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When Hegseth Hypes 'Lethality,' He's Excusing Murder Of Iranian Schoolgirls

When Hegseth Hypes 'Lethality,' He's Excusing Murder Of Iranian Schoolgirls

I’m going to give our “Secretary of War” a little credit. I will assume that even someone as openly bloodthirsty as Hegseth would not deliberately blow up a school building filled with little girls. But this tragic accident, that led to the death of at least 165 Iranian girls between the ages of 7 and 12, was the direct result of Hegseth’s policy.

The main point of the “woke” rules of engagement that Hegseth has constantly derided, and told the military to ignore, is to prevent tragic accidents like the bombing of a girls’ school in the middle of the day. The rules are designed to try to minimize civilian casualties.

This means reviewing designated bombing sites to make sure they are in fact military targets. Also, even if the target is a legitimate military target, the timing is supposed to be adjusted to minimize the risk of civilian casualties. This can be as simple as bombing a site in the middle of the night, instead of during business hours when there are people working or shopping in the area.

This is exactly the sort of review that Hegseth has gleefully ended. So even if he didn’t tell the military to target a girls’ school, his orders virtually guarantee that tragedies like this one will occur.

It also is important not to be distracted by the possible role of AI in this disaster. It really doesn’t matter whether AI or a human in the Pentagon picked out the girl’s school as a target. There is no shortage of humans who can make very big mistakes. The important point is that Hegseth eliminated the necessary review of targets that likely would have prevented the school from being hit.

It is also worth mentioning that even those who are not troubled by our military committing a classic act of terrorism (blowing up a girls’ school is about as terrorist as it gets) should be bothered by Hegseth’s shoot then aim approach. While Trump has never been clear about the reason he decided to go to war in Iran, on some days he has said it is about liberating the Iranian people from an authoritarian government. He has many times encouraged the Iranian people to rise up and overthrow their government.

This sort of attack, that needlessly killed these schoolgirls, is not going to lead Iranians to believe we are on their side. The fact that Hegseth’s military could not be bothered to do the most basic checking before the strike shows total disregard for the lives of Iranians.If this point is too subtle, imagine that we had done a strike that accidentally led to the killing of 165 Jewish Israeli girls. There would be hell to pay, as they should be.

And just to be clear, the attack on the girls’ school has nothing to do with a “fog of war” or firing in self-defense story. This was at the very start of the war. No one was firing anything at the U.S. Team Hegseth had all the time in the world to review its initial set of targets. They chose not to take it.

In this respect, it is worth noting that Trump has refused to acknowledge that the U.S. military was responsible for the strike. Instead, he has absurdly claimed that Iran did the strike itself, using a missile it does not have. Even Trump knows that blowing up a girls’ school cannot possibly advance his war aims, whatever they happen to be on a given day. (It can be a useful distraction from the Epstein files.)

Hegseth’s policy of “maximum lethality” is about blowing up girl’s schools and other civilian targets that the military’s rules of engagement were designed to prevent. This is Hegseth’s policy and, by extension, Trump’s.

Bessent and Lutnick with Trump in Oval Office

Bessent And Lutnick's Fantasy Stock Earnings Won't Finance Your Retirement

We all know how Trump likes to make up crazy numbers, which his lackeys then repeat. He has $18 trillion in foreign investment coming into the country. He won the 2020 election by millions of votes. He is lowering drug prices by 1500%.

We can usually just laugh these off as the ramblings of an old man suffering from dementia. But there is one crazy Trump number that it is important people know should not be taken seriously. This is the claim on stock returns that lackeys like Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick tout when telling people how much money their new-born kid can get from their Trump accounts.

In their telling, the $1000 that the government is putting into the Trump accounts, starting this year, will grow to more than $590,000 when the kid reaches retirement age. If their families are able to put the full $5,000 allowed into the account, they will have more than $2.5 million when they reach retirement, and that assumes no further contributions. (They can put up to $5,000 a year into the account.)

That’s a serious chunk of money, even if we cut it by four to adjust for projected inflation over this period. It’s also serious nonsense. The problem is that there is no plausible story whereby the stock market can provide the 10 percent nominal return the Bessent-Lutnick gang is pushing. In their story, price-to-earnings ratios would have to go through the roof.

By 2093, when our newborn kid plans to cash out the fortune in their Trump account, their 10 percent compounded returns would imply a price-to-earnings ratio (PE) of almost 1400. The problem is that if the Trump accounts are growing at the rate of 10 percent a year, the economy and corporate profits are only growing at a bit less than 4.0 percent annually. This causes the PE to go through the roof.

This is not an old problem. Some of us have been trying to point this one out to arithmetic fans ever since the Social Security privatization debates of the 1990s. While the stock market has historically provided returns that were higher than the economy’s rate of growth, this was possible because the PE in the stock market has averaged around 14 to 1. It is currently close to 40 to 1.

The simplest way to calculate the real rate of return consistent with a stable PE is to simply take the reciprocal of the PE ratio. When the PE ratio is 14, the sustainable real rate of return is 7.1 percent percent. Adding in inflation that has averaged close to 3.0 percent, gets the 10.0 percent that we can see going back 100 years.

But with the current PE close to 40, this sort of rate of return is not possible unless the PE gets ever higher. The sustainable real rate of return would be just over 2.5 percent. Adding in projected inflation of 2.3 percent gets us to 4.8 percent, well below the Bessent-Lutnick promise.

The moral of this story is that, just as no one in their right mind would take health advice from RFK Jr., no one in their right mind should take financial advice from the Bessent-Lutnick gang. As the saying goes, do your own research.

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.

Reprinted with permission from Dean Baker.

Spiking Oil Prices Will Damage Economy Even As US Keeps Pumping Crude

Spiking Oil Prices Will Damage Economy Even As US Keeps Pumping Crude

There has been a lot of sloppy commentary from people who should know better about who is being hit hardest by the runup in oil and natural gas prices since the start of the war in Iran. There’s a simple story where the countries in Europe and East Asia are the big losers, because they produce relatively little of their own oil. By contrast, the United States is supposedly relatively well-off since we are largely self-sufficient and in fact a net exporter of natural gas.

While the point about the U.S. having large oil and gas production is important, it distorts the impact in important ways. The simplest way to think about the surge in oil and natural gas prices is as a big tax on consumers of these products.

When people pay $3.50 at the pumps, instead of the $2.80 we paid a month ago, this would be the same thing to consumers as if the government imposed a 70 cent a gallon gas tax. There would be a similar story with higher prices for home heating oil or natural gas. From the standpoint of consumers, the price increases are the same as if they just got hit with a big tax increase.

The difference is that instead of the money going to the government, as it would with a tax, it’s going to the oil and gas industry, Donald Trump’s campaign contributors. In principle, for a country like the United States, which is largely self-sufficient in oil and gas, if we could just rebate the money people paid in higher prices back to consumers, all would be fine.

But that sort of rebate would require big taxes, like a windfall profit tax, on the oil and gas industry. Since this industry is very powerful politically, this sort of recycling of higher revenue is not very likely. Therefore, for those of us who don’t have a lot of stock in oil and gas companies, the impact of higher prices is what we pay at the pump or for heating our homes. It doesn’t make a great deal of difference whether the people getting that money live in Houston or Saudi Arabia, it’s not going to us.

From that vantage point, if we do a cross-country comparison of the hit from higher oil and gas prices, it really just depends on how much of the stuff we consume relative to our income. By this measure, the United States does not fare especially well.

U.S. oil consumption per unit of GDP is pretty much in the middle of the pack for wealthy countries. We use slightly less oil per dollar than Spain and Japan, and far less than Canada. South Korea uses more than twice as much oil per dollar of GDP than the United States.[1]

By contrast, the other European countries use less oil per unit of GDP. Italy and Germany both use somewhat less oil per unit of GDP, while France uses about one-third as much, and the UK just over half as much. Both China and India using considerably more oil per unit of GDP, with India using more than twice as much.

The story with natural gas is somewhat more complicated. Here, domestic production does matter, since natural gas is far more expensive to ship overseas. Prices in Europe and Asia can be two to four times higher than in the United States. Therefore, the loss of natural gas from the Middle East will be a big hit to Europe and Asia, while having limited impact on the U.S.

Most European countries use considerably less natural gas per unit of GDP than the U.S. Italy uses roughly a quarter less, while Germany, Spain, and the UK all use about half as much. France only uses about a third as much natural gas as the United States.

In East Asia, Japan uses about 30 percent less per unit of GDP, while South Korea uses about 20 percent more. China uses about 25 percent less, while India uses half as much.

In terms of who gets the biggest hit by the flow and oil and gas from the Middle East being cut off, it seems clear that the East Asian countries will see the worst effects. Japan, and especially South Korea, will be hard hit by both higher oil and higher gas prices.

Consumers in European countries will mostly see less of an impact from the rise in oil prices than consumers in the United States. On the other hand, since natural gas prices are likely to rise much more outside the U.S., Europe and Asia are likely to see much more impact, as the huge domestic production limits the impact in the United States.

The cutoff of oil from the Middle East is a huge blow to the world economy and will likely cause a recession if it lasts for a long period of time. The takeaway here is that while the large amount of natural gas production in the United States insulates it from the impact seen by European and East Asian countries, greater domestic oil production does not do much to help consumers paying more at the pump.

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.

Reprinted with permission from Dean Baker.

Medicines For The People: Drugs Are Cheap Unless Patents Jack Up The Price

Medicines For The People: Drugs Are Cheap Unless Patents Jack Up The Price

It is common for people in elite circles to engage in magical thinking unconnected to reality. For example, it is common for people engaged in policy debates to claim that we can get returns in the stock market totally unconnected to the rate of growth in the economy or current levels of the price-to-earnings ratio in the stock market. (We can’t). That leads ostensibly serious people to project we can get stock returns of 10% a year indefinitely, even when the price to earnings ratio in the market is already near 40 to 1.

It also was the standard wisdom that we could reduce tariff barriers to manufactured goods without any substantial negative impact on employment and wages. Even when the data clearly showed that a soaring trade deficit was costing millions of manufacturing jobs, most of the people who dominate policy debates denied reality.

In this vein, it is a widespread view among policy types that we can’t get innovation without patent monopolies. This should strike the reality-based community as pretty whacked out. After all, patent monopolies are one way to provide incentives for innovation, but why in the world would any serious person think it’s the only way? It has been shown that people will work for money.

This is especially problematic in the case of prescription drugs. Drugs are almost invariably cheap to manufacture and distribute. Most drugs would sell for just five or ten dollars per prescription in a free market, but they can cost hundreds or even thousands of dollars because we give a drug company a patent monopoly.

And as everyone who has taken any economics knows, these patent-protected prices are an invitation for corruption. When a company can sell a drug for $500 that costs $5 to manufacture and distribute, they have an enormous incentive to lie about its safety and effectiveness in order to get as many people as possible to buy it.

We saw this corruption most dramatically with the opioid crisis, where the manufacturers of the new generation of opioids misrepresented their addictiveness in order to have them prescribed as widely as possible. This is an extreme case, but the problem of misrepresented research is widely recognized. Medical journals have to contend with ghost-authored articles and the medical associations have to worry that conference speakers are being paid by drug companies.

This sort of corruption would be largely eliminated if we simply paid for the research upfront and let new drugs be sold in a free market without patent monopolies or related protections. This is where Rep. Rashida Tlaib’s (D-MI) Medicines for the People Act comes in. The idea is to create a new division of the National Institutes of Health, the National Institute for Biomedical Research and Development.

This institute will be charged with developing drugs in important areas where it is responsible for everything from the basic research, developing an actual drug and doing clinical trials, and bringing it through the FDA approval process. At that point, since it has all rights to the drug, the institute could allow the drug to be sold at a low free market price.

In addition to the advantage of having cheap drugs and removing most of the incentive for corruption in the industry, the advanced funding of research should also allow for greater transparency and quicker sharing of research results. With patent monopoly financing, drug companies have incentive to squirrel away findings until they can secure them with a patent. By contrast, the institute’s interest is in promoting good healthcare. To that end, it would want to publicize any notable finding as quickly as possible.

Obviously, Rep. Tlaib’s bill is not about to pass. Republicans control both houses of Congress and are not likely to give it a warm reception. Even if the Democrats controlled Congress, it’s not clear that Tlaib’s bill would have much better prospects.

But Tlaib’s bill can be a jumping off point for a debate on the best way for financing the development of new drugs. It is absurd that an archaic system like patent financing can continue into the 21st century unquestioned.

We can do much better with an alternative system like the one outlined in her proposal. We need to at least have the discussion.

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.

Reprinted with permission from Dean Baker.

Toddler Trump Goes To War, With No Concern For The Consequences

Toddler Trump Goes To War, With No Concern For The Consequences

We are now six days into Trump’s war on Iran, and his team is still trying to figure out the reason. We started with regime change, but Trump quickly decided that he might be okay with leaving someone from the current government in charge.

Then he went with the need to keep Iran from having nuclear weapons. That one didn’t work very well either since he was still boasting about having obliterated Iran’s nuclear weapons program in his attacks last summer.

Team Trump then shifted to the need to strike preemptively. This story went that Israel was about to attack, and we knew that if Israel attacked Iran would retaliate against U.S. forces in the region. Therefore, we had to attack first, along with Israel.

That one may be closest to reality, but it does put Trump in the embarrassing position of admitting that he allowed Netanyahu to drag the United States into a war that doesn’t make much sense from the standpoint of the United States. As Marjorie Taylor Greene and other MAGA stalwarts are pointing out, this is not very America First!

War Without Warning or Planning

Trump not only lacked a reason to go to war; it seems his team didn’t bother to do any planning. Three days after the war began and Iran started sending drones and missiles around the Middle East, it suddenly occurred to Team Trump that they should try to evacuate U.S. citizens from the region.

That is likely a good idea, but the sort of thing competent governments plan before they go to war. It is truly amazing that Trump apparently was completely unprepared for what was almost a certain outcome of his war.

It is worth comparing this failure to the problems associated with Biden’s withdrawal from Afghanistan. Biden managed to get almost 130,000 people out of Afghanistan as the regime we had supported there was collapsing. This was a very impressive accomplishment. These were people who had worked with the U.S. military. Their lives and the lives of their family members would be endangered if they were not able to get out of the country. There were 13 U.S. soldiers who will killed in a terrorist incident near the airport from which most people were being evacuated.

That was a tragic event, but in the larger context, the withdrawal went remarkably smoothly given the extraordinary circumstances. And just to be clear, it was Trump who put Biden in this situation, having already negotiated a withdrawal with the Taliban before Biden came into office. Nonetheless, news outlets like the New York Times, Washington Post, and National Public Radio felt obligated to refer to the withdrawal as “disastrous” when referring to it in their news stories for the rest of his presidency.

It will be interesting to see how they refer to this incredible mess-up by the Trump administration. Presumably Trump knew in advance that war was likely. The State Department could have issued warnings to U.S. citizens in the region. They also should have developed contingency plans to withdraw people once the war started, recognizing that it was likely airports in the region would be closed.

None of this happened. Now they are in the situation of telling hundreds of thousands of U.S. citizens you’re on your own in trying to make travel arrangements to get to safety in the middle of a war zone. The level of incompetence is orders of magnitude greater than any failures by the Biden administration in the Afghanistan withdrawal.

The United States Screws Its Former Allies

When George W. Bush attacked Iraq in 2003, he made his plans very clear to U.S. allies, and in fact to the whole world. The attack may have been unjustified, but it was not a secret to anyone. The same was true of his father’s attack on Iraq in the first Gulf War. In both cases U.S. allies knew what to expect well in advance and could plan accordingly.

That is not the case with Trump’s war on Iran. The U.S. was apparently unprepared for Iran’s military response and so are U.S. allies. This is a huge deal for East Asian countries that are heavily dependent on oil from the region and European countries that badly need liquid natural gas from the Persian Gulf countries, especially as they have mostly cut imports from Russia. The jump in the price of oil and natural gas is yet another shock to these countries’ economies, after the earlier shock from the Trump tariffs.

If it wasn’t already completely clear, with the exception of Israel, none of the United States’ traditional allies can count on the United States support, either militarily or economically. The Trump administration is at best indifferent, if not outright hostile, to countries that are committed to democracy and the rule of law.

The fact that a blockage of the Straits of Hormuz might be a serious economic hit to much of the world seems to have not weighed into Trump’s decision to go to war at all. If the blockage is only for a few days, the impact will end up being limited, but if it lasts for months, the hit will be comparable or even larger than the impact of the sanctions most rich countries imposed on Russian oil and gas after the invasion of Ukraine.

As far as whether the blockage of the Straits is likely to continue for long, part will depend on Iran’s ability to fire missiles and drones, but part will depend on Trump’s decision as to whether to continue the war or seek a negotiated settlement. On that point, he is again playing reality TV show host, telling the world to stay tuned and we’ll see what he feels like.

One positive outcome from this war is that it should further accelerate the shift to clean energy. Now that the world recognizes how fragile its access to traditional fossil fuels is, it has become a huge natural security matter for them to quickly shift to sources of energy that can’t be turned off. It was already the case that renewable energy accounted for the vast majority of new energy being added in most countries, even the United States. But the war should prompt countries to accelerate the pace at which they add wind and solar, allowing them to retire facilities relying on fossil fuels.

The same story applies with electric vehicles. They already account for the bulk of vehicle sales in China and some other markets. This is in large part because they are as cheap as gas-powered vehicles to buy, and much cheaper to operate. Countries are likely now to push quickly to get towards 100% electric vehicles among new sales and replacing many of the older gas-fueled cars still on the road.

Those of us in the United States who lived through Donald Trump’s first presidency know that he is not a person who thinks carefully about his actions and their long-term consequences. Trump began to demonstrate this point to the world clearly with his hare-brained tariff scheme where he sought to punish countries for trading with us. This war without reason removes any doubt that Trump is a threat to world peace and economic stability. The world needs to move away from any dependence on the United States as quickly as possible and now they all know this.

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.

Reprinted with permission from Dean Baker.

Are There Frauds Worse Than That Minnesota Case? Let's Look Again At Donald Trump

Are There Frauds Worse Than That Minnesota Case? Let's Look Again At Donald Trump

The Trump administration has decided to make fraud in government programs in Minnesota into a national crisis requiring massive intervention by ICE and Border Patrol (don’t ask) because it was done in part by Black immigrants from Somalia. While Trump and his Republican minions have been hyperventilating over this fraud, it is worth using a little arithmetic to try to put in perspective.

Of course, arithmetic is not popular in elite circles. Even many liberals have yelled that we have to be very concerned about the Minnesota fraud, apparently because some of it was done by Black people and the Republicans are yelling about it. But I’ll confess to being an old-fashioned type who doesn’t think fraud by Black people is any worse than fraud by white people, even if Republicans yell about it. So, let’s do the numbers.

As best we can tell the amount of fraud in Minnesota in the federal pandemic-related programs the Trump gang is yelling about came to $250 million. (The ringleader was actually white.) There undoubtedly is additional fraud that will be found, but this is what we know about to date.

Trump has touted a figure of $20 billion, but there is no obvious basis in reality for this number. Remember, Trump has repeated boasted about $18 trillion in foreign investment coming into the country, that he won the 2020 election by millions of votes and that he will bring drug prices down by 1500 percent. Trump’s numbers often have nothing to do with the real world.

Let’s just ignore the Trump craziness and go with the $250 million figure of known fraud. By comparison, the inspector general of the Small Business Administration, Hannibal Ware, estimated fraud in the Paycheck Protection Program initiated in Trump’s first term was $200 billion. That would be equal to 800 Minnesota frauds.

In case you’re wondering how this fraud was dealt with, Trump didn’t send in ICE. Instead, Trump fired Mr. Ware, who is Black. He promoted the director of the Small Business Administration, Linda McMahon, to be education secretary in his current term.

There are other cases of much larger fraud that don’t seem to draw as much attention, much less the involvement of ICE, as the Minnesota fraud. For example, the Medicare Payments Advisory Commission estimates that Medicare loses about $40 billion a year to private insurers in the Medicare Advantage program because insurers exaggerate the severity of their patients’ healthcare conditions. This would be equal to 160 Minnesota frauds, also apparently without bringing the involvement of ICE.

We can also look to Donald Trump’s whack-job lawsuits. He has discovered that he can bring any lawsuit he wants against the government, for any amount, and then tell his lackeys to settle. He brought a $230 million case against the Justice Department because it prosecuted him for trying to overthrow the government and stealing classified government. He is apparently directing Attorney General Bondi to hand him the cash. This payment would be a bit more than 0.9 Minnesota frauds.

He is also suing the Internal Revenue Service for $10 billion because it allowed his tax returns for two years to leak. (Prior presidents have made their tax returns public, which Trump promised to do as well.) While it’s not clear what damages Trump could claim (a suit by another leak victim was settled with an apology), he apparently is ordering the IRS to also hand over the cash. While this settlement will have to be reviewed by a judge, it would be equal to 40 Minnesota frauds. (The Justice Department case is an administrative proceeding and requires no judicial review.)

One other item to throw into the mix, just so people can know where the money goes, is Trump’s plan to increase annual military spending by $500 billion. This would add more than $5 trillion to the debt over a decade, for those keeping score on such things. It seems the rationale is that we need more money to protect ourselves from the new enemies Trump has made. Anyhow, this increase in the military budget of 50 percent would be equal to 2000 Minnesota frauds.

To be clear, we absolutely should take seriously fraud in public social welfare programs, like what happened in Minnesota. This money is effectively being stolen from people who badly need it. Most of these programs are underfunded and the money going to fraudsters comes out of the pockets of the people standing in line who don’t get support they need.

However, we also need to keep the amount of fraud in context. Most of our tax dollars are not going to fraudsters from Somalia. In fact, if there had never been a penny of fraudulent payments to people from Somalia, it would not even be a rounding error in our budget data.

We know that Republicans, and especially Trump, exploit racism at every opportunity. Arithmetic may not be an adequate weapon to combat racism, but it can be a useful one. And decent people should use it.

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.

Reprinted with permission from Dean Baker.

Stock Market Has Performed Poorly Under Trump -- And Now Is Headed Down

Stock Market Has Performed Poorly Under Trump -- And Now Is Headed Down

In keeping with his usual manner of confusing big and small, past and present, and up and down, Donald Trump is confused about the movements in the stock market since he took office, and especially in the current year. I recently did a piece pointing out that since Donald Trump took office, the U.S. stock market has had one of the worst performances of any major stock market.

But the story is even worse in the current year. In the first two months of this year, while foreign stock markets have shot ahead, the S&P 500 is just barely in positive territory, rising by less than 0.5 percent. That might not sound great, but it’s better than the return in the formerly high-flying NASDAQ, home of the big tech companies. The NASDAQ fell by 2.5 percent since the start of the year.

Compare that to 4.2 percent gain someone would have had in the Italian stock market since the start of the year, the 5.3 percent gain in the French market, or the 9.9 percent gain in the U.K. If investors wanted to go to a bit more exotic realms they would have gotten an 11.1 percent gain in Mexico, a 16.9 percent return in Japan, and a 17.2 percent return in Brazil. And then there is the grand prize winner for the first two months of 2026, South Korea with a 49.7 percent return.

Source: Yahoo Finance


Last weekend in Texas, Trump told a story about a big strong man with tears in his eyes said that he had to thank him. According to Trump, the man began with the obligatory “sir,” and then said he had made so much money with his 401(k) that it even improved his sex life with his wife.

Given how the stock market has performed under Trump, we must assume that the big guy shorted the market.

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.

Reprinted with permission from Dean Baker.





The $12.5 Trillion-Dollar Question: When Will That AI Bubble Burst?

The $12.5 Trillion-Dollar Question: When Will That AI Bubble Burst?

I often get that question. I can’t say I have a very good answer.

Going back to the last bubbles, it would be difficult to identify any events in the world that precipitated the collapse of either the 90s tech bubble or the housing bubble in the 00s. Both times the economy seemed to be moving along at healthy clip just prior to the collapse.

There had been warnings in both cases. In the 1990s bubble it was hardly a secret that many totally crazy businesses were raising hundreds of millions of dollars in IPOs. Investors were worried about missing out on the next Microsoft, so they were willing to throw big bucks at seemingly hare-brained schemes, just in case.

In the housing bubble, the fact that many of the mortgage loans being issued were of rather dubious quality was hardly a secret. Lenders were issuing loans at 100 percent of appraised value and sometimes more. In many cases, people were borrowing in excess of the value of their home to cover closing costs or moving expenses. The verification on these loans was minimal. There were frequent jokes about “liar loans” or NINJA loans, with NINJA standing for “no income, no job, and no assets.”

But these warnings came well before the crashes. There is no obvious event that caused the stock market to turn in March of 2000 or the housing bubble to peak in the summer of 2006.

The Federal Reserve arguably played a role in the latter. The federal funds rate rose from its tech recession low of 1.0 percent in the spring of 2004 to a peak of 5.25 percent in the summer of 2006. This made mortgages more expensive, which made it harder for people to pay bubble inflated prices to buy homes. But the increases were gradual and the impact on 30-year mortgages was minimal. Of course, since many borrowers were taking out adjustable-rate mortgages at the time, higher short-term rates did matter.

In the 1990s, there was only a very modest increase in the federal funds rate, rising from 5.5 percent in the fall to 6.0 percent by March. It rose further into the spring, but the market had already turned at that point.

With this history, I don’t know what might cause the bubble to burst. Just to pick up on a point I made last summer, it is very hard to tell a story where the current price of the big AI-related companies makes sense. Nvidia has a current market capitalization of $4.8 trillion. If investors expect a 10 percent nominal return on the stock, in ten years it would have a market capitalization of $12.5 trillion. If we assume its earning have caught up so that it has a price/earnings ratio at that time of 20 (pretty high for a mature company), then its after-tax profits in 2036 would be $620 billion. That would be almost 15 percent of all after-tax profits in the U.S. economy, according to the Congressional Budget Office’s projections.

The idea that one company would have 15 percent of all corporate profits is not impossible, but it doesn’t seem like the most likely scenario. Alphabet, which is obviously an incredibly successful company, currently has about 4.6 percent of after-tax profits, so will Nvidia be more than three times as large relative to the economy in a decade than Alphabet is today?

Furthermore, is that anyone’s best bet? If this is a possible but not likely scenario then people must be expecting considerably higher returns on their investments in Nvidia stock, say 15 percent or 20 percent. In those cases, we would need for the company’s profits to be 25 or 30 percent of all corporate earnings in 2036 to make sense of Nvidia’s share price. This seems to be getting pretty far-fetched.

Who knows when or what will make the bubble burst. Maybe the Chinese competitors get enough market share with their lower-priced AI that it will become clear even to the Silicon Valley geniuses that their big jackpot exists only in their heads. Maybe their revenues will stop meeting projections. But whatever causes it, the story of the collapse is not likely to be pretty.

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.

Reprinted with permission from Dean Baker.

Hey Trump! Greenland Doesn't Need Our Hospital Ship, But Louisiana Surely Does

Hey Trump! Greenland Doesn't Need Our Hospital Ship, But Louisiana Surely Does

In its latest effort at clownery, the Trump administration announced that it would send a hospital boat to Greenland to provide healthcare to the population there. The precipitating incident seems to be that a U.S. seaman aboard a nuclear submarine patrolling near Greenland, needed immediate medical attention and was brought to a hospital in Nuuk, Greenland’s capital,

Trump then announced that he was working with Louisiana Governor, and czar of imperialist expansion, Jeff Landry, to send a “great hospital boat” to Greenland to “take care of the many people who are sick, and not being taken care of there.”

There are two problems with Trump’s latest plan. First, the military’s two hospital boats are both being repaired now and not able to go anywhere any time soon.

The other problem is that the people of Greenland, unlike people in the United States, already have access to free medical care. Insofar as they have conditions that cannot be treated on the island itself, they can be transported to Denmark to get some of the finest care in the world.

It is generous of Trump and Landry to offer care to Greenlanders, who don’t need it, but he might consider paying more attention to addressing the healthcare of people in the United States, and especially Louisiana, who do need help. The average life expectancy in the state of Louisiana is 72.2 years. This is slightly better than the 71.6 years in Greenland, but well below the 81.7 years in Denmark.

It hopefully is not a secret to President Trump and Governor Landry that many people in the United States struggle to pay for the care they do receive and often go without care. I suspect many people in Governor Landry’s state would be happy to hear about him working with Trump to improve the quality of care for people in Louisiana.

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.

Reprinted with permission from Dean Baker.

Jesse Jackson

As We Fight The Battle Of Our Lives, Remember Jesse Jackson

It would be hard to overstate Jesse Jackson’s importance in opening up American politics and society, not just to Black Americans, but also to Hispanics, and the LGTBQ community. It is probably difficult for younger people to imagine, and even old-timers like myself to remember, how bad discrimination was in the not very distant past.

When Jackson ran the first time in 1984, and even the second time in 1988, there was not a single Black governor in the United States. There had been no Black governors since the end of Reconstruction. There were also no Black senators.

The only Black to serve in the Senate since reconstruction was a Republican, Edward Brooke, who was elected in Massachusetts. When Carol Mosley Brown got elected to the Senate from Illinois in 1992, it was widely noted that she was first Black woman to be elected to the Senate. She was also the first Black Democrat to be elected to the Senate.

It wasn’t just in politics; Blacks were largely excluded from the top reaches in most areas. I recall when I was a grad student at the University of Michigan in the 1980s. There were just two Black tenured professors in the whole university. There was a similar story in corporate America.

Jackson’s campaign didn’t turn things around by itself, but it certainly helped to spur momentum for larger changes. Back then people seriously debated whether a Black person could be elected president in the United States. Jackson’s campaign raised that question in a very serious way.

Barack Obama (the second Black Democrat to be elected to the Senate) answered that question definitively two decades later. While President Obama is obviously an enormously talented politician, without Jackson’s campaigns, it is hard to envision Obama ever having been a serious presidential contender.

And Jackson was serious about a “rainbow coalition.” He also helped open the door for Hispanics, for Arab and Muslim Americans, and for the LGBTQ community. At a time when there were no openly gay or lesbian members of Congress, and even liberals were afraid to be associated with anyone who was openly gay, Jackson stood out in offering a welcome mat.

Jackson also pushed a powerful economic message. At a time when Reagan was busy cutting taxes for the rich and cutting back social programs, and trade was devastating large parts of the industrial Midwest, Jackson was advocating a populist agenda that focused on building up the poor and the working class. His message resonated with many white workers who felt abandoned by the mainstream of the Democratic Party, and even many farmers who were devastated by an overvalued dollar in the early and mid-1980s.

There is a bizarre revisionism, that has gained currency among people who pass for intellectuals, that the baby boomers grew up in a Golden Age in the 1970s and 1980s. The unemployment rate averaged over 7.0% from 1974 to 1992. The median wage actually fell from 1973 to the mid-1990s. This was a period of serious upward redistribution and the losers, as in most people, were not happy campers. Jackson spoke to those people.

I had the opportunity to work in Jackson’s campaign in Michigan in 1988 and I still remember it as one of the high points of my life. Even though Jackson had vastly outperformed anyone’s expectations in the early primaries (probably even his own), he was not taken seriously in the Michigan race. Most of the pundits considered it a race between the frontrunner Michael Dukakis and Congressman Dick Gephardt, who had strong union support. As it turned out Jackson handily beat both, getting an absolute majority of the votes cast in the state.

In my own congressional district, which centered on Ann Arbor, all the party leaders lined up for Dukakis. The Jackson campaign was composed of a number of people who worked in less prestigious jobs, like salesclerks and custodians, and grad students like me. It really was a multi-racial coalition.

We managed to totally outwork the party hacks. First, because it was a caucus and not a primary, it meant that people would not go to their regular precincts to cast their votes. We made sure that our supporters had a neatly coded map that told them where their voting site was.

Also, since it was a caucus and not a primary, the state’s usual rules on being registered 30 days ahead of an election did not apply. We had a deputy registrar at every voting site who would register people who had not previously registered.

We also made a point of having all our workers knocking on doors on election day and offering to drive people to the polls who needed a ride. The Dukakis people were all standing around the voting sites, handing out literature with their big Dukakis buttons, apparently not realizing that anyone who showed up had already decided how to vote.

I remember talking to a reporter late that night after the size of Jackson’s victory became clear. Up until that point, there had been numerous pieces in the media asking, “what does Jesse Jackson really want?” as though the idea that a Black person wanting to be president was absurd on its face.

I couldn’t resist having a little fun. I pointed out that with his big victory in Michigan, Jackson was now ahead in both votes cast and delegates. I said that I think we have to start asking what Michael Dukakis really wants.

Anyhow, the high didn’t last. The party closed ranks behind Dukakis and he won the nomination. He then lost decisively to George H.W. Bush in the fall. His margin of defeat was larger than in any election since then.

All the gains of the last four decades are now on the line, as Donald Trump and his white supremacist gang look to turn back the clock. We have the battle of our lives on our hands right now.

But Jesse Jackson was a huge player in the changes that created the America that Donald Trump wants to destroy. He had serious flaws, like any great political leader, but for now we should remember the enormous impact he had in making this a better 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.

Reprinted with permission from Dean Baker.


Trump Rx Does Nothing For Patients, While His Billion-Dollar Heist Proceeds

Trump Rx Does Nothing For Patients, While His Billion-Dollar Heist Proceeds

This country has had some bad presidents, but it’s a bit hard to imagine a president whose main goal is to put his name on things and who would openly steal billions from the Treasury. But that is Donald Trump.

Starting with the quest to get his name on stuff. We now have the Donald J. Trump Institute of Peace, which used to be the United States Institute of Peace, before Elon Musk shut it down. We have the Donald J. Trump John F. Kennedy Memorial Center, which Trump also shut down. There are also the Trump accounts which will allow homeless and hungry kids to have accounts that pay fees to a brokerage house.

And now we have Trump Rx, which is supposed to be Donald Trump’s big effort to make drugs cheaper; 1500% cheaper according to people named Donald Trump. This could just be a funny joke if paying for drugs was not such a major problem for many people with serious medical conditions.

Despite Trump’s boasts of being a master negotiator, people will not find much in the way by deals at Trump Rx. It doesn’t actually provide new discounts on drugs. The site just gives people coupons that allow them to get the discounted prices that the companies already offered on their websites.

Even worse, more than half (26 of 43) of the drugs on Trump Rx are already available as low-cost generics at prices far lower than the prices the site offers. To take the example posted on MSN’s site, Trump Rx offers a 30-day supply of the antidepressant drug Pristiq for $200, which is less than half of the list price. However, a generic version of the drug is available at GoodRx for $30 and at Mark Cuban’s CostPlusDrugs for $16.65.

This means that someone buying Pristiq from Trump Rx would be paying 1100 percent more than they would at Mark Cuban’s site. That doesn’t sound like the road to affordability.

For anyone interested in what we are actually paying for drugs, the answer is 7.5 percent more in 2025 than in 2024. In Trump’s loony-tune head prices might be falling by more than 1000 percent, but when it comes to people’s pocketbooks, they are paying more for drugs.

Trump’s $10 Billion Heist from Taxpayers

I know I have written about this one before, but the theft is so large and so open that it’s hard to stop talking about it. Trump is filing an absurd lawsuit against the Internal Revenue Service and then instructing his lackeys to hand over the money. It is hard to imagine a more open theft of taxpayer dollars.

To be fair, there is some basis for the lawsuit. The I.R.S. allowed Trump’s tax returns for two years to leak, revealing that he paid almost no taxes.

Returns are supposed to be kept secret, so there was an actual wrong committed against Trump. But where the hell does he get $10 billion in damages? There were 40 other rich people who had their returns leaked. If we handed $10 billion to each of them it would come to $400 billion, or nearly half of the Defense Department’s budget.

Realistic damages may come into the tens of thousands of dollars, or maybe low hundreds. After all, Trump is the ultimate public figure, all prior presidents for decades had freely released their tax returns, and Trump had promised to do so as well. So, the leaker was just helping Trump keep his promise. How is Trump damaged by having information made public that he had actually promised to make public himself?

It is almost impossible to fathom how large Trump’s attempted theft from the Treasury is. The Republicans for years made a huge deal out of the fact that Hunter Biden got around $1.5 million for his paintings. Let’s grant that people bought the paintings with the idea of getting influence with President Biden. Hunter’s take was less than 1/6000th of what Trump is putting in his pocket.

It’s the same story with Hunter Biden and Burisma. He got between $2 and $4 million for his work for the company. Again, we can assume this was with the expectation that he would get favors from his father. We know he never did because Republicans spent five years looking for the favors and came up empty. Since Trump’s haul is between 2,500 and 5,000 times as much, an equivalent investigation would take between 12,500 and 25,000 years.

Trump likes to boast about things he has done that no one ever thought was possible. Sometimes his boasts are about things that everyone thought were possible and sometimes they are about things that Trump hasn’t done. But in this case Trump would be right; no one ever thought it was possible for a president to steal $10 billion from the government right in front of everyone’s eyes.

Correction

I had a couple of readers inform me that I had mispresented steps involved in the Trump lawsuit against the I.R.S. While Trump can order the I.R.S. to agree to pay him $10 billion, a judge will ultimately have to approve the settlement. Given the absurdity of the case, it seems that any judge not appointed by Donald Trump, and even some who were, would throw the suit out.

On this point, another reader pointed out to me that one of the other rich people who got their returns leaked, Ken Griffin, did in fact sue the I.R.S. The judge in the case ruled that Griffin did in fact have a course of action, since the I.R.S. should not have allowed the returns to become public. However, the judge said that Griffin had not shown any evidence he was damaged in any way by the leak.

Applying the same logic to Trump, he would have even less basis for damages since as an incredibly public figure, he has less basis for a claim to privacy. Also, his enormous platform gives him ample opportunity to respond to any wrong impressions that may have resulted from his leaked tax returns.

It is worth pointing out that Trump’s $230 million case against the Justice Department, because they tried to prosecute him for attempting to overthrow the government and steal classified documents, is different in this respect. That is an administrative action that will be decided entirely by Trump appointees in the Justice Department. No judge has to sign off on the agreement, so this is Trump just choosing to hand taxpayer dollars to himself.

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.

Reprinted with permission from Dean Baker.

At 'Washington Post,' Bezos' Bozos Struggle To Justify High Drug Prices

At 'Washington Post,' Bezos' Bozos Struggle To Justify High Drug Prices

I am tempted just to ignore the Washington Trump-Post after Jeff Bezos’ purge, but perhaps there is some ridicule value that can be exploited for the purpose of educating the public. The Post ran an editorial complaining that people looking to lower drug prices in the United States were being short-sighted because it just means that we will see fewer new drugs in the future. It said the real problem is that Europe doesn’t pay enough for drugs because they don’t give drug companies unfettered government-granted patent monopolies, but instead limit prices based on a drug’s usefulness.

Two simple numbers show how ridiculous the Post’s argument is. Last year we spent over $720 billion on drugs and other pharmaceutical products. The industry spent around $150 billion on research. That means patients in the United States paid almost five times as much for drugs as what the industry spent on research.

It likely costs around $150 billion to manufacture and distribute the drugs. (We know this based on the price that generic drugs sell for.) That leaves the industry with $570 billion to cover $150 billion in research. The rest goes to profits, advertising, high pay for CEOs and other top executives, and payoffs to politicians, doctors, and media outlets.

Fans of arithmetic, which I guess excludes the Washington Post editors and other Trumpers, would know that Europe would be paying plenty to cover research costs, even if its prices were 40 percent of U.S. prices. The only thing that would be accomplished by raising the price of drugs in Europe is that Jeff Bezos’ rich friends would become even richer.

If we want to talk seriously about lowering drug prices, we would be looking to change the way we support research. Instead of relying on government-granted patent monopolies, we could just pay for the research upfront, say by vastly increasing the $50 billion we now spend funding research through the National Institutes of Health. Then all the research could be fully open source, with all patents in the public domain.

Not only would this mean that new drugs could be sold as cheap generics from the day they are approved by the FDA, but research would likely advance more quickly since new findings would quickly be made freely available. This would allow researchers all over the world to follow promising leads and avoid proven dead ends.

This way of financing research would also remove the enormous incentive the industry now has to lie about the safety and effectiveness of new drugs. We saw this problem most clearly with the opioid crisis where the industry misled doctors about the addictiveness of the new generation of opioid drugs, but the issue of misrepresenting research comes up all the time. It is exactly what economic theory predicts happens when a government monopoly allows companies to sell products at prices that are thousands of percent above production costs.

I have been screaming about the corruption of the pharmaceutical industry for a long time and pushing direct upfront funding as an alternative. I am happy to see a new paper from Dana Brown at the Vanderbilt Policy Accelerator making the same argument.

There’s an old saying that intellectuals have a hard time dealing with new ideas, and direct upfront funding of pharmaceutical research is certainly a new idea to people who can’t imagine an alternative to patent monopolies. Also, since the major media outlets are controlled by rich people like Jeff Bezos, they aren’t anxious to publicize policies that could cost their rich friends hundreds of billions of dollars.

But at least folks who read my stuff can know. The Washington Post is lying to you. There are more efficient mechanisms to finance biomedical research which can give us both lower drug prices and better medicine. Drugs can and should be cheap, we don’t have to make them expensive with patent monopolies. Maybe one day we will be able to have a serious discussion about alternatives to patents to finance the development of new drugs.

Trump's Incompetence Left Thousands Freezing In the Dark Across MAGA South

Trump's Incompetence Left Thousands Freezing In the Dark Across MAGA South

We all know that Trump has declared war on Blue America. He has made clear that he intends to use the full power of the presidency to make the people who didn’t vote for him suffer. He is even going so far as to send in an armed force of invaders, as he did last fall in Chicago and is doing now in Minnesota. His masked gang openly flouts the law and the Constitution.

But ostensibly Trump loves his voters in the Red States. After all these are the people whose votes put him in office and kept him out of jail for the crimes he committed. Many of them also buy Trump merchandise, like his MAGA hats, his bible, and his playing cards. Some of them would probably even go to see Melania, if they had the opportunity. In principle, Trump would like to help these people, since they count as real Americans in his book.

Unfortunately, regardless of what Trump may desire, he is falling down badly on the job of ensuring the Red States hit by recent winter storms, Mississippi (Trump +23), and Louisiana (Trump +22), and Tennessee (Trump +30) have power and other essential services restored. Tens of thousands were still without power nearly a week after the storm.

It is difficult to quickly restore services after a major storm, especially in areas like these in the South that are not accustomed to severe winter weather. But it’s a safe bet that cutbacks to the Federal Emergency Management Agency and other government agencies that might have been involved in the recovery did not help.

It is also worth noting that if a Democrat were in the White House we can be absolutely certain that the Republicans would be screaming bloody murder over this failing. They would certainly be scheduling Congressional hearings and probably even looking to do criminal prosecutions.

This isn’t hypothetical. In the fall of 2024, after Hurricane Helene hit much of Southern Appalachia, President Biden quickly rushed in assistance through FEMA. This effort didn’t stop Republicans from yelling and screaming about how about how Biden had abandoned the area because they were Republicans. Elon Musk, the world’s richest person and biggest spreader of disinformation on the Internet, even pushed absurd stories about how FEMA was blocking aid and seizing packages.

The Republicans also blamed and continue to blame Biden for the inflation caused by the pandemic. Even though the supply-chain problems caused by the pandemic led to jumps in inflation in Canada, Europe, and elsewhere, Republicans pretended that the inflation was just the result of Biden’s blunders.

Their efforts were so successful that even Democratic consultants adopted their line, saying things like, “people don’t care about inflation in Germany and France, they care about the price of bread and milk.”

I won’t weigh in on whether the population lacks the ability to understand that a worldwide pandemic creates economic disruptions; but I will point out that it should be possible for Democrats to flip the story now that Donald Trump is in the White House and tens of thousands of people are suffering. It is in fact the government’s responsibility to prepare for disasters like the winter storms that hit last week.

It should have been able to respond quickly and ensure that the people in hard-hit areas had adequate food, shelter, and access to medical care. Insofar as this was not the case, it was a major failing of the Trump administration. Trump decided it was more important to terrorize the people of Minneapolis to score points against his political opponents than to help his own supporters get through the winter.

Elon Musk’s DOGE chainsaw cut down government workers who might have helped the people in these Red states in an emergency. Trump and the Republican politicians who backed them should be held responsible for this situation. With the Trump administration causing so much chaos and destruction in so many areas, perhaps his failing to protect his supporters in the South should not be at the top of anyone’s agenda. But it does deserve to be on Trump’s greatest hits list.

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.

Reprinted with permission from Dean Baker.

Trump Lawsuits: Of All His Grifts, They Are By Far The Most Efficient

Trump Lawsuits: Of All His Grifts, They Are By Far The Most Efficient

You have to give Donald Trump some credit. He was making plenty of money selling pardons, ripping off Venezuela’s oil, and selling seats on his “Board of Peace,” but all of these required something resembling work. In the case of Venezuelan oil, he even had to invade a country and kill 80 people.

But Trump’s latest grift is far simpler. He just sues the government and then orders Attorney General Pam Bondi to give him the money. He already did this several months back when he filed a $230 million suit because the government tried to prosecute him for the crimes he committed.

As a practical matter, Trump’s lawsuit was a total joke. Since he almost certainly would have been found guilty if he had allowed the prosecution to continue, there is not even the beginning of a case. Imagine Jeffrey Esptein, if he was still alive, suing the government for prosecuting him. I doubt the Justice Department would be handing over $230 million.

But the Trump case was even worse. Even when acquitted, a defendant can only under extraordinary circumstances, like a racially motivated prosecution, even get through the door with a suit against the government. And in such cases, the defendant’s attorney fees would be the bulk of the damages.

That might get Trump into the single-digit millions even if the facts had been completely different and he was totally innocent. That might come to two or three percent of the taxpayer dollars he told Bondi to give to him.

But now Trump has decided he needs more money, so he’s demanding more than 40 times as much, suing the Internal Revenue Service for $10 billion for releasing information from his tax returns. One of the ironies of this story is that the leak took place in Trump’s first term, so ostensibly, as president, he is responsible for the harm for which he is suing the government. No matter, this is Donald Trump’s America.

I often point out that the sums the right yells about are relatively trivial when put in any sort of context. Trump’s theft is moving into the not all together trivial category even in the context of the federal budget.

For some comparisons, the annual appropriation to support public broadcasting was around $550 million. Donald Trump is demanding almost 20 times as much because of his hurt feelings over some of his tax returns being made public.

The Africa AIDS program that Elon Musk nixed with his little chainsaw got $4.5 billion a year. This program has saved tens of millions of lives. Donald Trump wants taxpayers to give him more than twice as much because the I.R.S. embarrassed him by releasing his tax returns, something every president has done.

The enhanced subsidies in the Obamacare exchanges, that the Republicans let expire at the start of this year, would cost about $30 billion a year to extend. These subsidies would benefit around 22 million people. This means that Donald Trump is asking taxpayers to hand him one-third of the money needed to make healthcare affordable to 22 million people.

Here’s the picture.

As bad as it is to steal $10 billion from the taxpayers, the worse part is that Trump now realizes that the federal Treasury is an open piggy bank for him. He can file a lawsuit about literally anything, no matter how crazy, for any amount, and then tell Attorney General Bondi or the relevant agency head to hand him the cash.

Who knows, maybe he’ll direct some lackey to misspell his name on the Trump Gold Visa or any of the other crazy things he puts his name on. Then he can sue for $50 billion for emotional harm. Maybe he’ll tell Bondi to drive a hard bargain and only settle $40 billion.

This is a patently absurd clown show, but that is where we are as a country. Trump can steal as much as he wants from the taxpayers and the Republicans in Congress will do some mixture of “I don’t know anything about it” and “Trump deserves it.”

The majority in the country are clearly disgusted by Trump’s corruption, his incompetence, his contempt for democracy, and his vicious attacks on American cities. The real question is whether we still have enough of a democracy that the majority opinion matters.

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.

Reprinted with permission from Dean Baker.

Elizabeth Warren

California's Tax On Billionaires May Work -- But There's A Better Solution

A coalition of unions and other progressive groups is trying to get an initiative on California’s ballot this fall which would impose a five percent tax on the wealth of the 200-250 billionaires living in the state. The tax would be retroactive, so it applies to billionaires who lived in the state as of January 1 of this year. The supporters estimate that it could raise $100 billion, almost 30 percent of the state’s annual budget, although the tax could be paid over five years.

Many people have asked me what I thought about the tax. I confess to originally being hesitant. I have no problem with hitting billionaires with a much higher tax bill than they now face. After all, they are the ones with the money.

The right likes to push the story that billionaires won’t have incentive to become ridiculously rich if we tax them more. I always found that absurd, but even taken seriously what would it mean? Will Elon Musk spend less money and effort bribing politicians to get government contracts and favorable regulatory treatment if we tax him too much?

But that aside, I do take seriously concerns about evasion and avoidance. Billionaires care a lot about their money, and they are prepared to go to great lengths to avoid having to surrender it to the government. There clearly is some point at which we get less tax revenue by raising rates, as a result of evasion and avoidance. And that point is lower at the state and local level than the national level, since it’s much easier for billionaires to move out of New York City or California than to leave the United States.

On this point, I was influenced by research by Joshua Rauh and Ryan Shyu showing that the state lost 60 percent of the revenue anticipated by California’s 2012 Proposition 30. This raised the marginal tax rate on people earning more than $1 million a year from 10.3 percent to 13.3 percent. This suggested to me that California was very close to this tipping point. (It got closer when Trump’s 2017 tax bill limited the deduction for state and local taxes on the federal taxes.)

Rauh works at the conservative Hoover Institute, so I naturally viewed the work with suspicion, but I could not see anything wrong with it. (If anyone can tell me where they messed up, I’m all ears.)

Anyhow, recognizing that avoidance and evasion are real, I have always been cautious about efforts to whack the rich with very large taxes. I am open to the California wealth tax because its structure seems to minimize this risk.

By making the date at which the wealth tax applies in the past, rich people cannot leave going forward. I was concerned about some billionaires fleeing when the tax was being discussed in the fall, and it seems some did, but at this point that’s water under the bridge.

To be clear, I’m absolutely certain that many of the people facing the tax will do everything they can to try to escape the tax, starting with defeating the initiative, and then tying it up in the courts as long as they can. With the ultimate decision likely to rest with the Republican Supreme Court, I’m not at all confident that the state will see the money, but we can’t preemptively surrender. At this point it seems worth going full speed ahead with the initiative.

The Longer Term: Let’s Not Have Billionaires

My bigger complaint with the effort to tax back some of the billionaires’ billions is that we should be more focused on not letting them be billionaires in the first place. There is an incredibly lazy view that we just have a market sitting there, which generates inequality, and then we need the government to step in to redistribute income.

More than a decade ago, Sen. Elizabeth Warren (D-MA), who I greatly admire, did a viral video that was dubbed “you didn’t build that.” The gist of it was that the success of rich people depended on a social and physical infrastructure that was paid for by the whole of society, not just the hard work and ingenuity of the person who happened to get rich.

This is very true. To be profitable, a factory needs the roads and ports to bring their materials in and ship their finished product out. It also needs a skilled workforce to be both on the factory floor and to handle business operations. No one can get rich by themselves.

Elizabeth Warren Doesn’t Go Far Enough

But this is only part of the story. In addition to the physical and social infrastructure, we have a massive set of rules that determine who gets to keep the goodies. I keep harping on government-granted patent and copyright monopolies, both because there is a huge amount of money at stake (easily over $1 trillion a year or $8k per household) and because they so obviously could be different.

We can make these monopolies shorter and weaker, allowing their holders to profit much less from them. Also, we can rely more on alternative mechanisms, like direct public funding of research, as we do currently with more than $50 billion a year in biomedical research at the National Institutes of Health. Many of today’s yacht-loving billionaires would still be working for a living with different rules on intellectual property.

Labor law is another obvious case where governments set the rules, and they could be structured in a way far more beneficial to workers. In the early post-World War II era it was widely recognized that large corporations with monopolistic power dominated the economy, but that was not necessarily seen as a bad thing, because their workers also benefited from higher wages. This was due to the fact that they were unionized and able to demand their share of the benefits from monopolistic power.

This is much less the case today because unions are far weaker. But that is not a natural outcome, the rules on labor-management relations were written to make workers weaker. There is no natural market in this story, the government writes the rules to make them more beneficial to one side or the other.

Just to give a few examples: the prohibition on secondary boycotts in the U.S. is a regulation that unambiguously weakens unions. A secondary boycott would mean Elon Musk’s suppliers could be struck over sending him steel, if he didn’t give the auto workers at Tesla a big pay hike.

The ban on union shops (“right-to-work”) in most states, where all the workers who benefit from a union pay their share of the union’s costs, is a government intervention against freedom of contract. This also weakens workers. Restrictions or outright bans on collective bargaining by gig workers is another example. In addition, there could be serious penalties for violating labor laws, as in millions of dollars in fines from real courts, rather than joke sanctions from the National Labor Relations Board.

None of this is “the market.” This is a story of government policy designed to give more money to the oligarchs.

The list goes on. Mark Zuckerberg, and now Larry Ellison, would be much poorer without Section 230, which protects their massive social media platforms from the same sort of liability for spreading lies that print and broadcast media face. Different bankruptcy laws, that made private equity firms liable for the debts of the companies they take over and then push into bankruptcy, would likely have prevented many of today’s billionaires, as would applying a sales tax on financial transactions similar to the sales tax people pay when they buy clothes or shoes.

This is the topic of my now dated book Rigged (it’s free). The point is that the market is infinitely malleable. We can structure it in a way that leads to far more equality or in ways that gives all the money to billionaires, as we have done in the last half century.

In that context, by all means we should try to find creative ways to tax back some of the wealth we have allowed them to accumulate, but it makes much more sense, and it’s much more efficient, not to structure the market in a way that gives them all the money in the first place.

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.

Reprinted with permission from Dean Baker.

Trump and Carney

Get Ready To Pay For Trump's $300 Billion Temper Tantrum Over Canada

Feel like paying another $2,400 a year in taxes because an old man suffering from dementia got humiliated? That could end up being the case after Canadian Prime Minister Mark Carney’s speech at Davos last week.

Donald Trump is threatening to impose a 100 percent tax (tariff) on items we import from Canada. The immediate cause of Trump’s anger is ostensibly that Canada signed a trade deal with China that would allow it to import 50,000 Chinese electric vehicles (EVs) a year with a very low tariff. Trump claimed that this would allow for China to evade U.S. tariffs on its cars by shipping cars through Canada and then taking advantage of the United States’ free trade deal with Canada and bringing them into the United States.

In his post this morning, Paul Krugman explained why this is absurd. (We don’t coordinate on these, just happened to think along the same lines.) First the number of cars involved is small, roughly three percent of Canada’s car market and 0.3 percent of the U.S. car market. So, there would not be much at stake here in any case.

But the second point Krugman makes is that under the trade deal, goods are still inspected at the border. He contrasts this with the customs union that the European Union has where as soon as an item clears one of the EU ports or borders, it can freely pass to the other member states without inspection, just like goods going from Ohio to Michigan.

This is actually a point worth highlighting. Under Trump’s tariff fest, countries face very different tax rates. This provides an enormous incentive to mask the origins of goods imported into the United States. This may be done by actually changing the production process, for example shipping components from China to Vietnam where they will be assembled into a refrigerator or television set. Or it could just mean writing on the box “made in Vietnam.”

In fact, it would be reasonable to suspect that something like this is taking place. Our imports from China through October were down by 25.3 percent. At the same time, imports from Vietnam increased by 40.4 percent. You’re welcome to believe that Vietnam suddenly became a much more attractive source for U.S. importers, but it seems more likely Chinese companies have figured out how to circumvent Trump’s tariffs.

Anyhow, transshipment is a real problem for someone like Trump trying to impose high tariffs, but the Chinese cars going to Canada are not going to be the issue. The issue is obviously that Carney humiliated Trump in front of the world with his speech at the Davos forum last week.

Trump could not care less about the country or the world, he cares about his image, and Carney had the courage to openly say that Trump is in fact an egotistical jerk, which he did very politely. Trump’s 100% tariff on our imports is his revenge for Carney’s truth-telling.

As usual, Trump seems rather clueless about the impact of his tariff. As all of the research shows, we pay the tariff, not the exporting country. A new study found that the United States paid 96% of the tariffs that Trump imposed last year.

It’s not clear whether Trump will actually go through with his tariffs on Canadian imports, which will freak out financial markets, or which goods he will tax and which he will exempt, but it is possible to get some idea of what this tax could look like. We likely imported around $380 billion in goods from Canada last year. (The data only run through October.) Assuming some items are exempted and some reduction in imports from the tax, a 100 percent tariff on Canadia imports would be in the ballpark of $300 billion.

This would be a bit less than 1.0 percent of GDP. It would be one of the largest tax hikes ever, coming to $2,400 per household. It would be more than 10 times the money needed to continue the enhanced subsidies in the Obamacare exchanges. It would be more than 40 times the money needed to continue the AIDS/PEPFAR program for Africa. This program, which Elon Musk killed with his little chainsaw, saved tens of millions of lives.

For most households, $2,400 a year is a lot of money to pay. But I’m sure we all will happily cough up the bucks to soothe Donald Trump’s wounded ego.

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.

Reprinted with permission from Dean Baker.


stock exchange

Dumping American Stock: Why Doing Good May Also Be Doing Well

Before I go further here, let me qualify everything I’m saying here with a warning: I have no crystal ball from which to give people investment advice. However, I do know logic and arithmetic, apparently unlike Donald Trump, so I can draw out some hypothetical situations, which is what I do below.

There has been much discussion, both here and around the world, of the possibility of a flight from the dollar. This has always been a serious risk since Donald Trump took office, but the risk increased enormously from his deranged rant at the World Economic Forum in Davos last week.

Virtually everyone who was not on Trump’s payroll acknowledged that the speech was both scary and incoherent. He made threats to our allies, boasted about imposing tariffs based on personal whims, and displayed an extraordinary ignorance of major world events. With Trump commanding extraordinary powers as president as a result of a docile Republican Congress and servile Supreme Court the United States does not look like a good place to park your money.

There have already been some prominent instances of pension funds pulling their holdings out of Treasury bonds and other U.S. assets, but this is the less important part of the story. Most of the money at risk of leaving the United States is not held by public pension funds which may announce their decision to make a political point.

Rather, most of the money at risk of fleeing is held by private corporations and banks, and wealthy individuals, who would pull their money out of the United States because they think that Donald Trump’s America is a bad investment. There are literally trillions of dollars that could be leaving.

To correct one of the silly things often said by people who should know better, no individual, bank, or corporation is asking where to park one, two, or three trillion dollars. This scenario is supposed to leave them paralyzed in any effort to leave dollar assets, because there is no good alternative country where they can park $4 trillion.

But that is not how the financial system works. The big investors are asking where they can park $10 billion, $50 billion, or $200 billion, and the answer is there are plenty of places where this sort of money can be placed with reasonable safety, including the European Union, Brazil, China, India, the United Kingdom, and Canada. A flight from the dollar running into the trillions would be the result of tens of thousands of decisions to pull millions or billions of dollars out of dollar denominated assets.

I don’t know if we are seeing the beginning of this sort of flight, but if we are, we can say with some degree of confidence that the dollar, along with the U.S. stock, and bond market are headed lower. If that is the case, there is an obvious strategy for people in the United States: join the flight.

If the price of U.S. assets is headed lower, those interested in protecting the value of their retirement money, their kids’ college funds, or other savings should get out before the plunge. Fleeing dollar assets is not difficult to do these days.

Most brokerage houses offer foreign stock and bonds funds that will protect people from both a fall in domestic markets and a fall in the value of the dollar. (The collapse of the AI bubble could cause a plunge even apart from Trump’s craziness.) Obviously, some options will be better than others, but people should apply the same rule in looking at foreign funds as they would with domestic ones. Look to diversify your holdings. You probably don’t want to put all your savings in a German or Italian fund. Both countries’ markets may do great, but there also could be reasons they end up as poor investments. It’s best to hold funds that have stocks and bonds in a number of different countries.

And pay attention to fees. Some funds, like those managed by Vanguard, typically have low fees, while others can charge as much as 1.5-2.0 percent annually to invest your money. Remember, these fees are money that you’re just handing to the financial industry. If you have a fund that charges a 1.5 percent fee on a $100,000 account, that means you’re giving $1,500 a year to the company. Most people can probably find something better they can do with $1,500.

The other part of the story about joining the flight is that you will be speeding the decline in the dollar and the U.S. markets. In ordinary times, that would not be a good thing, but we know that Donald Trump cares about what happens in financial markets. He is totally fine with ignoring Congress (e.g. the Epstein files), the courts, and international law, but he does respond when financial markets take a dip.

Trump is surrounded by ridiculously rich people who couldn’t care less about democracy or what happens to the country, as long as they are making money. However, if they start to lose money because of Trump’s vicious loon tune policies, they will get upset. That could get Trump to start respecting the law and the Constitution. It could be our best hope for saving democracy.

And remember, if the stock market and the dollar are going down anyhow (the dollar has already fallen almost 10 percent under Trump and the stock market has lagged nearly every other major market), you will be protecting your savings by getting out ahead of the rush. This is definitely a case where millions of people can do well by doing 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.

Reprinted with permission from Dean Baker.