generalized loss of confidence in a country. And therefore a run on all its assets. that's when the stock market goes down.

[00:21:21] Larry Summers: At the same time, the stock market's going down, even though a recession is more likely, bond yields are going up and the bond market is going down, the currency is collapsing, and people who used to own the country's assets are buying more gold. That's what has happened in recent years and a number of points to Erdogan's Turkey.

[00:21:49] Larry Summers: That's what has happened, uh, a dozen times over the last 70 years in Argentina. I. We had a bit of that in the worst moments of the Carter administration, and that's what led to Paul Volcker's appointment as chairman of, the Federal Reserve. That's not the American pattern. When people got nervous during the financial crisis, the United States was still the world's bastion, and so people bought US bonds, they bought the US dollar, but today we have American capital flight and we have had it with particular force and virulence when the president has been more true to his economic convictions.

[00:22:48] Larry Summers: When he announced his Liberation Day policies indicated after a disastrous first day of market response that he would remain committed. We saw the American capital flight trade undo itself somewhat when he backed off the reciprocity, tariff policies. We saw the capital flight trade reinstitute itself in a very strong way on Monday of this week when the president further indulged himself in fed bashing.

[00:23:26] Larry Summers: When the emanations suggested that was just talk. We saw, later in the week some backing off, in the pattern. But the defining thing one has to gauge in this environment is the American capital flight trade. And that's not a phenomenon that trading desks are accustomed to when they're talking about American assets.

[00:23:57] Larry Summers: It is always a thing that is top of mind for any emerging market investor to think about whether the country in question is gonna move from being an emerging market to being a submerging market.

[00:24:12] Joe Klein: Larry, you were at the very top of this. You talked about Trump's philosophy of, strength,.

[00:24:18] Joe Klein: One, one thing I wonder about here is a very specific gamble that he's making and that gamble is that the American economy is ultimately stronger than the Chinese economy. what's your assessment of the Chinese economy? How much trouble are we in? John writes endlessly about the, the real estate market there, but, I think that when export market is threatened, uh, the Chinese get very scared.

[00:24:47] Larry Summers: I think, the history is likely to record that the United States made a very substantial error in assessing the Soviet economy. In 1960, John Kennedy died believing that Russia would surpass the United States economically. History does record massive error in the late eighties and early nineties in the assessment of the Japanese economy.

[00:25:20] Larry Summers: And my guess is that the views circa 2020 of the Chinese economy will come to look to have been almost ludicrously optimistic. I think it's a good rule when parents push their children to study a new country's language when they're in high school, that's usually a sign that that country's, economy is, peaking.

[00:25:52] Larry Summers: And, so I am not optimistic about the long run Chinese economic prospect, however. Most sobering hour or hour and a half that I've spent in the last six months was in the World War II Museum in Tokyo, which makes very clear that the antecedent of Pearl Harbor was a perception on the part of the Japanese authorities that their economy, while appearing strong in fact, was not, and was being importantly constrained by a variety of aggressive US economic policies.

[00:26:46] Larry Summers: And so I think that economic disappointment with the capacity to place blame on the United States. In a complex authoritarian, structure where the authoritarian is not going to be able to meet all the expectations he has raised... is a very, very dangerous, situation. So I am not. Optimistic about the Chinese economy, but I think an American economic strategy of trying to tip it over some kind of brink is not likely to be a strategy that is effective in promoting American interests, even if it is a strategy that proves to be successful in undermining, Chinese interests.

[00:27:51] Larry Summers: Uh, my own view is that the right way to think about the United States and China is two people who share a toward lifeboat in a turbulent sea, a long way from shore who don't know each other that well, and who instinctively have little affection and some amount of aversion. Who nonetheless are in a toward lifeboat, a long way from shore and with no alternative but to reassure each other and cooperate well enough to reach the shore.

[00:28:40] John Ellis: One thing I think the Chinese have, have been very smart about is investing in brain power, in the stems as it's called. and that leads us to, the Trump administration's assault on academia, sort of writ large. What, where is that coming from? I mean,. If you wanna attack Harvard University where some of the most important scientific research in the world is taking place, it seems insane that you would,, cut funding for that, that you would, block, foreign students from coming in to study thre, um, do you have a sense of what's really driving this policy, I guess you would call it?

[00:29:21] Larry Summers: This is a long political tradition. Richard Hofstetter wrote a famous book in 1963 called Anti-Intellectualism in American Life. Joe probably knows the story better than I do, but Ronald Reagan on plausible accounts won the election that began his political career, in 1966 against Pat Brown with his best issue being complaint about what was going on at the University of California at Berkeley.

[00:29:58] Larry Summers: And, and asserting that students needed haircuts. Joe McCarthy, ran his most successful efforts against pointy-headed Ivy League elites. And he only encountered failure when he shifted his target from Ivy League elites to, the us, military. So the idea that there is political hay to be made by attacking pointy headed intellectuals in universities that is as American as, apple pie, and Trump is picking up on that enduringly successful, trope. it has been made easier for him by a variety of trends in higher education that have been unwelcome. They have preserved more of the noblesse than of the oblige. They have cut themselves off from a broad swath of Americans.

[00:31:20] Larry Summers: I mean, if you look at the field, for example, of American studies. You read the major scholarly journal of the field or you look at the course offerings at major universities, the correct nomenclature for the field would be anti-American studies rather than American studies.. Someone described, um, American studies at Harvard to me when I was president as being, oh, you have to understand it's a holding company for identity politics, intellectual material opposing the American, tradition.

[00:32:02] Larry Summers: And for reasons I'm not fully learned enough, to trace there is, those who for out of intellectual doctrinal reasons are led to see colonialism as a central and besetting sin have chosen Israel as their primary target, today. And those are very fashionable doctrines in no small part of American intellectual life.

[00:32:38] Larry Summers: And that has led to antisemitism being — even occasionally encouraged on college campuses in a way that would be unthinkable with respect to racism. So the urge to go after elites is all ready there, and for a variety of reasons. You know, I think back to the fact that it was the policy of every Ivy League University... that because the Ivy League universities disagreed, I might say rightly, I think with the judgment of successive democratically elected presidents, and democratically elected congresses, that the United States should have a given set of policies on gays in the military.

[00:33:32] Larry Summers: It was their policy not to permit the military to recruit on the campus. It is not unreasonable for people to have found that outrageous. I attended the ROTC ceremony. when I was the president of Harvard — the commissioning ceremony. I was the first Ivy League president in 30 years to attend an ROTC commissioning ceremony.

[00:33:58] Larry Summers: So I think another part of what has happened is that there is always that temptation to populist attack on universities and then universities have presented a very attractive target, and that is what's going on here. Now: To explain is never to justify. Was it reasonable for the Biden Administration Office of Civil Rights to open inquiries about antisemitism on college campuses?

[00:34:34] Larry Summers: I actually think it was. Was it reasonable for the Trump administration to simply freeze funding in complete contravention of every process, statute and requirement in the statute to, freeze funding unless letters of diktat were complied with, with the range of demands going far beyond anything that could be plausibly committed or regarded as having to do with discrimination?

[00:35:17] Larry Summers: No, that was outrageous, and I think Harvard was right, to Sue. You know, John and Joe, when you become an official in the Treasury Department, you sort learn that — of course you're not supposed to take bribes. It's just elementary ethics that you're not supposed to take bribes. Fully sacrosanct is the idea that you're not supposed to get involved in individual tax matters at the IRS. And yet we have the president of the United States calling for a change in the tax status of an individual institution and giving instructions to appointments, those he's appointed in the Treasury Department to convey this to the IRS.

[00:36:13] Larry Summers: And you have, as best one can tell, complicity on the part of, the Treasury Department. When Richard Nixon did this kind of stuff, George Schultz put the relevant notes in a safe where they would never be seen and told the commissioner of the IRS that we were going to be entirely ignoring this. That's what leadership is about, and that's not what we are seeing.

[00:36:46] Larry Summers: You know, Richard Nixon, in an important sense, knew the difference between wrong and right. That's why he always tried to cover up and hide what he was doing that was wrong. We now have a president who glories in his wrongdoing and wants his wrongdoing to be as widely known as possible so that it can intimidate as widely and broadly as possible.

[00:37:20] Larry Summers: That is far more serious (issue). and I don't think it is a thing that has precedent in America's post Civil War history.

[00:37:33] Joe Klein: Larry,, I have to, confess I was an American Studies major, but it was in the 1960s and the result was, the result of reading people like Hofstadter and C Van Woodward was that I came to really love the country at a point when the country was doing some really stupid things.

[00:37:53],

[00:37:53] Larry Summers: So you should explore with, your formidable skills, the current state of the field of American studies. I think you would find it eyeopening, (and) in a positive educational way, to review the flagship journal of the field and the syllabi of courses at a number of major institutions.

[00:38:20] Joe Klein: I, I've gotten old and life may be too short for that. but let me ask you this, I admired tremendously your tenure as president of Harvard. but you ran up against, some formidably stupid and myopic forces on the left. Donald Trump is running against those forces as long as he's talking about Harvard and El Salvador.

[00:38:49] Joe Klein: He's not talking about the economy, and he's doing this successfully. It's what won him the last election. you are a political person as well as an economic person. You have served in democratic (party) administrations. how would you counsel the Democrats to respond to this part one and part two?

[00:39:09] Joe Klein: Are there any democratic, uh, politicians who you really admire right now?

[00:39:17] Larry Summers: I, um, I have tended towards the view that political message, people very frequently don't seem very smart to me on economics. Therefore, I take seriously the possibility that I am kind of useless on a political message, and I hesitate to prescribe, with, confidence. I do think that all of the evidence is that people care more about the economy than they care about abstractions, and so I think the Democrats would be well advised to be pointing to economic failure, pointing to the fact that I don't think there has been another President who managed during their first a hundred days to preside over a huge drop in the stock market, a huge drop in the value of the dollar, a huge increase in home mortgage rates, a downwards revision in growth prospects, an upwards revision in unemployment forecast and in upwards revision in inflation, and, for all of that, to be linked to the president's own words.

[00:40:43] Larry Summers: And I think that catastrophic economic failure from a President whose raison d'être had a lot to do with how he was gonna create a boom and bring down inflation, is a place where democratic messaging should start. I think the second place that I would go is to basic notions of fair play. I think abstractions of democracy get only so far, but I think Americans are basically committed to, fair play, and I think fair to one's opponents and those one is dealing with and fair in terms of not feathering one's own nest and the friends of one's, selfs nest. I think that is a second place in which I would be going in terms of, messaging. And I think the third message that the Democrats need to be pushing is towards a connection with a broad swath of America. I always think of a photograph that many of us, I'm sure almost all your listeners have seen.

[00:42:14] Larry Summers: It's a photograph taken during the depression of a dozen guys with lunch pails, sitting on a girder, suspended over Manhattan. And, when I think of the Roosevelt Coalition, I think of those dozen guys, and it is sobering to me that two thirds of those guys today would be voting against the Democrats.

[00:42:45] Larry Summers: And so I think the Democrats have a great deal of repair to do, away from being the party of the faculty room and the identity group. And if they can find ways of connecting with a broad American middle class, I think they will be much more effective. I've admired. Things that my friend, Rahm Emannuel, has been saying.

[00:43:19] Larry Summers: He seems to be in touch with a good deal of what I am talking about — in terms of both recognizing the dangers of the Trump administration — and also having some instinct for the senses of: fairness, and, values, and patriotism that I believe animate Americans.

[00:43:54] Joe Klein: Ah, so you did give us a name. I was, I was betting that you wouldn't, I remember, uh, 20 years ago I asked, David Petraeus, whether there was anybody in the Democratic Party who, uh, understood the way his mind worked.

[00:44:07] Joe Klein: And he said, "You mean aside from Hillary?", Hillary Clinton was on the Armed Services Committee at that point. you know, I, I have two kinds of friends: One group think that the coup has already taken place, and the other think that the coup will take place in the next few months. Um, how much trouble are we in?

[00:44:30] Joe Klein: and I know that you've spoken in the last five minutes about the perils of going into abstract democratic questions. But, how much trouble are we in terms of our democracy and way of life?

[00:44:44] Larry Summers: I think we are in more trouble by some significant margin than at any point in my lifetime. So that includes the McCarthy period, that includes the traumas of the late 1960s, and Watergate, that includes the Cold War at its height. That includes the malaise (the) period of loss of confidence of the late 1970s, that includes the various dislocations of Covid where a million people died.

[00:45:41] Larry Summers: I think the American project is in more jeopardy than any of that. I am ultimately an optimist. Winston Churchill did not say what is attributed to him, that "The United States always does the right thing but only after exhausting all the alternatives." But, I think there is a lot of truth in that, and I am a believer when it comes to the United States in the power of self-denying prophecy.

[00:46:23] Larry Summers: I think there is a reading of American history that suggests that, we as a country, have a tremendous capacity for the jeremiad about doom, but that ultimately because we have that capacity, we tend to right ourselves before it's too late. And, my best guess is that the United States will see off this challenge, given all of our great strengths, but, I can't say I'm certain of that.

[00:47:03] Larry Summers: And given the stakes involved, even a small risk that we don't is something that is of immense, significance.

[00:47:18] John Ellis: One last question before we let you go. Larry, you're on the board of OpenAI. I think, our audience would be very interested to hear if you're optimistic about the future of ai. Are you concerned? Where are you given your knowledge of where things stand and where things are likely to go in this extraordinary new technology?

[00:47:39] Larry Summers: Yes to all of that, I am very optimistic about the technological potential of AI and also concerned about our ability as a society to manage adapting, to it. You guys are extremely sophisticated, so I think it is... four or five years until we are at the point where there would be an AI, that had absorbed everything I've said and written, and it could perform this podcast and you wouldn't know whether it was the real Larry Summers or just some synthesis of Larry Summers done by an AI.

[00:48:34] Larry Summers: I think we're, within a year and a half, of the moment when people who are much less sophisticated, and who haven't known me a long time, like the two of you, would have that ability. And, I think that's a kind of remarkable commentary on these systems. I now think there's a substantial likelihood that we will see a very rapid increase in scientific and technological progress as a consequence of AI.

[00:49:09] Larry Summers: And I think that, while much of the discussion has focused on the comparison of an individual AI with an individual brain, I think the larger issues ultimately will have to do with the capacity for hundreds or thousands of AI to be in cooperation with each other. I mentioned an idea about studying American studies a little bit earlier to Joe and he said he was, "Getting older and life is too short."

[00:49:45] Larry Summers: (Laughter from Joe) In a world where there were a hundred mental versions of Joe, through AI, life would not be too short for any idea to be explored. So, I think the potential is immense, but I think we are going to have to be more agile and nimble as a polity then we have shown ourselves to be of late if we are to deal with all of this in a way that makes it work for everyone.

[00:50:30] Larry Summers: I have a sneaking suspicion that because AI is likely to come for IQ before it comes for EQ, because it is likely to reduce the value of the cognitive, because the AI can replace it, that it may ultimately be substantially egalitarian in its implications. But, that is not to say that there won't be a huge amount of change with which we will have to deal as a society, but ultimately I am a believer in progress.

[00:51:21] Larry Summers: great changes came from everything from the printing press, to electricity, to the airplane, to the computer, to the internet, and I think AI will be at least as significant as any of those steps.

[00:51:42] Alex K. (Producer): Joe, do you have an exit question?

[00:51:46] Joe Klein: No, I think that that's a great place to end it, although I do have, you know, 600 other questions I could ask.

[00:51:53] Joe Klein: and, it's always, a pleasure to talk to you, Larry, even back in the day in the Clinton administration, when we'd sometimes disagree with each other!

[00:52:04] Larry Summers: Yes! These days I think we're pretty well, we are we are pretty well aligned.

[00:52:10] John Ellis: I think the, the thing that you said that that's really true, and it's not just true about, you know, legal matters, but the thing I struggled to understand is I think we have actually crossed a Rubicon and I don't understand, or I can't, you know, grok how we get back.

[00:52:32] Larry Summers: You know, we probably thought we had crossed a Rubicon with Joe McCarthy. We probably thought we had crossed some kind of Rubicon on the night of the Saturday Night Massacre. I remember as a 14-year-old the streets of Chicago in 1968 and what was America in the face of that.

[00:52:56] Larry Summers: So, I do think it is easy to get a little too consumed with the, the terribleness of the moment. I haven't gone back and read carefully. You guys probably know better than I, the degree of hysteria on the part of progressives, and on the part of the media, about Ronald Reagan, and then about W (President George W. Bush) and the fact that they were so hysterical in ways that look today to have been excessive, that there was so much hysteria about Japan surpassing us in ways that today look ridiculous, lead me to apply some discount to alarm. You know, the smartest people who give investment advice. a thing they talk about a lot is, and I don't remember what the right number is, but there've been a thousand months since the second World War.

[00:54:08] Larry Summers: If you were out of the market for 75 of those months, you would've missed 80% of all the increase. And so it is easy to become very alarmed, and to think that the alarm will continue forever. But: Rome did fall. So, I think one should control one's pessimism even as one voices one's alarm.

[DougMacG]

https://www.wsj.com/economy/us-gdp-q1-2025-1f82f689

Massive fuel for the political opponents.  Steepest decline since ... since Joe Biden was President.

"The U.S. economy contracted in the first three months of 2025, as businesses rushed to stock up on imports ahead of tariffs. ... Imports subtract from the Commerce Department’s calculation of GDP." 

Not exactly a contraction, but news is news.

It brings up a few points:

Did the economy really 'contract' if imports surged?

Weren't these were runners left on base by the last administration, their budget, their investment shortages, their housing costs, their fuel costs, their grocery costs, etc.?  And yes, Trump's trade disruption.

Liberals accuse corporations of only caring about the next quarterly report, not the long term.  The main Trump disruptions are aimed at correcting very long term wrongs with long term benefits.

What was the growth rate before, if you don't count new government jobs supported by imaginary money?

What would the growth rate be if Kamala-Walz and a Dem Congress had won, as the detractors seem to wish?

Did Trump just get Democrats and media (redundancy alert) to admit, ECONOMIC GROWTH MATTERS?  Growth is central to everything, health care, environment, security, employment, real wages, and all the rest.

Let's pass economic growth measures, NOW!

History repeats itself (and so do I).  The Carter malaise brought stagnation coupled with a doubling of the inflation rate.  The new Fed Chair Volcker tightened money long before new fiscal growth stimulus was enacted. A recession resulted!

Congress is working on a new budget, but from where everyone else sits it looks like Congress is sitting on their hands with their mouths taped shut while the biggest tax increase in history (thank you Democrats) is impending.

The time to act on that is WHEN??

If they go on recess without passing it, so will the economy.

Spending cuts, deficit reduction?  Courts are telling Trump he can't cut his own Executive Branch without an act of Congress?  Ok, do it!

And these trade deals... let's go!  They should at least announce framework agreements, now!

So what is Congress doing today?  The (Republican) Senate is taking a meaningless vote to take trade power away from Trump right in the middle of negotiations.  Hey Rand Paul, did it occur to you the House won't vote on it and Trump would veto it?  Are we sure McConnell is the worst Senator from Kentucky?

Change is not happening too fast for me - or for the economy.

[DougMacG]

Must cut deficit (ratio of deficit to GDP) in half.

https://www.barrons.com/livecoverage/berkshire-hathaway-earnings-warren-buffett-annual-meeting/card/buffett-on-government-spending-the-deficit-is-unsustainable--giD9I9mbDaXHjNvQu9ow

[Body-by-Guinness]

This caught my eye as Crafty has pointed out over the years that externalized costs beget bad decision making, a notion this piece riffs on:

Government and Externalities
Government is supposed to police private entities, but who controls government cost-externalization?

GLENN HARLAN REYNOLDS

MAY 02, 2025

I’ve mentioned in passing that the Insta-wife’s health issues have flared up a bit. Last week I took her to a consult at Vanderbilt in Nashville. It was fine, but then we went to Chattanooga to spend the night, and have brunch with an old student who’s now a good friend to both of us. (Knoxville, Nashville, and Chattanooga form a triangle, with the Knoxville/Nashville trip the hypotenuse, more or less.)

Brunch was delightful, but then it was time to go home. The five-mile drive from downtown Chattanooga to Interstate 75 north of the interchange took us about two hours, which is somehat longer than the whole drive back to Knoxville should take. This was not because of traffic, exactly, or an accident. It was because the in-progress construction narrowed four lanes of traffic on I-24 connecting to I-75 into one.

Now, when I say “in-progress construction,” I don’t mean that there was actually any construction in progress. There were signs that there had been, and would be construction. There were machines and piles of gravel and other supplies along the sides of the road. But there weren’t any actual workers doing any actual work that day.

It seems to me that when you’re going to do things that back up traffic that much, you should want to get them over with as fast as possible. But apparently the state highway department and its contractors don’t share that view. It was a Saturday, and having people work then would require them to pay overtime.

To the state, having people work weekends and nights to get the job done faster is just an expense. Not doing the work then, resulting in more traffic backups, is an expense, too, of course: Time is money, and tens of thousands of people a day were being delayed by as much as two hours. This includes both individuals and commercial freight — which, despite claims of a slowdown in trucking, seemed to be moving (or not-moving, as the case may be) in dramatic volumes.


No shortage of trucks here.

But those expenses aren’t borne by the state. They’re borne by the individuals and companies who are affected by the delays. In effect, the state is shedding some of its costs onto the people it inconveniences, rather than bearing them itself. How much? I asked Grok for a rough, conservative estimate. At 110,000 vehicles per day (the available estimate for usage of that interchange) and assuming a two hour delay for each vehicle, costing minimum wage plus 20%, Grok gave a figure of $1,914,000 per day due to lost time.

Which is funny, because one of the justifications for government is that without government regulation and supervision, private entities would shed their costs onto the public. This is called “externalizing costs” in the literature. A classic example is a factory that produces widgets and makes a profit, but that releases pollution into the community. The profits are internalized, being kept by the company, but the pollution costs are externalized, being borne by someone else, the people breating the polluted air or drinking the polluted water or whatever.

But the government externalizes costs all the time. When you file your taxes, the government gets its money. But when you do your taxes and mail in a check, the government externalizes the cost of calculating them, and of collecting them, onto you. (Or, when they’re withheld from your paycheck, onto a mixture of you and your employer).

When government officials enjoy sovereign immunity for law-breaking or for torts, as they sometimes do because they’re government officials, the damage done is borne by their victims, not by the government. It’s externalized. When public schools turn out ignorant students but support unionized teachers, the costs of supporting a government constituency are externalized. Likewise when corn farmers are subsidized via ethanol subsidies, leaving ordinary people to purchase (inferior) gasohol. Etc., etc.

Many years ago — before I started blogging — I wrote a column for the local alt-weekly where I made this same point in connection with highway construction then going on in Knoxville. I got lots of supportive email from across the political spectrum, but a nasty note from someone at the state highway department, who said it would cost a lot more money to do construction at night and on weekends. Well, more money coming out of their pocket, but less coming out of highway users’, perhaps. I doubt it would cost the state nearly two million dollars a day in overtime to get the highway open sooner, but whatever it does cost comes out of the state’s pocket. The delays come out of yours and mine. And we don’t count.

This kind of thing explains some of the inefficiencies that DOGE is finding in the federal government — though many of the “inefficiencies” there are turning out to look like outright fraud and theft, not just cost-externalization — and it’s a classic case of collective action problems. The state knows what its interest is. Drivers are a diverse, random group. They may complain about the traffic, but they’re poorly positioned to form a coalition to make the state change its ways.

I’m tempted to rent a billboard on that stretch of I-24 with the governor’s phone number, encouraging angry motorists to call and demand a swift fix.

I also note that with license plate readers already all over, it would be no particular new burden to privacy to have the state send you a check whenever you’re unreasonably delayed on the highway, something that would be easy to calculate. (Some states already do this, more or less, to collect tolls.) Then the incentives would line up more evenly.

Any thoughts on other responses that might help? You guys have fertile brains.

https://instapundit.substack.com/p/government-and-externalities?r=1qo1e&utm_campaign=post&utm_medium=email&triedRedirect=true

[DougMacG]

https://www.wsj.com/opinion/trumps-three-steps-to-economic-growth-tariffs-trade-tax-cuts-deregulation-7804053a

Trump’s Three Steps to Economic Growth
His tariffs, tax cuts and deregulation efforts make up a coherent strategy to benefit Main Street.
bu Scott Bessent

Readers of this paper know better than anyone: Wall Street has experienced historic success over the last four decades. Since 1980, the S&P 500 has increased more than 5,500%. Our capital markets are the envy of the world, and President Trump intends to strengthen them further.

The president recognizes the critical role Wall Street plays in financing the American dream. But it’s Main Street’s turn to share in the prosperity. This is the guiding ethos of his bold economic agenda.

He wants to ensure working families aren’t left behind in the next era of economic growth—as many were in the last. In the first 100 days of his presidency, we have laid the groundwork to rebalance global trade, restore America’s industrial base, and build an economy that allows Wall Street and Main Street to rise together.

To understand the urgency of this economic rebalancing, it’s critical to understand why it is necessary in the first place. The early 2000s represented the high-water mark of neoliberalism—the “end of history” in which despotism would give way to democracy and free trade.

Not coincidentally, this period also marked China’s rise in global commerce after joining the World Trade Organization in 2001. Economists David Autor, David Dorn, and Gordon Hanson identified the “China Shock” in a 2016 paper on the uneven effects of trade liberalization: 3.7 million Americans lost their jobs. Offshoring production to China accounted for 59.3% of U.S. manufacturing job losses, and most of these workers entered long-term unemployment.

Proponents of this wrecking-ball policy argued for making up its losses through wealth redistribution—as if a handout could heal the families and communities shattered by outsourcing. In the ultimate show of condescension, some academics labeled this the “compensate the losers” strategy. It failed miserably.

Even though the price of consumer goods declined, the cost of living increased as housing, education and medical-insurance costs soared. Millions of Americans experienced an absolute decline in real income. Every leading politician ignored the national rupture caused by globalization, until Donald Trump.

How do you reunite a country divided by trade? How do you ensure all Americans can succeed going forward, while enhancing national security? These questions are top of mind for the new administration. Our economic agenda seeks to answer them.

Mr. Trump intends to usher in the most prosperous decade in American history—but not at the cost of the spiritual degradation of the working class. The administration has charted a new course for the economy—one that strengthens both the shop floor and the trading floor. We are doing so in three steps:

First, renegotiating global trade. Tariffs are an effective tool for balancing international commerce. They reduce trade barriers in other countries, opening more markets to American producers while also bringing back thousands of manufacturing jobs.

Economic security is national security. The Covid pandemic exposed vulnerabilities in our supply chain and the risk of relying on other countries for critical manufacturing. Tariffs can increase our industrial capacity and strengthen our national security by reshoring supply. They can also raise substantial revenue.

Second, making the 2017 Tax Cuts and Jobs Act permanent and adopting the president’s new tax priorities: no tax on tips, overtime and Social Security. Mr. Trump’s tax reforms will improve the quality of life for Americans harmed by reckless trade policies. Advancing these reforms and making the 2017 tax cuts permanent will provide individuals and businesses with certainty and build economic momentum.

Workers and small businesses benefited most from Mr. Trump’s first-term pro-growth tax agenda. The bottom 50% of households saw their net worth increase faster than the top 10%. The administration is now working closely with Congress to ensure those measures don’t expire at the end of 2025. The Council of Economic Advisers estimates that failing to extend the Trump tax cuts would cost a median-income family with two children more than $4,000 in take-home pay.

This year’s tax bill will restore 100% expensing for equipment and expand that incentive to new factory construction to accelerate reindustrialization. The president’s proposed deduction for auto loans on U.S.-made cars will spur more production, jobs and tax relief.

Third, deregulating the economy. America must build again—not only homes and factories but also semiconductors, power plants, artificial-intelligence data centers and other technologies of the future. Reawakening our industrial capacity is key to raising employment and wages among the working and middle classes and the only way to compete with China for technological and military supremacy.

For America to build, government needs to get out of the way. That’s why this administration embraces an ambitious deregulation agenda. Removing harmful regulations will allay the national debt and result in savings for individuals and businesses. Mr. Trump has already saved the average family of four $2,100 simply by repealing Biden-era regulations. In addition to helping Americans save, we want to enhance their access to capital by easing undue compliance burdens on community and other small banks, which play a crucial role on Main Street by providing loans for cars and homes.

Part and parcel of the deregulation agenda is establishing energy dominance. Energy will fuel our manufacturing renaissance. The president has declared a national energy emergency, opened 1.53 million acres in Alaska for energy development, and lifted the Biden administration’s pause on liquefied natural gas terminals. The average price of gasoline is 50 cents lower than a year ago.

Critics of the Trump economic agenda attack individual policies in isolation. This cherry-picking tactic ignores how these policies are interconnected. Trade, tax cuts and deregulation aren’t stand-alone measures but interlocking parts of an engine designed to drive economic growth and domestic manufacturing.

Tax cuts and cost savings from deregulation raise real incomes for families and businesses. Tariffs provide income-tax relief and create incentives for reindustrialization. Deregulation complements tariffs by encouraging investments in energy and manufacturing.

The engine is already starting. For the second month in a row, Friday’s nonfarm payrolls report beat expectations, with 177,000 jobs added in April. More than half a million private-sector jobs have been added since January. Add to this falling inflation and the first decline in consumer prices since Covid.

This is just the cylinder firing. The American people should expect to hear the engine humming during the second half of 2025. With all pistons moving, we’ll see more jobs, more manufacturing, more growth, a more robust national defense, higher wages, lower taxes, less-burdensome regulation, cheaper energy, less national debt and less dependence on China—all while maintaining a strong dollar.

This is how we restore the working class, re-establish the U.S. as an industrial powerhouse, and right the wrongs of lopsided trade policies. This is how we pave the way for Wall Street’s next 40-year run while making sure Main Street runs alongside it. This is how we make America great again for all Americans.

Mr. Bessent is U.S. Treasury secretary.