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Trump Is Accelerating The Green Energy Transition Everywhere But Here

Trump Is Accelerating The Green Energy Transition Everywhere But Here

The war in Iran has shifted the green transition into hyperdrive. Soaring oil and gas prices, coupled with the clearest possible demonstration of ongoing political risk, has shown the world the desirability and need to move rapidly to clean energy, even apart from global warming.

BYD, China’s leading car maker and producer of electric vehicles, shows the Trump effect most clearly. Its August sales were more than 130% above their year-ago level. Apparently, they would have been even higher if they were not constrained by shipping capacity. The company is now projecting overseas sales of 2.5 million for 2027, almost 2.5 times the 2025 level. It has plants now operating in Brazil and Indonesia and will have one in Hungary before the end of the year. EVs are now nearly 70 percent of the Chinese car market, by far the largest market in the world.

As I noted before, the shift to EVs is largely a one-way street. People who buy EVs rarely switch back to gas-powered cars. That means the shifts we’re seeing now will be enduring and built on in future years. As EVs become more common, the infrastructure to support them gets built out. Also, more people will recognize the benefits of EVs when they see friends, neighbors, and co-workers driving cars with lower fueling and maintenance costs.

And EVs keep getting cheaper and charging times shorter. This will push even more people to opt for EVs.

There is a similar story with solar and wind power. China has been adding wind and solar on a massive basis for several years. It will add more than 140 gigawatts of electricity capacity this year, an amount that is roughly equal to 10 percent of total U.S. electric capacity. In addition, its wind generation capacity is rising by close to 80 gigawatts in 2026.

Many developing countries are now also rapidly adding clean energy. Pakistan now gets 25 percent of its electricity from solar. India’s orders of solar panels from China increased by 150 percent from February to March. Nigeria and other countries in Africa are also speeding towards solar, with imports from China rising 176 percent.

The economics of clean energy keep improving. In addition to the price declines for EVs, which already cost far less than cars in the United States, the price for batteries for storing energy is also plummeting. It has fallen by more than 75 percent in the last decade. And the rapid pace of price decline is likely to continue, especially as sodium batteries displace lithium ones. Sodium is cheap and plentiful and has features, like better safety and performance in cold weather, that make it more desirable for many purposes than lithium.

Even ignoring the impact on global warming, which would be crazy in this year of record temperatures and devastating wildfires, clean energy would be dominating fossil fuels on narrow economic considerations. The transition was already happening largely for this reason, but Trump and Netanyahu’s war on Iran undoubtedly hastened the pace. Donald Trump’s America may be in last place, but that won’t change the direction the train is going.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack, from which this is reprinted with permission.


Trump and tariffs

Liberated? Despite Trump Tariffs, Steady Trade Deficit Jumped In July

The trade deficit rose sharply in July, hitting $1,063 billion on an annualized basis. That’s up from $854 billion in June. It’s the highest since the big import surge following Trump’s election, where people and businesses stocked up in anticipation of the Trump tariffs.

In the scheme of things, there is not any big problem with August’s deficit. It’s a bit more than 3.0 percent of GDP. We’ve had much larger deficits in prior years. The main factor driving the rise was a jump in imports of computer chips and other items needed for data centers. The data centers might be a problem, but the fact that the chips are imported is not an especially big deal.

However, this does matter in the world of Trump crazy, where countries are ripping us off if they are selling things we want. In that world, we are being ripped off by $110 billion more in August than July. If we look at the pattern of trade deficits over the last two and a half years, it doesn’t look like Trump is making much progress in his efforts to “liberate” us.

The trade deficit had been running at roughly an $850 billion annual rate through the first 10 months of 2024. It then soared immediately after the election and into the first months of 2025 as people and businesses rushed to buy cars, appliances, capital goods, and other durable goods in anticipation of Trump’s tariffs. The peak was a $1,596 billion annual rate in March of 2025, just before Trump’s big tariff announcement.

After “Liberation Day,” the trade deficit did fall somewhat, but this was largely the result of the post-election buying binge. People who bought a car in March of 2025 were not going to buy another one later in the year.

In more recent months, imports have been rising, pushing trade deficits well above their pre-election level. On the plus side, when the AI bubble bursts, we will see a big decline in our trade deficit.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack, from which this is reprinted with permission.

Why Nobody In Venezuela Takes Trump's Big 'Oil Deal' Seriously

Why Nobody In Venezuela Takes Trump's Big 'Oil Deal' Seriously

Donald Trump is not very good at running the economy, but he does have a great imagination about how he runs the economy. Trump continually boasts about the incredible amount of foreign investment coming into the country. It was $20 trillion last I heard, but it might be up to $30 or $40 trillion the next time Trump decides to boast about it.

This boast has absolutely nothing to do with reality. Contrary to what Trump says, there is no boom in auto factories or any other factories coming into the United States. Factory construction has actually plummeted since Trump came into the White House, after booming under Biden.

The looniness about the investment boom should be kept in mind when considering Trump’s deal to take control of 65 billion barrels of Venezuela’s oil. Trump is promising that this deal will both lower gas prices and be used to refill the Strategic Petroleum Reserves that he has largely drained as a result of his war on Iran.

While people are naturally offended by the blatant imperialism in this deal, that is precisely the reason why there is not much cause to be concerned. The basic story is, because the deal is so transparently an effort by the United States to steal oil from a country that it controls militarily, it is virtually guaranteed that as soon as the country is not run by a U.S.-installed dictator, Trump’s deal will be dumped in the trash.

This point was well-made by Venezuelan economist and opposition leader Ricardo Haussman (also cited in a piece by Michael Tomasky in The New Republic). The deal is seen as a joke by pretty much everyone in Venezuela.

If Venezuela doesn’t honor this deal, what will a future administration do, take them to court? Or will they send U.S. soldiers to die for Venezuela’s oil?

In terms of its immediate impact, there is not some spigot that can be turned on that will get massive amounts of Venezuela’s oil flowing. It’s currently producing around 1.25 million barrels a day. While it has massive reserves, its production facilities deteriorated badly as a result of U.S. sanctions. The country was largely unable to get needed parts, and it lacked funding because it was prevented from selling its oil to much of the world.

Oil production can only get back to its 3 million barrel a day turn-of-the-century pace with billions of dollars of foreign investment. It is unlikely that this deal will make companies happier about putting large sums at risk. Any investment will only pay off over many years, long after Trump will be out of office.

It also is not plausible to use Venezuela’s oil to refill the Strategic Reserves. Venezuela’s oil is very heavy and highly acidic. The Strategic Reserve is designed for light, alkaline oil. It could not easily store Venezuela’s oil.

In short, file Trump’s Venezuelan oil deal with the $60 trillion in foreign investment pouring into the country. It exists only in his head.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

Billionaires Like Bezos Demanding Social Security And Medicare Cuts Are Not 'Moderate'

Billionaires Like Bezos Demanding Social Security And Medicare Cuts Are Not 'Moderate'

An extreme position does not become less extreme just because someone can put forward one that’s even more extreme. Massacring 100 children doesn’t become a moderate position just because someone is advocating killing 200 children.

This is how we should view the line being pushed by “moderate” voices that we have to deal with the $40 trillion debt with both spending cuts and tax hikes. The reality is that, apart from the military and Homeland Security, there is little fat in spending to be cut, as even Elon Musk inadvertently acknowledged. Insofar as we have a deficit problem, the issue is on the tax side, as can be easily shown. The rich have been taking an ever-larger share of national income over the last half-century, and they don’t feel like paying taxes on their winnings.

The major media outlets, which are all controlled by rich people, are pretending to be moderate by saying that we need to both raise taxes and cut spending. But there is nothing moderate about saying that we have to cut programs like Social Security, Medicare, and Medicaid because Republicans have given big tax breaks to their campaign contributors.

Republicans pushed these tax cuts, knowing they would increase the deficit, but did not make any corresponding cuts in spending because the cuts would be incredibly unpopular. Now they are using their control over the media to insist that these cuts are now absolutely necessary to offset all the lost tax revenue from tax cuts put in place by Reagan, Bush II, and Trump.

The Jeff Bezos-owned Washington Post gave us a great example of this fake moderate position in its editorial, “To get the national debt under control, start with the retirement state.” The piece makes its case by taking the example of a two-earner couple, with average earnings of $100,000 a year. It shows that the couple, turning 65 in 2025, can expect lifetime Social Security benefits of $739k compared with tax contributions of just $597k. A couple with the same income retiring in 2045 can expect lifetime benefits of $987k compared to tax contributions of $735k.

After laying out this disparity for Social Security (it has a similar story for Medicare, which I’ll come to), it then makes an argument for reducing Social Security for high-income people. This is three-card Monte level deception.

If the idea is that we should reduce the benefits of high-income workers, honest people would look at the relative taxes and benefits for high-income workers. Social Security is explicitly designed to have a progressive payback structure, which means that relatively moderate-income workers, like the ones highlighted in the WaPo editorial, have higher paybacks relative to their taxes.

If the editors were interested in doing an apples- to-apples comparison, here’s what the picture would look like. (This is taken from the exact same source.)

As can be seen, high-income people pay considerably more in taxes than they get back in benefits. For a high-income woman retiring in 2025, the gap is $263,000. For a high-income man, the gap is $336,000. (The gap is larger for men than women because their life expectancy is shorter.) For a high-income woman retiring in 2045, the gap is $259,000. For a high-income man, the gap is $346,000.

If the point is to make an argument for reducing the benefits of high-income retirees, then show the taxes and benefits for high-income retirees. No one disputes that Social Security looks like a pretty good deal for more moderate-income retirees, but these people don’t typically have much income in retirement. I guess Jeff Bezos’ paper would have been too embarrassed to argue that we have to reduce the average monthly Social Security benefit of $2,071.

The Post’s editorial makes the push that while cutting Social Security, we should expect people to be more reliant on private 401(k)s. In addition to increasing risk, this is also enormously inefficient. Private 401(k)s cost more than 40 times as much to administer per dollar of benefits as Social Security. It is understandable that Mr. Bezos would be happy to see more money going to his rich friends in the financial industry, but most of us would rather see the money going to ordinary workers.

Medicare Benefits: Big Bucks to Hospitals and Drug Companies Are Not Benefits to Workers

The Post’s graphs do show a huge imbalance between the taxes paid out for Medicare and the cost of the benefits received. This is also deceptive.

In the United States, we pay almost twice as much per person for healthcare as the average for other wealthy countries. This is not because we get more or better healthcare. Our life expectancy ranks near the bottom for wealthy countries.

The big bucks for healthcare go to the income of drug companies, insurers, hospitals, medical equipment makers, and doctors. In each case, we pay two times as much, or more, than people in other wealthy countries. A paper that was not answerable to one of the richest people in the world would suggest bringing our payments in line with the rest of the world. But instead, the Post wants to beat up on the country’s retirees.

No one should be confused: Cutting Social Security and Medicare benefits to reduce the deficit is not a moderate position. It’s one that attacks hundreds of millions of ordinary workers to avoid taxing the rich or reducing waste in our health care system. That is extreme, but the rich media owners pushing this position will do everything they can to convince us they are being fair and balanced.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

What Even Our Smartest Economists Get Wrong About The Debt

What Even Our Smartest Economists Get Wrong About The Debt

The $40 trillion debt point naturally prompted much griping among pundits, many of whom see their job as promoting hysteria in order to justify cuts to Social Security, Medicare, and other popular social programs. As is clear to anyone not on the payroll of the rich and very rich, the debt is overwhelmingly the result of tax cuts, mostly to high earners, put in place by Presidents Reagan, Bush II, and Trump.

Unfortunately, confusion on the debt can spread even among the sane. Paul Krugman and Jared Bernstein, two top-notch economists (also friends) had a discussion of the debt in a podcast posted on Saturday. At one point, they noted that interest rates have risen, creating a situation where the interest rate is higher than the rate of growth, which could lead to explosive debt growing ever larger as a share of GDP.

That’s all straightforward arithmetic, but the confusion stems from the reason they see interest rates as going higher. Part of the reason is Trump’s craziness, which we all recognize undermines confidence in the economy and the debt. However, part of the reason is the investment boom from building AI data centers.

While I agree that this is a big factor in pushing rates higher, the assumption motivating this investment is that there will be some massive payoff in the form of higher profits stemming from huge gains in productivity. If these gains in productivity materialize, then we will be far richer than current projections show, and growth will have far surpassed interest rates. In other words, no explosive debt problem. Also, if we grow an extra 10-20 percentage points over the next decade, it seems a bit silly to be whining about debt, a point I will come back to.

There is also the possibility (likelihood in my view) that the productivity gains do not materialize. In that scenario, the AI-related stocks will crash at some point, the boom will bust, and we will likely be looking at a serious recession. In that world, our problem will be boosting the economy back to full employment, not the deficit. And for those who care about such things, interest rates should again be very low.

It seems this is a point that Paul and Jared should have brought into their deficit/debt discussion. I’ll give them a whack on the wrist for missing this point, but come to the more general issue that is usually lost in the tirades about gigantic debt.

Government Debt Is Not a Measure of Generational Equity

It is just atrociously bad economics to imagine the debt is some sort of measure of generational equity. At the most basic level, who owns the debt? The deficit hucksters talk like we send interest on the debt to people on another planet. In fact, the vast majority of the debt is held by U.S. citizens and U.S. corporations. We pay the debt to ourselves.

It’s true that ownership of the debt hugely skews upward, so the interest is mostly paid to higher-income people. But we can tax it back. In fact, let’s take an extreme case and say we tax back 100% of the interest.[1] In that case, is the debt a burden on future generations? We will of course not tax back 100% of the interest, but we can and should have progressive income taxes. Which, if they are actually collected, will mean that much of the money paid in interest will go right back to the government. And if we apply progressive taxes more generally, we can certainly offset any negative impact that interest payments on the debt have on income distribution.

And for trivia buffs, the rich people who will collect the interest in 30-40 years are part of future generations, the rich part. The story is again a class issue, not a generational one.

Growth and the Debt

Faster economic growth reduces the burden of the debt in the sense that it makes interest payments smaller relative to the size of the economy. But the more important point is that, in principle, faster growth makes us richer.

If the economy grows 10 percent more (in real terms) over a decade than had been expected (imagine AI actually pays off), then we would be roughly $3.9 trillion richer in 2036 than is now projected. Suppose in this story we had to pay another $500-$600 billion a year (again, in real terms) in interest compared to what we do today. Would we have done some injustice to our kids with a faster growth and higher debt story? The size of the economy is what will determine the well-being of our kids, not the amount of debt owed by the government.

But GDP growth is not everything, especially when it leads to destruction of our environment, as we are seeing now as a result of global warming. It would take some pretty batshit crazy accounting to be concerned about the debt we are passing on to our kids, but not about the environmental destruction we have caused by our use of fossil fuels.

And this is not just destruction of the lands where people like to be able to hike, fish, or hunt. It is also very much dollar-and-cents damage. The recent wildfires in Spokane are estimated to have caused over $1 billion in property damage. The damage done by the fires in Los Angeles last year may have been as high as $250 billion (0.8% of GDP). With global warming leading to more and bigger fires, as well as more frequent and severe hurricane and flooding events, we will be seriously damaging the life prospects of future generations even if we were to pay off the national debt tomorrow.

Trumpian Corruption

I know I have said this before, but the point deserves to be constantly thrown in the face of the deficit hawks: Trump’s corruption poses an infinitely greater threat to economic stability than the $40 trillion debt. Trump has been given a green light by the Roberts Supreme Court to corrupt every agency in the country (except the Fed) to enhance his power and his pocketbook. As we have seen, this means having the Justice Department and FBI focus on prosecuting his political opponents. It means selling antitrust rulings to campaign contributors. It means allowing political allies to sell unsafe food and likely drugs.

Trump has also had the Office of the Comptroller of the Currency greenlight his new crypto bank and had the Securities and Exchange Commission look the other way on his insider trading. He even ordered the Census Bureau to cook up a nonsense report on non-citizen voting to claim that, somehow, he actually won the 2020 presidential election that he lost in a landslide. (That’s the Trumpian usage of the word, where he says he won the 2024 election in a “landslide.”)

Anyhow, these are the sorts of things that happen in “shithole countries,” not advanced economies expecting the trust of investors. With Trump continually pressing his corruption further and his supporters in Congress saying it’s all good, investors should fear putting their money in the United States even if we had zero debt. That might be too difficult for the deficit hawks to understand, but most of us have parents who taught us not to do business with crooks.

[1] I know, no one would hold bonds if we taxed back all the interest, but I’m making a point. Trade economists have often assumed in their modeling that we replace tariffs with lump-sum taxes to show the benefits of trade. Unlike tariffs, lump-sum taxes don’t create economic distortions. Lump-sum taxes also don’t exist in the world, but trade economists felt it useful to assume them to make a point.


Worrying About $40 Trillion In Debt?  Trump's Corruption Is A Far Worse Threat

Worrying About $40 Trillion In Debt?  Trump's Corruption Is A Far Worse Threat

Yesterday, I wrote that I was far more concerned about Donald Trump’s regime of rampant corruption than the $40 trillion debt. I had a lot of pushback from people telling me that the $40 trillion debt is actually a really big deal.

I’m used to people complaining that I don’t take debt and deficits seriously enough, so I guess I would be disappointed if my post didn’t prompt some criticism. Anyhow, this gives me the opportunity to explain again why I’m not especially troubled by the $40 trillion debt. I will also explain why people really should be hair on fire over Trumpian corruption.

Debt Needs to be Understood as Part of a Larger Economic Picture

We all know that $40 trillion is a really big number, but after we give it a big salute, the question is what does it mean for the economy and for our pocketbooks? Most of the debt discussion didn’t really do this, or at least do this in a way that makes much sense.

First, we should express the debt relative to the size of the economy. The $40 trillion debt is equal to about 125 percent of Gross Domestic Product. Arguably the more appropriate measure is the publicly held debt, which excludes bonds held by the Social Security trust fund and various other public funds. This is roughly $32 trillion, or just over 100 percent of GDP. That’s large, but the debt-to-GDP ratio was considerably larger just after World War II, and that didn’t prevent us from having the most prosperous quarter century in our history. It also didn’t have investors here and elsewhere fleeing the dollar and government debt.

If we needn’t be scared by the government debt, what about the trillion dollars (3.3 percent of GDP) that we are paying out each year in interest payments? That’s a good chunk of change, but it is worth putting on our thinking caps instead of panicking.

Donald Trump just proposed, and may well get, a defense budget for fiscal 2027 of $1.5 trillion, roughly five percent of GDP. The last Biden budget for 2025 called for spending $864 billion for the military. This means Trump wants us to spend $636 billion more for the military each year, roughly 2.0 percent of GDP, than we did under Biden.

Virtually everyone thought the level of military spending under Biden was fine to meet our defense needs. If the new real or imaginary enemies that Trump has us combatting requires spending another two percent of GDP on the military, how is that better than spending another two percent of GDP on interest on the debt?

To put this simply, there are a lot of people getting hysterical about spending 3.3 percent of GDP on interest, who were fine, or at least not equivalently alarmed about Trump’s plan to increase military spending by two percent of GDP. If we make enemies in the world that require us to spend another two percentage points of GDP on the military, that is at least as bad as spending another two percentage points of GDP on interest on the debt. But only the latter will get the deficit hawks excited

In the same vein, our decision to ignore global warming is imposing high costs in dealing with wildfires and flooding. Most likely this is not close to two percent of GDP on an annual basis, but if the current path continues, we might be there before too long. In any case, if we are worried about the ongoing burden on the economy, the additional spending required to deal with the problems created by climate change is every bit as much a burden as interest on the debt.

Also, if we’re being serious, we have to recognize that spending money is not the only way the government pays for things. It also issues patent and copyright monopolies to support innovation and creative work. The annual sums transferred as a result of these government-granted monopolies are easily over $1 trillion a year. In the case of prescription drugs and other pharmaceuticals alone, it is over $500 billion.

The idea that we should worry about the debt and the interest we pay on it, but ignore the higher prices we pay for drugs, medical equipment, software, and other products because of the government-granted monopolies is something only a policy pundit could take seriously. If we’ve paid off the government debt, but a whole range of items cost twice as much as they would in a free market because we gave out patent monopolies lasting a century, would our kids have reason to thank us? In that case, they don’t have to worry about paying interest on the debt, just about paying massive patent rents on everything they buy.

Trump Corruption Threatens the Dollar, not Government Debt

For more than a century, investors, both foreign and domestic, felt comfortable having their money in the United States because they knew it was governed by the rule of law. This meant, for example, if there was a contract dispute, they could reasonably expect it would be decided in a court based on the merits, not based on political connections. The same is true for regulatory rulings, such as the Securities and Exchange Commission’s (SEC) ruling on corporate filings or the Federal Drug Administration’s (FDA) approval of drugs.

Under Trump, this is no longer true. If a company lied about its profits on its financial statements, investors could present evidence to the SEC and expect that it would impose sanctions if there was a solid case, but not under Trump. If the company is a big Trump contributor, it’s likely he will instruct the SEC to ignore the complaint or rule in favor of the perp.

The same applies with all the bureaucracies, as the Supreme Court has said Trump can tell them to do whatever he likes. The FDA can refuse to approve the drug of a company whose CEO has criticized him. The Federal Aviation Administration can refuse to recognize the safety of an airplane manufactured by a company that Trump dislikes.

The story goes on. Trump has a green light to use all parts of the government to punish companies and individuals that anger him and to favor those who hand him money.

This is an infinitely greater threat to the credit of the U.S. government and the strength of the dollar than the debt. That fact should be obvious to anyone who is not an elite pundit.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

Reagan and Bush Sr

You Can Thank Republican Presidents For That $40 Trillion Debt

I have never been a deficit hawk, and I’m not about to change my religious affiliation now. But whatever we think of debt and deficits, there is one point that should be very clear: it has been run up almost entirely due to Republican tax cuts and their inept management of the economy.

Every Democratic president of the last half century has left with a deficit that was lower, measured as a share of GDP, than the one they came in with, except Obama, who left it unchanged. By contrast, every Republican president has left with a considerably higher deficit than what they inherited.

Starting with Carter, the deficit for fiscal year 1976 was 4.1 percent of GDP. When he left office in 1980, it was down to 2.5 percent of GDP, despite a recession that year. That was the starting point for Reagan. (These figures refer to fiscal years, which end on October 1 of the year.) Reagan’s tax cuts, along with a big military buildup, were most of the story of higher deficits. When his successor, George H.W. Bush, left the White House in 1992, the deficit was 4.5 percent of GDP.

For better or worse, Clinton took deficit reduction seriously. He was helped by an explosion of tax revenue associated with the tech bubble, but he both made budget cuts and increased taxes. When he left office in 2000, the government was running a surplus equal to 2.3 percent of GDP.

George W. Bush quickly reversed the picture. A big part of the story was the collapse of the tech bubble in 2001-2002, which both led to a recession and a plunge in tax revenue from capital gains. He also had big tax cuts and a military buildup associated with his invasions of Afghanistan and Iraq. When Bush left office after 2008, he handed Obama a deficit equal to 3.1 percent of GDP, as well as a financial crisis and severe recession, resulting from the collapse of the housing bubble.

The deficit initially exploded in 2009 under Obama, as the country faced the worst recession since the Great Depression. As the economy gradually recovered, the deficit came down, falling back to 3.1 percent of GDP in 2016, just as Obama was leaving the White House.

Trump’s tax cuts caused the deficit to rise again. It hit 4.6 percent in 2019, but it really took off the following year, as a result of the pandemic. It reached 14.7 percent of GDP in 2020, the largest since World War II. The recovery and some modest increases in tax collections brought the deficit down to 6.3 percent of GDP in 2024.

Taking the cumulative changes from Democratic and Republican presidents, Democratic presidents have reduced deficits by 16.7 percentage points of GDP during their terms in office, while Republican presidents have raised them by 18.9 percentage points. Somehow, many people still talk about Republicans as the party of fiscal responsibility:

As I said earlier, I am not hugely troubled by the debt. It would be better to be paying less money in interest, but 3.0 percent of GDP going to interest is not a disaster. The more important issue is to have a healthy economy with solid growth.

Here is where the big failure is. Trump’s war is leading to shortages, most importantly of oil, but also fertilizer and other products. His tariffs have led to higher prices for a wide range of products, as has his mass deportations. Perhaps most importantly, Trump’s open corruption and self-dealing undermine confidence in the U.S. financial markets and business system more generally.

In the past, investors could view the United States markets as relatively clean and stable. Unlike in some other countries, getting your investment back didn’t depend on staying in the good graces of the political leadership. Under Trump, this is no longer true. He has openly threatened companies and their management for saying and doing things he does not like. That is not a good recipe for a stable economy with solid growth.

If there is a run on the dollar, and interest rates soar higher, it is far more likely to be the result of Trump’s corruption and incompetence than the high debt. This is what people should be losing sleep over, not the debt crossing the $40 trillion mark.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


Trump's Iran War Pushing Up Interest Rates And Stifling Housing Starts

Trump's Iran War Pushing Up Interest Rates And Stifling Housing Starts

Donald Trump might not be doing very well in his effort to defeat Iran, but he’s scoring serious points in his attack on the U.S. housing market. The war on Iran has pushed long-term interest rates up by 0.7 percentage points, with the 30-year bond rate hitting levels not seen before the collapse of the housing bubble in 2007-2009.

The jump in rates had the predictable effect on the housing market. Starts in July fell to 1,239,000, the lowest level since the early days of the pandemic. The monthly data are erratic, but a three-month moving average tells the same story.

The monthly average for the period from May to July was 1,279,000, the lowest three-month average since May-July 2020, when the economy was largely shut down due to the pandemic.

The plunge in construction is bad news for those hoping for lower house prices. As I noted recently, real house prices have been drifting downward, following the pandemic surge. Affordability fans might have hoped that a more rapid pace of construction would accelerate this decline.

However, an uptick in construction does not seem a likely prospect for the near future. There is no obvious end to the war any time soon, and as long as the war continues, rates are more likely to go higher than lower.

The other big factor is immigration. A large share of the workers in construction are immigrants. Research shows that a reduction in the number of immigrants results in a decline in construction. This means that Donald Trump’s mass deportation drive is likely to slow construction even if the war ends and interest rates fall back to their pre-war level.

Therefore, we are not about to see robust construction numbers any time soon. Real house prices may still drift somewhat lower, as the pandemic surge fades into the distance, but we are not likely to see large price drops in the next couple of years, barring an economic collapse.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


Trump Foreign Policy Follies: South Korea Goes To The Shakedown Shack

Trump Foreign Policy Follies: South Korea Goes To The Shakedown Shack

President Trump’s latest move to downgrade U.S. involvement in long-planned military exercises with South Korea should make one thing very clear if it was not already. Under Donald Trump, the United States cannot be viewed as a reliable ally by anyone, except for Israel.

Trump has zero respect for the commitments of prior administrations or even treaty obligations. He doesn’t even care about his own commitments, as Canada and Mexico have discovered, as he freely ignores the trade agreement he negotiated in his first term. He does whatever he feels like.

For this reason, one can hope that South Korea was not surprised by Trump’s decision to downsize the joint military exercises with South Korea, as he announced his renewed friendship with Kim Jong Un. For folks with poor memories, Trump has repeatedly touted the “love letter” that the North Korean dictator sent him. He even stole the letter from the White House when he left office in 2021. (The letter is the property of the U.S. government, not Donald Trump.)

The story gets worse. Trump complained that South Korea refused to join the war that he and Israel started with Iran, even though he said he really didn’t need its help. Trump also again claimed the war was to keep Iran from having a nuclear weapon, even though no one in the world, except Trump, seems to think the country is anywhere close to having a nuclear weapon.

The irony of this gets even worse when we consider that Trump’s friend, Kim Jong Un, actually does have nuclear weapons, and likely has the means to deliver them to the United States. The Clinton administration had a multi-nation agreement designed to keep North Korea from getting nuclear weapons, which George W. Bush then abandoned.

There were efforts at a new agreement under Obama, but Trump quickly abandoned these after getting the love letter from Kim. This undoubtedly continues to be a great source of laughter in Pyongyang.

In addition to downgrading the military exercises, Trump also wants more money from South Korea for its defense assistance. On top of seriously overestimating the number of U.S. troops in the country (39,000 in Trump’s head, compared to 28,500 in reality), Trump apparently still has no understanding of the idea of collective defense.

If Trump wants to be able to project force against China, which may not be a good idea, but something he seems to want to do, then having an ally like South Korea is incredibly valuable. Just as the base in Bahrain, which Iran destroyed, was crucial for supporting Trump’s attack on Iran, the bases potentially provided by Korea would be of huge value in a military conflict. But this is a point that is likely too complicated for Donald Trump and his Fox News host Defense Secretary to understand.

Anyhow, the key takeaway for South Korea and the rest of the world is that the United States under Donald Trump cannot be counted on as an ally. And it would be very foolish for any country to view it as one.

Also, when it comes to trade, Trump’s commitments are absolutely meaningless. South Korea pledged $350 billion in investment in the United States in exchange for a modest reduction in the tariff rate that Trump imposed on imports from their country. Given the fact that Trump could raise his tariffs any time he feels like it, South Korea would be wise to keep its investment as a pledge. Only a fool would give something real in exchange for a Donald Trump promise.

Whatever tariff Trump ends up charging on our imports from South Korea is likely to have more to do with how he feels on a given day than any agreement between the two countries. As he continually tells the world, Trump does not care about his commitments. That’s the way he did business and the way he runs the country.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


Money Still Not There For Big AI Companies, But Crisis-Style Finance Is Coming

Money Still Not There For Big AI Companies, But Crisis-Style Finance Is Coming

When I saw this note from Torsten Slok, the chief economist for Apollo Capital, I knew I had my topic for the week. The point is that the big money in AI is far removed from the end product. The chipmakers are making money hand over fist, the energy providers are doing okay, the hyperscalers have less to show, and the AI companies are losing bucks big time.

This matters, because at the end of the day, if the AI companies are not making money, the whole thing breaks down. To use a common analogy, suppose that steel companies are making huge bucks producing steel for rails, and construction companies are making money laying the rail, but the companies that run the railroads are all going broke. That doesn’t look like a story of long-term prosperity. In the great minds think alike category, Ed Zitron jumped on the same point in his excellent newsletter.

Anyhow, I take a somewhat different tack than Ed and focus on the Chinese competition. I realize that even if there was no competition from China, it is unlikely that AI would ever have the massive payoffs the hyperscalers are banking on, but the existence of that competition makes the story considerably less likely. And developments in the last couple of weeks seem to make the case for American AI even weaker.

Chinese AI Is Cheap and Getting Cheaper, U.S. AI Less So

As I have frequently noted here in the past, Chinese AI costs far less per input or output token than U.S. AI. For the cutting-edge models, the Chinese AI sells for one-fifth or even one-tenth of the price of U.S. AI. One response I have seen is that, even though the Chinese AI costs less per token, it can still end up being more costly because the systems are less efficient and require more tokens per task.

I am not sure that the measure of cost per task is a sufficiently standardized metric to allow it to be compared in a meaningful way, but insofar as it can be, it looks like the U.S. advantage has gone away. According to the Korean electronics industry publication, The Elec, the leading Chinese AI model is now cheaper on cost per task than the leading U.S. model, and performance gaps continue to narrow.

In the same vein, both Google and DeepSeek released new flash models last week. The DeepSeek model scored better on several benchmarks. And it sells for less than one-tenth the price.

If that makes the picture look bleak for U.S. AI producers, don’t worry, it will likely get worse. Alibaba reports having developed a modular design that will allow it to build data centers in 100 days. Compare to 12-18 months in the United States. This should mean lower costs and greater capacity for Chinese AI producers. That means the flood of low-cost, high-quality Chinese AI is likely to get even larger in the months ahead.

Chinese AI Is Finding New Customers

Given its huge cost advantage, it’s not surprising that Chinese AI models are gaining ground rapidly at the expense of U.S. models. I’ve noted before that Chinese AI seems to be winning out by large margins in most regions of the developing world. However, it also seems to be gaining ground in Europe. There are political considerations that could make European companies reluctant to rely on Chinese AI; however, given the erratic behavior of Donald Trump, it’s not clear that going with U.S. provides greater security.

And it looks like Chinese AI is continuing to gain ground in the U.S. market. It seems that Apple is looking to Chinese AI as a cheaper alternative to the Silicon Valley producers. Apple by itself is potentially a huge market, but perhaps more importantly, it is a company that has been at the cutting-edge of innovative technology for more than a quarter century. Its decision to go with Chinese AI is sending a serious message.

And remember, the question for those expecting really big bucks for the AI makers is not just whether Anthropic, OpenAI, and the rest can hang onto a large share of the market. It’s whether they can do so while selling at prices that give them the huge profits the stock market is banking on.

Can Creative Financing Overcome the Problems?

As mortgage issuers sold ever more dubious mortgages to further inflate the housing bubble, the wizards of Wall Street assured us that their financial magic would make it all work. This attitude was best conveyed by former Treasury Secretary Larry Summers at an academic conference in 2005, where he dubbed a critic of the growing house of cards a “financial Luddite.” Somehow, Summers thought innovative finance would make the millions of underwater mortgages issued to people with weak employment prospects and no reserve assets all work out fine.

We might be getting the same story with the AI bubble. Getting back to Torsten Slok’s point about the chipmakers making big bucks, while AI producers are making big losses, it seems Nvidia is looking to address the problem. It has just arranged $500 billion in financing from major banks for the hyperscalers that buy its chips. Fans of markets everywhere are asking the obvious question: if there is so much money to be made in building the data centers, why does Nvidia have to arrange the financing?

The details are not clear at this point, like whether Nvidia will in any way be on the hook for the financing, but there is a suggestion that it could involve securitization with tranches carrying different levels of risk, sort of like mortgage-backed securities or collateralized debt obligations. It could be lots of fun!

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

Average Gas Prices Were Slightly Higher Under Biden, But Trump Is Closing In Fast!

Average Gas Prices Were Slightly Higher Under Biden, But Trump Is Closing In Fast!

As I’ve come to realize in the last five years, people take the price of gas very seriously. It features very prominently in their assessment of the economy and their personal finances. For that reason, it is worth taking a quick look at what has happened to gas prices under Donald Trump and his predecessor, Joe Biden.

When Biden came into office, in January of 2021, gas was very cheap, selling for just under $2.40 a gallon. That was primarily because the economy was still feeling the effects of the pandemic. Unemployment was 6.4 percent, and we were down six million jobs from the pre-pandemic period.

The price rose quickly as the U.S. and world economy recovered, reaching $3.40 by February of 2022. Part of the reason for the rapid rise was that oil that had been taken out of production could not be instantly restarted once demand increased. Removing oil from production during the pandemic was a political decision taken in part by Donald Trump, in order to prevent oil producers from taking large losses.

Prices rose much further when Russia invaded Ukraine in February, and Biden responded by putting sanctions on Russian oil. The price peaked at over $5 a gallon in June but then fell back quickly as more oil came online. By the end of 2022, it had fallen to around $3.20 a gallon. It hovered around this level until Biden left office.

In January of 2025, when Donald Trump took office, the price was around $3.10 a gallon. It stayed around this level through most of the year, falling somewhat below $3.00 in December and bottoming out at $2.80 in January of 2026.

Then the decision to attack Iran sent gas prices soaring. They hit $4.00 a gallon by the end of March and peaked at over $4.50 a gallon in early May. Since then, they have bounced around in response to reports of peace agreements and new threats but have mostly been near $4.00 a gallon. (They are $4.08 today.)

Taking the averages to date, prices are still somewhat lower under Trump than under Biden: an average of $3.35 a gallon under Trump compared to $3.46 in the four years of the Biden administration.

However, this gap is being whittled away with gas over $4.00 a gallon due to the largely closed Strait of Hormuz. If gas prices are not brought down, Trump will soon be able to boast of having higher gas prices on average than Joe Biden.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


wage growth v inflation chart

Trump Economy: July Inflation Index Shows Wages Fell Further Behind Prices

The Consumer Price Index rose 0.1 percent in July, with the core rate rising 0.2 percent. Over the year, the overall CPI is up 3.4 percent, while the core is up 2.5 percent.

As always, there are a few seeming anomalies. Prescription drug prices fell 0.8 percent in July and are down 3.1 percent over the last year. Nonetheless, people are spending about 2.0 percent more on drugs this year than last year. Computer prices jumped 3.5 percent in July. This is the data center story.

Rent and owners’ equivalent rent both rose 0.3 percent in July, somewhat faster than in prior months, but this is mostly due to rounding. Over the year, the indexes are up 2.9 percent and 3.2 percent, respectively. Food prices fell 0.1 percent in the month but are still up 2.7 percent year-over-year. Lettuce prices plunged 16.4 percent. Any ideas how that could have happened?

One real anomaly was a 0.3 percent drop in the car insurance index, leading to a year-over-year decline of 4.5 percent. This sort of drop is unprecedented outside of the pandemic. There were some modest declines in 1998 and 1999, but other than that, the index has always risen and typically far outpaced the rest of the CPI.

I have noted the falling car insurance index before and waited for it to turn around, but it has continued to be on a downward path since the start of the year. I’m betting for the insurance index to turn around and start rising again, but I have been making that same bet for many months. It accounts for 2.6 percent of the index, so it matters. It was a major contributor to inflation in 2022 and 2023 when there were double-digit increases.

But stepping back from the specifics, this is a bad story for the economy. Inflation is not about to soar out of control, assuming Trump doesn’t do anything too crazy, but it is outpacing wages. Over the last year, the average hourly wage increased 3.2 percent. The annualized rate of increase over the last three months compared with the prior three was just 2.5 percent. This means that workers, who had already been feeling pressed, are falling further behind.

This is sort of good news from the standpoint of the Fed. It doesn’t have to worry about a wage-price spiral, but it does mean that we have an economy that will not be powered by workers’ consumption. With job growth having slowed to a crawl and real wages trending downward, workers will not have the means to increase consumption. This means that growth will be driven by AI investment and wealthy people spending based on stock gains and capital income. That does not look like a very solid basis for expansion.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


Charting Corruption: Trump Grifting Dwarfs 'Biden Crime Family' Chump Change

Charting Corruption: Trump Grifting Dwarfs 'Biden Crime Family' Chump Change

Most people recognize that Donald Trump and his kids are stealing from us with both hands every day. But they are not as outraged as they should be because most have the view that everyone does it. While I will never defend the Democrats as paragons of honesty (what the hell are those crypto contributions?), they are not in the same ballpark as Trump and his crew.

Part of the confusion stems from the media’s refusal to ever put big numbers in context. They all know that the vast majority of their audience is not clear on the distinction between millions, billions, and trillions, and have no idea how large the federal budget is, but they refuse to take the ten seconds and ten words that would be needed to give readers a clearer sense of what is at stake.The other source of confusion is that the Republicans spent four years endlessly hyping the “Biden crime family.” They used Congressional hearings, as well as thousands of appearances on TV news shows, to yell (often literally) about Biden family corruption.

And it’s clear it was not zero. Hunter Biden, while struggling with drug addiction, openly traded on his family name to land a well-paying perch with a Ukrainian energy company. He also managed to sell his artwork, which is not obviously of great value, for $50k a painting.

Joe’s younger brother, James, also seems to have traded on the family name, but the sums involved appear to be in the hundreds of thousands of dollars, and mostly during the years 2017-2019, when Joe Biden was not even in public office.

It is a bad practice for family members to profit from their ties to a vice-president or president, but there is zero evidence that Joe Biden ever did anything to directly benefit his son or brothers in their business dealings. We can be pretty certain of this fact because Republicans in Congress and the White House, both in Trump’s first term and his current term, have left no stone unturned in trying to show Biden’s corruption. (Trump’s first impeachment was over his effort to extort Ukraine’s president to lie about Biden’s corruption.)

While it is difficult to get clear numbers on the extent of the corruption of Trump and his family in his current term, since they disclose as little as possible, and no one can accept what they do disclose at face value, we can try to put some numbers on it. At the very least, it should be totally clear that Trump’s corruption, by any measure, is in a totally different universe from even the worst imaginable story that can be told about Joe Biden and his family.

The list below is far from exhaustive. We will probably not know all the ways that Trump put money into his and his family’s pockets until long after his presidency, and maybe not even then. But this should be a good start.

Venezuela’s Oil -- $13 billion

Trump has repeatedly said that “we” got $13 billion from selling Venezuela’s oil. This is after he kidnapped Venezuela’s president, Nicholas Maduro, and put his vice-president, Delcy Rodríguez, in charge of the country. According to Trump, she is taking her orders from Secretary of State Marco Rubio.

Any money that the U.S. gets from selling Venezuela’s oil is essentially stolen from Venezuela. It is their oil. But to make matters worse, there is literally zero accounting of this money. Under the law, any money obtained from Venezuela should go to the U.S. Treasury. Any spending from this money should be approved by Congress.

Instead, Trump has sent the money to an account in Qatar, and it is unclear what is happening with it. Until it can be shown otherwise, it is reasonable to assume that Trump has personally pocketed it. If that is not the case, Trump should be able to document what has happened to this money any day of the week. Until he does show what happened to the money, we might as well assume it went into Donald Trump’s pockets.

Trump Family Crypto -- $1.4 billion

Trump created his own crypto coin, $Trump, which people could buy as a way of currying favor with Trump. Melania Trump also made a crypto coin, $MELANIA. His crypto company, World Liberty Financial, has also put out a crypto coin. In addition to making money from selling the coins directly, Trump also profits from transactions in the coins, since they pay him a fee.

Trump’s “Gift” Plane from Qatar -- $1.1 billion

A gift to the president, while they are in office, is a gift to the United States government. Nonetheless, Trump plans to take the plane that Qatar gave him back to Mar-a-Lago when he leaves office in less than two and a half years. The plane itself was worth $400 million. In addition, the Pentagon is spending between $400 million and $1 billion to install protective equipment which was already in place for the two existing versions of Air Force 1. I have included the middle figure of $700 million.

Trump Truth Social Insider Trading Sales -- $1.2 billion

Donald Trump recently announced that he will sell a special subscription service, where for $100,000 a month, investors could get advance notice of Truth Social posts that are likely to move markets. We don’t know how many investors will ultimately pay for the opportunity to trade on inside information. But if it ends up being 1,000, Trump will pocket $1.2 billion a year from this scam.

Selling pardons – $10 million

Reuters did an investigation of Trump’s pardons, noting that 96% did not follow the normal procedure. They noted that just ten prominent pardon recipients contributed over $10 million to Trump campaign funds. The full amount given by all the people receiving pardons is surely considerably larger. The New York Times had an excellent piece back in March on the pardon industry that has arisen around Trump.

Melania Trump’s 'Documentary' -- $28 million

Melania Trump was given a contract by Amazon for rights to a documentary on her. According to the Wall Street Journal, her take was $28 million. The film grossed $16 million.

Jared Kushner Hedge Fund Investments -- $5.4 billion

Shortly after leaving the White House following Trump’s first term, first son-in-law Jared Kushner started a hedge fund, Affinity Partners, that quickly drew billions of dollars of investments from Saudi Arabia and other Persian Gulf countries. While Kushner cannot directly put this money into his pocket, he is certainly positioned to get hundreds of millions in fees from the fund, especially if his proximity to Trump allows for his investments to have large payoffs.

Trump Sons’ Military Contracts -- $315 million

Donald Trump Jr. and Eric Trump have recently taken an interest in several companies that are now getting contracts from the military. The Washington Post puts the value of the current and likely future contracts for these companies at $6.3 billion. If we say five percent will go to the Trump kids, this comes to $315 million.

While this list hopefully captures the biggest windfalls that Trump and his family are receiving from the presidency, it is certainly not a complete list of Trump family corruption. For example, Donald Trump Jr. is a paid advisor to the Kalshi betting market and an investor in Polymarket. The Trump administration has worked aggressively to block regulation of these markets that might hurt their profits.

Donald Trump also trades stock frequently, often buying shares in companies just before they get a major government contract. The Trump family business has been blessed with favorable treatment of hotel and resort projects in countries seeking lower tariff rates on their exports to the United States. And the Trump family openly hawks their merchandise at the White House and on official websites. But most of these items would likely to be small potatoes compared to the graft listed here.

The Biden Crime Family’s Haul

As with the Trump numbers, these are crude guesses. People can also decide for themselves the extent to which they represent presidential corruption. For example, when Hunter Biden gets payments from shady Chinese businesspeople in a period where Joe Biden is a private citizen, is that presidential corruption?

Anyhow, here is what I get.

Hunter Biden Burisma Payments -- $4.0 million

These were payments made to Hunter Biden for serving on the Board of Burisma, a large Ukrainian energy firm. Hunter Biden served on Burisma’s board, starting in 2014, when Joe Biden was vice-president, and remained on the board until 2019, leaving before Joe Biden’s term as president.

Hunter Biden Payment from Chinese Businesses -- $2.6 million

Hunter received $2.6 million in payments in 2017 and 2018 from Chinese business owners with dubious business practices. These were years when Joe Biden was a private citizen, his term as vice-president having ended and more than two years before his term as president began.

Hunter Biden Art Sales -- $1.5 million

Hunter sold 27 paintings between 2021 and 2023 that netted him approximately $1.5 million. Demand for his artwork has fallen considerably after his father left the White House.

James Biden Payment from Chinese Businesses -- $500,000

It seems that some of the money from Hunter Biden’s business associates may have also gone to his uncle and Joe Biden’s brother James. It’s not clear how much this might have been, but as with the payments to Hunter Biden, this was a period where Joe Biden was a private citizen.

If anyone is wondering, I did not forget to put the Biden numbers on the graph. They are just too small to be visible next to the Trump graft numbers.

The point here should be obvious to everyone. Joe Biden’s family members, or at least Hunter Biden, behaved in ways that most of us would likely view as unethical. But even if we blame President Biden for actions in which he had no direct involvement, his corruption is not anywhere near the level of corruption of the Trump administration.

Trump and his family seem to view the government as a massive candy store from which they can take whatever they want as long as Donald Trump is in the White House. And as long as Republicans control Congress and the Supreme Court, they might be right.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

Trump's Truth Social Insider Scheme Is A $24 Billion Tax On Your 401(k)

Trump's Truth Social Insider Scheme Is A $24 Billion Tax On Your 401(k)

You may not have heard about this latest tax from Trump. That could be because he’s not going through Congress to get it. Also, this scam could get buried in the middle of his many other grifting schemes. Trump is starting a new special subscription service to his social media platform, Truth Social, where big investors will pay $100,000 a month for advance access to Trump posts that can move markets.

This means that the next time Trump posts that he will blow Iran off the map and sends oil prices soaring, the people who paid Trump’s fee will have the opportunity to buy oil futures before the jump. The same story applies on the way down, as when he posts that a deal with Iran’s leaders is imminent.

And the inside information goes well beyond oil prices. He may announce a big military contract with Lockheed or one of his sons’ companies, sending stock prices soaring. Or he could announce a big DEI investigation of Disney or some other Hollywood entertainment company, causing their stock to plummet.

There are an infinite number of ways that Trump Truth Social announcements can move markets. This subscription service allows rich investors around the country to get in on the action.

If it’s not clear how Trump’s scheme amounts to a tax on your 401(k), think more carefully. If Trump’s clients get the jump on a big rise in oil prices, that means that they get the money, not you. This is true even if, like the vast majority of small investors, you are not actively managing your funds.

The person who is managing whatever fund(s) you hold will pay the higher price for oil or stock or anything else the funds might buy because Trump’s accomplices got their first. The same applies on the way down. The fund will get less money because the Trump gang already sold the stock before your fund manager had the chance to do so.

At this point, we can’t know how much money is involved because we don’t know how many big investors are prepared to sign up for what is blatantly an insider trading scheme. But we can do some speculation.

First, we need to calculate how much money an investor would expect to make from a service where they are paying $1.2 million a year. Since this scheme would likely lead to civil and possibly criminal charges if the Securities and Exchange Commission (SEC) or Justice Department ever gets taken over by honest people, it seems a very big payoff would be required.

Any person paying Trump for insider information would need to expect substantial legal bills, and also the possibility of being forced to leave the country or face prison time. (Ask Martha Stewart.) Let’s say the payoff has to be at least 20 to 1, which would mean they would need to earn $24 million a year for their Trump Truth Social subscription to make sense.

Then we need to speculate on how many people are prepared to sign up for Trump’s racket. We know Wall Street is a cesspool, but this level of open corruption is probably too sleazy even for most of the big traders. Still, there could be a 1,000 Trump-loving sewer dwellers who don’t mind being open about their thefts.

In that case, the Trump insiders would be siphoning off $24 billion a year from other investors in the market. That is not huge in the context of a $7.5 trillion budget, but it is larger than many things we have big fights over.

For example, the AIDS program for Africa, which saved tens of millions of lives, and Elon Musk eagerly fed into the wood chopper, cost $6 billion a year. That’s roughly a fourth of Trump’s 401(k) tax. The cost of extending the subsidies in the ACA exchanges, which Trump and the Republicans ended, would have been a bit higher at $27 billion a year.

So, 401(k) holders and other small investors are paying a considerable chunk of money through this “tax” to Trump and his enrolled insiders. As I said, this tax is not going to Congress for approval, but we can assume that all the Republicans in Congress approve of it. If not, Trump would be impeached for such a blatantly illegal scheme, but we know the Republican motto: “if Trump does, it’s good.”

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


Trump's Wildfires: The Arsonist Complains About Choking On Smoke

Trump's Wildfires: The Arsonist Complains About Choking On Smoke

Donald Trump does so many awful things: wars, inflationary taxes (tariffs), and disease promotion, that many of his actions do not draw nearly the contempt and ridicule they deserve. His complaints about the smoke from Canadian wildfires fits into that category.

Just in case anyone didn’t know, Canada’s wildfires are largely about global warming. Hotter and drier weather has made it virtually inevitable that large chunks of Canada’s remote forests would burn each summer.

And no person on the planet has done more to promote global warming than Donald Trump. He has actively sought to promote fossil fuel use at every opportunity and done everything in his power to block clean energy, electric vehicles, and conservation efforts. He also has not restricted his efforts on behalf of global warming to the domestic front. Trump has also pushed foreign governments to develop and use fossil fuels and steer away from clean energy and electric vehicles.

This is why every sentient being could not help laughing when Donald Trump threatened to impose import taxes (tariffs) on goods from Canada because smoke from their forest fires was entering the United States. The absurdity of this threat would be beyond belief to anyone who had not been following Trump’s career in politics over the last decade.

In the realm of absurdity, it is also worth reminding everyone that it is overwhelmingly U.S. consumers who pay Trump’s tariffs. This means that Trump was effectively threatening U.S. consumers with higher taxes because his actions led to forest fires in Canada, which were causing air pollution in the United States. What a fantastic description of MAGA!

On the domestic side we have our own massive wildfires. Not only has Trump contributed to them with his promotion of global warming, his DOGE cuts also eliminated thousands of jobs for experienced firefighters. Also, by stationing thousands of National Guard troops in clown show displays in Washington, DC and other major cities, he has pulled away people who could otherwise be assisting in fighting his wildfires.

I will end on a positive note. Trump and Netanyahu’s war with Iran has jumpstarted the green transition in a way that no environmentally minded Democratic president ever could have hoped. China’s exports of EVs doubled from June 2025 to June 2026. And countries like Pakistan and the Philippines are adding solar panels faster than anyone could have imagined.

Donald Trump might continue to mutter about the “green scam” in his demented rants, but the world is quickly moving away from fossil fuels. The key question is the extent to which it can avoid the damage caused by Trump and his oil industry buddies.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


Do Musk's Record-Breaking Losses Signal The AI Bubble Is About To Burst?

Do Musk's Record-Breaking Losses Signal The AI Bubble Is About To Burst?

SpaceX’s stock fell another 7.2 percent last week. At its 115 Friday close, SpaceX was 15.0 percent below its issue price and down more than 45 percent from its peak the following week. Those who got out early did quite well, while those who bought in the week after the IPO probably aren’t feeling too good just now.

Tesla, Musk’s other big company, did even worse last week, shedding 17.8 percent of its value. That corresponds to a loss of $218 billion in market capitalization. With SpaceX losing $116 billion in value, Musk has likely set a record for losing more money in a single week than any person in history.

But it wasn’t just Musk who had a bad week; the hyperscalers also were not doing very well. Alphabet and Amazon both lost 7.8 percent of their value last week. Amazon lost 6.0 percent, while Microsoft’s stock was down 3.0 percent. Apple managed to almost break even, losing just 0.2 percent of its value.

The big factor in these drops is likely the higher than anticipated capital investment the companies seem to be planning. The increase in spending, coupled with the strong performance of the newest Chinese AI releases, makes it more questionable that the hyperscalers will be able to recover their investments.

The slump of the hyperscalers seems at odds with the strong showing of chipmakers last week. To a large extent, this was just reversing their downturn from the previous week. At the end of the day, if the hyperscalers run into trouble, it’s hard to envision a scenario in which the chip makers aren’t also hard hit. They may still be large, profitable companies, but the massive bonanza their investors now seem to envision will not materialize without a serious AI boom.

It’s always difficult to know the extent to which market movements are based in reality. If you want to see a story of how things are likely to end badly for the hyperscalers and their funders, read Ed Zitron’s Substack. (See also my Mostly Economics interview with him.) He examines at some length how the hyperscalers have created special purpose vehicles (remember Enron?) so as to keep data center- related liabilities off their books.

Ed draws a very bleak picture of a massive bubble of debt that cannot possibly be serviced based on plausible revenue projections from the two major AI companies, Anthropic and OpenAI. I’ll throw in that Ed doesn’t even bring Chinese AI into the picture. That seems to me a very big deal, since Chinese AI companies are already eating up a large and growing share of the market. And even insofar as the U.S. AI companies can hold onto a substantial market share, they will be forced to lower their prices to be competitive.

The layers of finance that Ed describes can be confusing. He compares them to the complex derivative instruments that the financial wizards of the subprime era used to ostensibly minimize risk. For those with the time and energy, it’s worth reading through Ed’s story to get the full picture.

But there is a simple shortcut. If the creation of Special Purpose Vehicles is not a way to hide liabilities, why do it? If Meta, Google, Microsoft, and the rest are confident their bets will pay off, why not just keep them on their own balance sheets like any normal investment? Perhaps there is a benign explanation for going through all these financial hoops, and spending a lot of money to do it, but I am not sufficiently sophisticated to imagine what it could be.

One part of this picture that jumped out at me in reading Ed’s account is that the ability to support this web of debt is likely to be highly sensitive to interest rates. The 10-year Treasury rate was hovering near 4.0 percent when Trump and Netanyahu attacked Iran at the end of February. It is now close to 4.7 percent and more likely headed higher than lower if the war escalates. Trump’s latest round of tariffs is also likely to push interest rates higher.

It would be an interesting irony if Trump’s war and his tariffs proved to be the proximate causes of the crash of the AI bubble.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


California's Wealth Tax Vote: A Chance To Register Public Opinion Of Billionaires

California's Wealth Tax Vote: A Chance To Register Public Opinion Of Billionaires

A coalition of progressive groups, led by the huge union SEIU-UHW, managed to get a one-time five percent wealth tax on the ballot this fall. The tax would apply to the assets over $1 billion held by the state’s 200 or so billionaires. This is a great opportunity for the people of California to tell billionaires what they think of them.

Over the last half-century, billionaires have become increasingly aggressive in stealing from the rest of us, as well as being more open in expressing their contempt for ordinary people who work for a living. It’s not uncommon to see billionaires like Peter Thiel and Elon Musk opining on issues like the need to deny the vote to inferior people, as in non-billionaires. And Elon Musk is, of course, best known for his boosterism of neo-Nazi political parties around the world.

In addition to pushing their hateful views on politics and society, the billionaire gang has also been using their wealth to increasingly dominate politics. Musk was the most open on this topic, spending almost $300 million to keep Donald Trump out of jail put Donald Trump in the White House. He promises to again be a big spender for Republicans in the midterms, as do many others in the billionaire club.

The billionaire crew has also been aggressively buying up media outlets and turning them into MAGA megaphones. Loyal Trump ally and Oracle founder Larry Ellison bought up Paramount and CBS and is now trying to buy Warner Brothers and CNN. He also was handed control of TikTok after Trump wrestled it away from a Chinese company. Newly registered Trump sycophants Mark Zuckerberg and Jeff Bezos own Facebook and the Washington Post, respectively. And Elon Musk bought Twitter, now “X,” to push his far-right politics.

And they use this power to give themselves big tax breaks and also government handouts. The latter take the form of government contracts as well as regulatory provisions to protect their companies.

The wealth tax is an opportunity to fight back against the billionaires. According to the proponents, the tax will raise over $100 billion over the next five years. (The billionaires have five years to pay the tax, but it is based on their assets as of December 31, 2025.) That calculation even allows for substantial avoidance.

This is real money even in the context of California’s budget. Its annual budget is currently a bit over $350 billion. If the state collects $100 billion over five years, it will be a bit less than six percent of projected spending. That will make a noticeable difference to the state budget, especially in a context where the federal government is making major cutbacks in state assistance in healthcare and other areas.

The referendum provides people with a clean vote on what they think of billionaires. The politicians who represent their interests are experts in providing smoke screens. They constantly warn people that if they vote against the billionaires’ candidates, their boys will be turned into girls in school at recess. Or that the immigrants who are mowing lawns or selling tacos from food trucks are actually rapists and murderers. But the referendum on the billionaire wealth tax allows even people who have these concerns to vote to reduce the wealth and power of the billionaires.

To my mind, this sort of wealth tax is not the perfect remedy for inequality. I was concerned that the tax would lead to an exodus of billionaires from the state. While California might be better off with fewer Elon Musk-types dominating public debate, it does collect substantial income tax revenue from the very rich. If too many billionaires fled the state to avoid the tax, it could end up a net revenue loser over the long run.

But the date for flight has already passed, so the state might as well impose its billionaire tax on the vast majority who have stayed in the state. There is also the issue of the tax’s constitutionality. I have seen what seem like solid arguments from legal scholars that the tax does pass muster, but I don’t know anyone who will take a bet on how the MAGA Supreme Court will rule. In any case, it would be foolish to surrender prematurely.

In most of my writing, I have argued that it is best to structure the market differently so that we don’t end up with a small number of ridiculously rich people. Reducing the importance of government-granted patent and copyright monopolies is the most obvious way. That would prevent the fortunes of billionaires like Larry Ellison and Bill Gates, but there is a much longer list of reforms to finance and other sectors that would lead to a market that creates far less inequality.

Perhaps after the collapse of the AI bubble, we will be able to have a serious discussion of ways to structure the market that are both more efficient and lead to less inequality. But for now, we can focus on taking back some of the money we handed to the rich, and the California billionire’s wealth tax is a good place to start.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.