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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.

Debunking Trump's Fantasies About Foreign Investment (And Falling Drug Costs)

Debunking Trump's Fantasies About Foreign Investment (And Falling Drug Costs)

Today I thought I would discuss two of my favorite Trumpian lies about the economy: he lowered drug prices 1500 percent, and we’re bringing in $18 trillion in foreign investment. These are among my favorite Trumpian lies because they involve important issues and Trump repeats them all the time.

They are both also absurd on their face. All of us who learned arithmetic in fourth grade know that the price of an item can’t fall more than 100%. Once the price drops 100%, it is free. If it falls more than that, the drug companies would be paying us money to buy their drugs. Maybe in Donald Trump’s head drug companies pay people to use their drugs, but not in reality land.

The investment story is almost as absurd. Trump’s $18 trillion would be 60 percent of current GDP. It would be more than four times the annual level of investment. The economy could not handle an inflow of investment like this without massive disruptions and inflation. For better or worse, we don’t have to. The number is also something that only exists in Trump’s head.

Drugs and Factories are Important

Spending on prescription drugs and other pharmaceutical products are a very big deal. We spent over $700 billion on these items last year, which comes to almost $5,400 per household. And this is not just a question of getting the newest iPhone or the deluxe suite on your vacation. People buy drugs to protect their health or even their life, so it really does matter how much people have to pay.

Similarly, the story on factories is important in part for Trump’s imagination, but also for some very real-world reasons. On the imagination side, Trump constantly spins the tale of the Golden Age, when white men had good-paying factory jobs and could support their families with their white wives staying at home raising the kids. This was destroyed by the globalists and their trade deals.

There is some truth to this story. Factory jobs used to be much better paying than other jobs in the economy for workers without college degrees, but that was largely because they were union jobs. And we know that Trump very much does not like unions. Trade did change this picture, not just because it cost us millions of jobs, but also because it disproportionately hit union jobs.

As it stands now, the manufacturing wage premium has been largely eliminated. This means that even if we got back jobs in manufacturing, they would likely not be better on average than the jobs they replaced.

The real-world story is that manufacturing does matter. I’m not going to get carried away in Cold War competitions with China, but we should have some capacity in key areas, like computer chips, cars (preferably EVs), solar panels, batteries, and the like. The Biden administration was trying to remedy this situation with his infrastructure bill, CHIPS Act, and the Inflation Reduction Act.

Anyhow, since we got new data in both areas, it is worth checking in.

The Prescription Drug Price Story

Starting with drugs and pharmaceuticals, year-over-year spending as of November was up 7.5%.

This is not necessarily any worse in terms of rising drug prices than we were doing under Biden, but it’s also not any better. And as a practical matter, rapidly rising drug costs matter much more when they are a larger share of our budgets. If the price of potatoes goes up by 7.5 percent, all of us potato eaters will be unhappy, but it is unlikely to have a big effect on our standard of living. But when we’re spending $5,400 on drugs, a 7.5 percent increase is a very big deal which could affect our standard of living.

Source: NIPA Table 2.5.U, Line 122.

To be clear, the impact of this increase on family budgets is a bit more complicated. Close to half of drug spending is paid by insurers or government programs like Medicare and Medicaid, so most people are not paying that $5,400 out-of-pocket. But insurers are not charities, if they are paying more for drugs, they will be raising premiums to employers or the person buying the insurance. And higher drug prices are big costs for federal, state, and local governments.

There is one other point worth making on drug prices. The measure of drug price inflation shown in the Consumer Price Index (CPI) shows a much lower figure. That is because the CPI is tracking price changes for the same drugs. My guess is the CPI measure matters little to most people. If their doctor switches them from a less expensive to a more expensive drug, people care about how much they pay for their drugs, not how much the price of a specific drug has risen or fallen.

The Biden Boom in Factory Construction Is Fading

The October data, the most recent data available, show factory construction fell 0.9 percent for the month and is down 9.7 percent year-over-year. Factory construction had surged under Biden, peaking at more than double its 2019 level, after adjusting for inflation. It has been on a downward path since the fall of 2024 as factories have been completed or cancelled due to Trump’s efforts to undermine Biden era programs.

The slowing of factory construction goes along with a loss of manufacturing jobs. We were down by 70,000 jobs under Trump in the January data, but the jobs number will be revised downward by around 100,000 when BLS incorporates benchmark revisions with the release of January data.

In any case, from a Trumpian perspective, it’s clear we’re going the wrong way, with fewer factories being built and fewer jobs in manufacturing. Does this make Trump’s $18 trillion in foreign investment a bigger lie than the 1500% drop in drug prices? That’s the great question MAGA fans will have to decide for themselves.

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.

Europe's Most Effective Response To Trump? Cancel US Patent Monopolies

Europe's Most Effective Response To Trump? Cancel US Patent Monopolies

Donald Trump does not appear to be backing down from his obsession with seizing a big chunk of real estate in the form of Greenland. He now is set on whacking American consumers with another big tax hike in the form of $75 billion in tariffs on imports from the European countries most vigorously defending the status quo with Greenland and Denmark.

To be clear, contrary to what you read in the newspaper, these tariffs are taxes on us, not the exporting country. That fact might be too complicated for Donald Trump and little children, but we are the ones who pay the tariff. Losing some of their export market is a negative for the countries targeted, but at this point everyone in the world understands that the United States is no longer a reliable market and has made plans to adjust this reality.

But Trump is not likely to stop with his tariffs. Just as he can’t acknowledge that he lost the 2020 election, by a big margin, he can’t accept that Greenland does not belong to him. He is a seriously demented man who has decided he wants Greenland and has to have it.

Europe is struggling to find a way to respond effectively. There are discussions of imposing tariffs on U.S. exports, which can inflict some pain on U.S. companies, but probably not enough to matter to Trump. And just as Trump’s tariffs hit U.S. consumers, European tariffs will make things less affordable for hard-pressed families.

There is a simple alternative that is likely to be more effective in getting attention here and would actually help Europe’s consumers. European countries can announce that they will no longer honor U.S. owned patents and copyrights.

That will very quickly get the attention of consumer product companies like Apple, which depends on thousands of patents for its iPhones and other products, and earns over a hundred billion annually. Similarly, software companies like Oracle (as in right-wing billionaire Larry Ellison) and Microsoft depend on patent and copyrights to make their leading shareholders incredibly rich. Entertainment outfits like Disney and Paramount (also owned by the Ellison clan) depend almost entirely on copyright monopolies as the basis for their billions of dollars in annual earnings.

Putting U.S. patents and copyrights on the line is a guaranteed attention grabber. The vast fortunes of the sleaze buckets who put Trump into the White House and back his attack on democracy in the United States and around the world will suddenly be thrown into question.

There is even precedent for going this route. In World War I, the United States stopped honoring German patents and instead instituted a system of compulsory licensing. Under this system, anyone could freely use a German patent for a small fee. European countries can go a similar route in response to a U.S. government that says it has no use for international law.

Not only will the patent/copyright route inflict far more pain on the big actors in Donald Trump’s America, in contrast to the tariff route, it will offer real gains for the people of Europe. Imagine everyone being able to get iPhones at less than half their current price, free or near free Microsoft software, and the latest Disney and Paramount productions at zero cost. This is genuinely a case where everyone can gain from free trade: eliminating patent and copyright monopolies.

This move also exposes the Big Lie of economic policy of the last half century. There has been a massive upward redistribution of income over this period. There is more the case in the United States than in Europe, but income has also shifted upward there as well. That has contributed to the rise of right-wing populism in Europe.

The Big Lie is that the upward redistribution was the natural workings of the market. The claim is that the course of technology and globalization just turned out to benefit the more educated segments of the population, and especially those at the very top.

That is a lie since there is nothing natural about the government-granted patent and copyright monopolies that play a huge role in this upward redistribution. Governments could have made these monopolies shorter and weaker rather than longer and stronger, or even relied more on other mechanisms to support innovation and creative work.

There were other ways in which government actions redistributed income upward, but that is a longer discussion that can be dealt with elsewhere. The key point is that European countries by opting to not respect U.S. patents and copyrights, have an incredibly powerful weapon to use against Donald Trump and his rich supporters. The time has come for them to go nuclear.

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.

With Courage And Grit, AI Workers Could Save Democracy

With Courage And Grit, AI Workers Could Save Democracy

The AI promoters have made grand promises about how AI will change everything and give us all happier, healthier lives. Maybe that will be proven right, but it’s fair to say they have not yet delivered.

However, AI workers may have the power to do something very important in the present, not some distant or not so distant future. They can save democracy.

Their route to saving democracy is by not doing AI, or at least not doing AI with their current employers. At the moment, AI is clearly driving the economy. Investment in data centers and the power plants to support them directly account for a large share of economic growth.

Probably even more important than the direct investment is the impact of AI on stock market wealth and thereby on consumption. We have seen a huge run-up in the stock market driven primarily by companies that are heavily invested in AI.

To take the obvious examples, Nvidia, which makes most of the key chips for AI, now has a market capitalization of almost $4.5 trillion. Its stock has risen 1500 percent in the last five years. Microsoft has a market capitalization of $3.4 trillion. Its stock price has doubled in the last five years. Apple and Meta’s stock prices have risen less dramatically, but now have market capitalizations of $3.8 trillion and $1.6 trillion, respectively.

Stock wealth translates into higher consumption as people spend annually between 2 and 3 cents on a dollar of stock wealth. In the last five years the market has added nearly $30 trillion in wealth as the market has more than doubled in value. That stock gain translates into between $600 billion and $900 billion in annual consumption spending, or 2-3% of GDP. This is clearly a huge factor in driving the economy.

If the AI bubble were to burst, this pattern of growth would come to an end. If I and many others are correct in calling AI a bubble, it will burst in any case, the only question is the timing.

One factor that could hasten the collapse would be if a substantial number of top AI researchers took a hike, and either took some time away from the industry (maybe literally take a hike) or moved into some other area of research. The big AI companies that have gone to great lengths to recruit top researchers would likely see their stock valuations plummet. This could quickly end the current AI frenzy.

How does this save democracy? In my crude analysis of our current politics, Trump has a hard-core base of around 25% of the electorate. This crew will be with Trump no matter what. As he put it some years back, he could kill someone on Fifth Avenue, and they would still support him.

Roughly 50% percent of the population oppose Trump, most of them very strongly as they see clearly the threat he poses to democracy and our fundamental rights. Then there is another 25% or so that may not really like Trump, they might even think he’s a jerk, but hey, their 401(k)s are up, the economy isn’t doing badly, so why not?

This group has been edging away from Trump in the last year, with polls showing his overall approval now hovering near 40%. But they would edge away far more quickly if their 401(k)s suddenly took a big hit and we got our second Trump recession. (The first one was in 2020, for the folks with bad memories.)

If Trump went from being slightly unpopular to being extremely unpopular, we would start to see Republican politicians in the House and Senate suddenly come back to life. Very few of this group have any real commitment to Trump. In fact, some of them were hardcore never Trumpers before he took over the party.

These politicians care first and foremost about their careers, and they will not wed themselves to a 79-year-old man whose popularity is sinking like a rock. They will start again acting like members of Congress and doing things like overseeing spending, limiting Trump’s barrage of executive orders, and reining in ICE, which Trump is using as his personal police force to terrorize the states and cities that support Democrats.

The top AI researchers have the ability to set this ball in motion. It may be some personal sacrifice, but these people’s skills will still carry enormous value a year or two from now. They will not go hungry. And if the bubble is going to burst anyhow, why not get out front and do something great for the world?

To be clear, in my view this is not an issue of doing something bad to the economy. I have written before on how it would be good if the AI bubble bursts sooner rather than later. The same was true for the 1990s tech bubble and the housing bubble in the 00s. In all these cases we would have been much better off if the bubbles had burst years earlier.

Huge amounts of resources were being misallocated. The larger the bubble, the more painful the readjustment process. And to be clear, an economy where all the consumption growth is coming from the richest 20 percent of the population is not a healthy one. Bringing that pattern of growth to an end soon looks pretty good in my book.

We know the top people in tech, folks like Jeff Bezos at Amazon and Mark Zuckerberg at Meta, are just fine with Trump’s destruction of democracy. But these are not the people who make their companies economic powerhouses. If the people who actually do the work step forward, they really can change the world. The rest of us will keep trying too.

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.

If Trump Cancels Midterms, The Tech Billionaires Wouldn't Even Blink

If Trump Cancels Midterms, The Tech Billionaires Wouldn't Even Blink

The lack of market reaction to the news that Trump ordered his Justice Department to investigate criminal charges against Fed Chair Jerome Powell surprises many people. After all, everyone knows that the claims about cost overruns being the basis for the investigation is nonsense. Trump wants to threaten Powell with criminal charges because he ignored Trump’s demand that he lower interest rates.

This ordinarily would be seen as a very big deal. Ever since Nixon, presidents have been reluctant to be seen as pressuring the Fed. In fact, their concern on this issue often seemed absurd to my view. President Biden didn’t want his Council of Economic Advisors to even comment on interest rate policy, as though giving a view based on the economic data would be undue pressure.

There is a big difference between presenting an economic argument and threatening to imprison a Fed chair who disagrees. And we now see which side Trump comes down on.

But apparently, the markets are just fine with this new threat. The major stock indexes all rose on Monday, although bond prices fell slightly, pushing long-term rates higher. The dollar also fell modestly.

The non-reaction of the stock markets might seem surprising. After all, the independent Fed is considered a sacred feature of U.S. prosperity. There is no shortage of economists who will insist that a Fed that is subordinate to the whims of a president is a quick route to double-digit or even triple-digit inflation. (I’m more agnostic on this one, but the markets generally don’t listen to me.)

Anyhow, Trump is now not just looking to fire an insubordinate Fed chair, he’s looking to throw him in prison. And the markets just yawned.

This reaction should cause us to start asking how the markets might react if Trump just cancels or outright steals the 2026 elections in order to keep his lackeys in control of Congress. Under any other modern president, the fear of a cancelled or stolen election would be silly. While they might have used dubious tactics leading up to an election, we could be comfortable that the votes would be counted, and the outcome would be binding. (Florida in 2000 is a major exception.) No one ever suggested that an election would be cancelled.

But Trump has made it clear that he considers both cancellation and ordering that some votes not be counted as serious options in his recent New York Times interview. No one can be safe in assuming that we will have a normal democratic election this year.

Given this reality, we might want to speculate on how the markets would react in the event that Trump does decide to end American democracy. We now know that most of the big money boys couldn’t care less about democracy. Jeff Bezos, Mark Zuckerberg, and Tim Cook have been happy to cozy up to Trump in Mar-a-Lago, even as he violates one democratic norm after another. Elon Musk has made it clear that he has contempt for democracy, insofar as it means allowing non-white people to vote.

This gang would obviously have no moral issues with a cancelled or stolen election. But what about the economics?

Trump has already made it clear that he will favor businesses whose leaders praise him and punish those who criticize him. His most recent effort in this direction was saying that he intended to ban Exxon-Mobil from access to Venezuelan oil because its CEO said what every oil analyst has said since Trump became president of that country: it will be difficult for companies to profitably invest there.

The economies of countries where the leader can reward or punish companies on a whim tend to not do very well. The courts have provided a limited check on Trump’s whims as has even this pathetic Congress. However, if Trump is deciding who serves in Congress, the checks will be gone. We will have full rule by our demented 79-year-old president.

Perhaps markets will be fine with that. With enough rear-end licking some companies may still do fine, but it would seem on the straight economics most people with money would probably prefer to invest in a serious country. Let’s hope we don’t have to find out.

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's New Military Buildup Will Require A $6 Trillion Tax Hike

Trump's New Military Buildup Will Require A $6 Trillion Tax Hike

Donald Trump is now apparently planning to request a $600 billion increase in annual military spending starting in October, financed by another huge jump in import taxes (tariffs). I said “apparently” since it’s not clear that he thinks he has to request authority for this spending increase or massive tax hike from Congress.

Under the Constitution there is no ambiguity on these issues. Congress has the power to tax and authorize spending. However, Donald Trump and the Republican Congress have not shown much respect for the Constitution in Trump’s second term and it’s not clear the Supreme Court has any greater level of respect. So, who knows if there actually will be requests for Congress to vote on, or whether he will just do it with no legal authority.

Anyhow, apart from the mechanism employed, this would be a massive increase in spending, coming to just under 2 percent of GDP. It would also amount to a massive tax increase if Trump actually offsets the spending, as he claimed he would, rather than just increasing the deficit.

Taken over a decade, a $600 billion increase in annual taxes would come to $6 trillion, roughly $45,000 per household. It is real money. It would be difficult, but not impossible, to raise this much money through tariffs.

Our imports currently come to just to over $3.2 trillion annually. A straight calculation would imply that an across-the-board tariff increase of 19 percentage points could cover the cost of Trump’s military buildup. But the increase in the tariff rate on most items would end up being considerably higher for two reasons.

First imports would fall sharply in response to a tariff of this size. Let’s say they fall by 15 percent, this would put imports at $2.7 trillion, which would mean a tariff increase of 22 percentage points would be needed to get to Trump’s $600 billion.

The other reason that the tariff on most items would likely be higher is that Trump will presumably exempt some items other for policy reasons or in response to payoffs at Mar a Lago. In the first category, much of what we import are intermediate goods used in manufacturing finished products like cars or planes. High tariffs on these inputs will hurt industries that Trump is ostensibly trying to foster.

The other part of the story is that we have seen many executives make the pilgrimage to Mar-a-Lago, most notably Apple CEO Tim Cook, and walk away tariff exemptions on items they import. This trek will be more widely traveled when CEOs are looking at tariffs two or three times their current levels.

That means the import tax on many products will have to increase in the neighborhood of 30 percentage points to hit Trump’s revenue targets. That will be a big hit to many households’ budgets, as we know that the bulk of tariff revenue gets passed on to consumers in the form of higher prices. That doesn’t sound like much of an affordability agenda, but Trump was never really into that word anyhow.

The other side of the story is that this massive increase in military spending will mean a huge diversion of resources from productive uses. Scientists who might have been developing better computers or software for civilian uses will instead be working for military contractors. The same is true for researchers developing new drugs or medical equipment.

This will also be the case with millions of less-highly educated or narrowly trained workers. Instead of working as teachers or in various areas of healthcare, such as physical therapists or home healthcare assistants, they will be employed in the sort of jobs needed by military contractors. That’s a huge drain for the economy and corresponds to the reduction in purchasing power as a result of Trump’s massive tax increase.

If there was some clear argument as to why we needed such a massive increase in taxes and diversion of resources, as when we confronted the Nazis in World War II, perhaps this hit to the economy could be justified. But no one made such claims, not even Trump in his 2024 campaign, until Trump invaded Venezuela and decided it was fun.

It’s good to see an old man suffering from dementia enjoying himself, but it would be much cheaper and less deadly if we just gave him a good video game.

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.

Yes, The Fed Should Lower Interest Rates (Because Trump Is Wrong On The Economy)

Yes, The Fed Should Lower Interest Rates (Because Trump Is Wrong On The Economy)

We all have come to accept that Trump makes totally whacked out claims about the economy, which his cabinet and other top aides must mindlessly repeat and embellish. His favorite invention is the booming economy.

Trump tells us that no one has ever seen anything like it. He boasts about $20 trillion dollars of investment coming into the country. At the same time, Trump is demanding that the Fed lower interest rates. If anything like Trump’s boasts were true, the Fed would be crazy to lower interest rates.

Twenty trillion dollars is two-thirds of GDP. If even one tenth of this amount of money was being added to investment it would imply a huge surge in demand. Rather than trying to boost the economy with a rate cut, with this sort of surge in investment, the Fed would be looking to raise rates to prevent inflation.

But everyone knows that Trump is lying about the massive inflow of investment. That exists only in his head. That is why the Fed will lower interest rates this week.

A rate cut should not be a close call, precisely because the economy is weak, not strong. The jobs data from the Bureau of Labor Statistics is now more than two months old due to the shutdown, but it was clear that it was weakening at the time and there is nothing in the data from private sources that change that picture.

The September jobs report showed the unemployment rate had risen to 4.4 percent. That is still low by historical standards, but it’s a full percentage point above the low hit in 2023. It’s also 0.5 percentage points above the average for the years 2018-2019, when there was no evidence of accelerating inflation.

The weakness is also more visible for the most vulnerable segments of the workforce. The unemployment rate for Black workers was 7.5 percent in September. That is 1.4 percentage points above the year ago level and 2.7 percentage points above the low hit in April 2023.

The unemployment rate for young workers between the ages of 20-24 was 9.2 percent in September. That was the highest rate since May of 2021. It is 3.7 percentage points above the low hit in April of 2023.

The job growth numbers also suggest a weakening labor market, although this is harder to read due to the curtailing of immigration. Without any substantial flow of immigrants into the labor market, the underlying rate of labor force growth is likely in the range of 30,000 to 60,000 a month.

Over the four months ending in September, the economy added an average of just under 40,000 jobs. This could be consistent with the underlying growth rate of the labor force, so the figure is not necessarily disturbing even though it is down from an average of 170,000 a month in 2024.

However, the distribution of the job growth does provide cause for concern. More than 90 percent of the jobs created over this period were in healthcare. Manufacturing has continued to lose jobs and construction employment was flat. With the DOGE attack on federal workers, the federal government is shedding jobs, while job growth at the state and local level has slowed to trickle.

The DOGE influence is also visible in the private sector. The category, “scientific research and development services” has lost almost 20k jobs this year (2.0 percent), undoubtedly in part the result of reduced grant funding. It had been growing modestly, adding 6,400 jobs in 2024.

The private labor market measures that have come out in the last two months support the view of a weakening labor market. The Indeed jobs posting index continued to decline into November, although it did have a modest uptick at the end of the month.

The ADP jobs measure has been weak since the Spring and showed a loss of 32,000 private sector jobs in November. Manufacturing was especially hard hit in the ADP data, losing 18,000 jobs.

It is pretty much impossible to look at any of these data series and have any concerns about the labor market overheating. There are clearly some inflationary pressures in the economy, but they are not coming from the labor market.

The most important source of inflation pressure is the Trump tariffs. Without these tariffs, inflation would likely be very close to the Fed’s 2.0 percent target right now, instead of hovering near 3.0 percent. The Trump administration’s mass deportation is likely also causing some upward pressure on prices by disrupting production in sectors like restaurants and construction. There also is upward pressure on electricity prices as a result of the AI boom and the resulting surge in energy prices.

Higher rates will not have any noticeable effect on these causes of inflation. If the Fed were to do a Volcker and raise rates enough to cause mass unemployment this could eventually lower wages, and thereby reduce inflation, but it doesn’t seem like anyone at the Fed has the stomach for double-digit unemployment.

Short of pulling a Volcker, it is not clear what the Fed could hope to accomplish with high rates. Perhaps that will slightly hasten the end of the AI bubble, which will reduce inflation, but that is a rather indirect way of accomplishing this goal.

In short, a rate cut at this week’s meeting should be a no-brainer with a clear signal that another cut at the next meeting is also likely. But these cuts will be because everyone at the Fed knows Donald Trump is lying about the state of the economy, not because anyone takes his claims seriously.

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.

$20 Trillion Investment? Searching For Trump's Imaginary Economic Boom

$20 Trillion Investment? Searching For Trump's Imaginary Economic Boom

I suppose it is not nice to make fun of a 79-year-old man suffering from mental decline. But when that person is president and threatening to throw millions of people in jail and/or deport them, and also threatening war on countries around the world, their age and mental infirmity does not shield them from criticism. Just as he claims to have settled wars that either never existed or have not been settled, Trump keeps insisting he has created an unprecedented economic boom that is not visible anywhere in the data.

Most immediately, Trump boasts about his accomplishments in improving affordability by bringing prices down. He can take credit that the price of gas is down by around two percent, or six cents a gallon, from its year ago level, but that still leaves it just under $3.00 a gallon. It is not at the $2.00 a gallon he boasts about anywhere in the country. Rather than going down, food prices are up 2.7 percent from a year ago, with items like beef and coffee scoring double-digit increases.

Trump’s big thing is the $20 trillion in investment that he imagines is coming into the country. This sum is equal to two thirds of annual GDP and almost seven times the current annual level of investment. But there is zero evidence of it anywhere in the data.

Source: US Bureau of Economic Analysis via FRED/St. Louis Federal Reserve

After an unprecedented boom under Biden, investment in factory construction has trended downward under Trump. It’s hard to imagine some huge explosion of investment that won’t involve building some new factories or renovating existing ones.

There also is no evidence of Trump’s investment boom in new orders for capital goods. This series fluctuates a great deal, as orders, especially of airplanes, tend to clump together. But the average for the third quarter of this year was just 12.0 percent above the average for the last quarter of the Biden administration, before adjusting for inflation. That’s not bad, but hardly a huge boom. In fact, it’s still down by 1.4 percent from the last quarter of 2023, again before adjusting for inflation.

The story doesn’t look any better from the standpoint of manufacturing employment, which Trump has put at the center of his economic agenda. Manufacturing employment is down by 49,000 from when Trump took office in January. Employment had already been falling in 2024, but manufacturing jobs are still going in the wrong direction.

Even Trump’s claims of trillions coming into the Treasury from his import taxes (tariffs) is also a delusion. In October, the most recent month for which we have data, the Treasury collected $31 billion in tariff revenue, roughly $24 billion more than it raised last year. That amounts to a massive tax increase of almost $300 billion a year, or $2,400 per household.

This does not come close to balancing the budget, and we certainly aren’t paying down the debt, as our deluded president claims. However, the tariffs are the major cause of the higher inflation households have seen since Trump took office, in addition to the higher costs imposed by deporting much of the immigrant labor force.

In fact, because of increased spending, the deficit was higher in October of 2025 than it was last October. In addition to normal increases in spending due to higher payments for programs like Social Security and Medicare, it also costs money to have thousands of ICE agents terrorizing people in major cities and to send the military to blow up small ships in the Caribbean with advanced weaponry.

In short, when it comes to Donald Trump’s boasts about the economy, it is all delusion. Psychologists or people who have read his MRI may be able to determine the extent to which Trump is telling deliberate lies, as opposed to really living in his world of make believe. But for those viewing from a distance, the important thing to know is that it is all nonsense.

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.


Beyond Trump's Latest Crazy Pardon, Glimpses Of A Post-Trump America

Beyond Trump's Latest Crazy Pardon, Glimpses Of A Post-Trump America

Trump 2.0 continually impresses everyone for its craziness. The latest venture into the absurd was Trump’s preemptive pardon of Democratic Rep. Henry Cuellar (D-TX), who had been indicted on charges for accepting bribes from foreign actors.

The pardon is not especially surprising, since Donald Trump finds a corrupt politician as irresistible as he might have found an attractive woman in his younger days. The Trumpian absurdity part of the story is that Cuellar immediately turned around and said that he wants the prosecutors investigated. In Donald Trump’s America the greatest crime is enforcing the law against a Donald Trump ally.

Who knows where Cuellar’s request will end up? Most immediately, he apparently went to Jim Jordan, the head of the House Judiciary Committee with his case. This likely means some serious hyperventilation and screaming, but not much else.

It’s not clear that anyone in the Justice Department will pick up on Cuellar’s insistence that prosecuting him should be a crime and start investigating their colleagues. The refusal of Justice Department lawyers to carry through blatantly political prosecutions has been a source of encouragement. This shows both that they have a bit of a moral compass, and also that they are thinking of a post-Trump world, where a clown show prosecution of a Trump enemy is not something good to have on your resume.

The refusal to prosecute was very public when Trump’s pick for acting United States attorney for the Eastern District of Virginia, Lindsey Halligan, could not get any of the career lawyers in the Justice Department to sign off on the prosecutions of former FBI director Jame Comey and New York Attorney General Letitia James. She had to take up the task herself even though she had never prosecuted a case before. Such refusals are likely playing a role in the Justice Department’s refusal to date to press an antisemitic prosecution of liberal billionaire George Soros or whack job conspiracy indictments of Barack Obama and Hillary Clinton.

Rats Leaving the Ship

It’s not just Justice Department lawyers who can give us some hope of a post-Trump world where democracy survives. Jamie Dimon, the CEO of JP Morgan, recently said that he was refusing to make a contribution to Trump’s ballroom monstrosity because he was concerned how a post-Trump Justice Department might view it.

This comment should be taken very seriously. JP Morgan is by far the largest bank in the country, which Dimon has run for two decades. Also, Mr. Dimon is an astute businessman who clearly puts business above politics. Early in 2024 he gave Trump a pseudo-endorsement when he famously said that he thought the economy would do fine regardless of whether Trump or Biden won. That he is now thinking of a world with a normal Justice Department is huge.

It’s not just Dimon who is thinking about a world beyond Trump. A near record number of Republican members of Congress have announced their retirement. Some, most notably Marjorie Taylor Greene, are not even finishing out their terms.

It’s understandable that many would be unhappy with their jobs. Most of them are not morons. They know they are being asked to repeat inane lies in support of Donald Trump and whatever whack job thing he says or does. That can’t be lots of fun.

On top of this, politicians do understand election results. They see a shift of double-digits away from Republicans in elections across the country. They also see the polls showing Trump’s popularity going through the floor. That does not sound like a good environment to seek re-election even when Trump has gerrymandered districts to favor Republicans.

Collapsing Conspiracy Theories

Trump also has the problem that many of the MAGA team’s guiding lies are coming undone. The most notable one is the Jeffrey Epstein scandal. Many Trump backers really believed that Donald Trump was the white knight who was going to smash the child trafficking pedophile ring being run by Hillary Clinton and other evil Democrats.

Now that he is sitting in the White House, he is doing everything possible to keep secret the files related to the country’s most notorious child sex trafficker. Trump’s denials of his ties to Epstein are becoming ever more absurd. Only the most extreme cult members can find them credible at this point. Trump was clearly a close friend of Epstein’s and likely partner in at least some of his activities.

And it’s not just the child sex trafficking conspiracy that’s sinking under the weight of reality. Trump’s FBI team managed to finally nail down a suspect in the January 6th Capitol pipe bomb case. (Congrats to them, seriously.)

The top levels of the MAGA cult, including current deputy FBI director Dan Bongino, had been pushing whack job conspiracies about how the pipe bombs were part of an FBI inside job. Now it seems that the suspect was just another January 6th insurrectionist supporting the stolen election story. The big question now is whether he qualifies for Donald Trump’s blanket pardon of his mob.

The other Trump conspiracy at risk is the story of Jack Smith’s weaponization of the Justice Department. The Republicans are boasting about how they have subpoenaed Smith to testify in secret hearings where they can then publish selected excerpts from his testimony.

Smith has volunteered to testify in public. Republicans are scared to death to let Smith speak in public and let everyone hear about his by the book investigation of Donald Trump’s effort to overthrow the government. For the moment, Smith’s public testimony has not been a major demand from Democrats, but there is always the possibility some members of the party could wake up.

Healthcare and Affordability: Reality Still Matters

Finally, the Trump gang does have to deal with some real-world problems that are not going away. Health insurance premiums are about to rise a lot for tens of millions of people, unless Trump and the Republicans in Congress do a 180 and agree to extend the subsidies for the exchanges under Obamacare.

Wages for millions of workers, especially low-paid ones, are also not keeping pace with inflation. Trump might insist that tariffs don’t affect prices, but they do. We just got new data on import prices for September, showing again that exporters are not eating the tariffs. The labor market has also weakened substantially, with the unemployment rate for disadvantaged groups like Black workers and young people rising sharply.

And even Trump’s big issue, immigration, is not going well for him these days. While most Americans might have been happy to see the pet-eating rapists and murderers sent back to where they came from, it’s clear that violent criminals are a tiny fraction of the people being nabbed by ICE. The overwhelming majority are people who have committed no criminal offense whatsoever or a minor offense like shoplifting.

No one thinks we are safer as a country when they see ununiformed masked men grabbing gardeners and food truck operators off the streets. The hardcore racists might applaud this sort of crackdown on people guilty of not being white, but thankfully, even a majority of Trump voters don’t fall into this category.

Trump’s Caribbean war crimes are also not playing well. Using advanced weaponry to blow up small boats that are thousands of miles from the U.S. does not make sense as a drug interdiction strategy. Killing survivors from the initial strikes makes even less sense. The whole thing becomes even more absurd when Trump issues a pardon to a notorious drug trafficker who the Justice Department spent years investigating and convicting.

MAGA Is Melting Down

It’s too early for big celebrations, but it does look like the wheels are coming off the Trump juggernaut. When the AI bubble bursts, likely taking crypto with it, and Trump’s rich buddies become considerably less rich, the rats will all start fleeing.

But we can’t sit around and wait for the big crash, which could still be some time in coming and likely won’t be all at once. We need to bolster the forces of democracy every way we can. That means supporting defectors, even if they might be awful people, and doing whatever we can to resist. Look forward to seeing everyone at No Kings III.

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.

How Trump Is Schooling Americans On The Economics Of Punitive Tariffs

How Trump Is Schooling Americans On The Economics Of Punitive Tariffs

Trump first announced his massive tariffs on “Liberation Day,” which was April 2. This was supposed to be the beginning of the United States rebuilding its manufacturing capacity. Since Liberation Day, the economy has lost 60,000 manufacturing jobs, factory construction is down at least five percent, and inflation has risen to 3.0 percent.

It is also clear that businesses and consumers here have paid Trump’s tariffs, not foreigners as Trump seems to believe. Import prices have risen since Liberation Day. These are the price of the goods we import before Trump imposes his tariffs. If exporters are eating the tariffs, then the import price index should have fallen considerably. The data show this is not true.

That is all pretty much textbook on what to expect from a set of ill-considered tariffs designed by a president who knows next to nothing about economics. If the point was to bring back manufacturing jobs, as Trump claimed, then one obvious consideration would be to not impose tariffs on intermediate goods like steel or aluminum.

No one directly consumes these products; they are inputs into things like cars and airplanes. By raising the domestic price of these inputs, Trump is making U.S. manufacturing less competitive.

The arbitrary nature of the tariffs is also a problem. When Trump does things like impose a huge tariff on India, because it won’t nominate him for a Nobel Peace Prize, or imposes a 50 percent tariff on goods from Brazil because the government prosecuted his friend for trying to stage a coup, it makes it difficult for companies to plan.

This explains the general weakness of investment and the lack of business confidence in the economy. But the recent jobs data from the payroll firm ADP give evidence of another tariff lesson Trump has given us.

The data show that small firms have lost jobs in each of the last three months, even as large firms continue to create jobs at a healthy pace. In September, firms that employ 1-50 people cut employment by 40,000. Firms that employ 50 to 499 people lost 20,000 jobs. Meanwhile, firms that employ more than 500 people added 33,000 jobs.

In October, the corresponding figures were a loss of 10,000 jobs, 21,000 jobs, and a gain of 73,000 jobs. And in November the smallest firms lost 120,000 jobs, midsized firms gained 51,000 jobs, and the largest firms added 39,000 jobs.

This paints a picture where the largest firms seem to be doing fine. Smaller firms are struggling, and the smallest firms are shedding jobs like they are in a recession. This very much fits the textbook economics story of tariffs.

The largest firms, like Apple, can have their CEOs go see Trump and give him bribes to get tariff relief. Smaller firms don’t have the money and connections to make similar deals. As a result, they struggle to survive in an economy where the prices of many of their inputs have risen sharply. They also have no idea what will come next, since Trump can raise tariffs further, or lower tariffs for competitors, any time he feels like it. That situation does not create a good environment in which to do business.

This uncertainty has slowed growth and employment in the short-term, but it is likely to have even larger long-term effects. When the path to success depends more on currying Donald Trump’s favor than innovation and efficiency, it does not provide the basis for a strong economy and solid growth.

That is a story we have seen repeated in many countries all around the world. Perhaps the only really striking part of the story is that the evidence has shown up so quickly here. Donald Trump may not be very good at running the economy, but he has proven himself to be an outstanding teacher of basic economics.

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's Obsession With His 'Beautiful' Tariffs Is Getting Even Crazier

Trump's Obsession With His 'Beautiful' Tariffs Is Getting Even Crazier

Some kids will have a favorite toy or stuffed animal that they latch onto and keep with them at all times. It can be cute, and they usually grow out of it, so there’s no real harm. It’s a bit different when the kid is the president of the United States and the item he chooses to latch onto is a major policy tool that he does not understand at all.

The item of course is tariffs, which Donald Trump has pronounced as the “most beautiful word in the English language.” This alone should be 25th Amendment stuff. Tariffs are taxes on imports, nothing more, nothing less.How can a type of tax be the most beautiful word in the English language? Imagine someone getting teary eyed and sentimental over “gasoline taxes” or maybe “land transfer taxes.” This is real whack job stuff.

But even worse, Trump doesn’t seem to understand the object of his love at all. He seems to believe that foreign countries are paying the tariffs. He often talks about them as though the Chinese, Korean, or Canadian governments are sending us checks to pay his tariffs.

That is absurd on its face. The tariffs are taxes paid at our ports by the company that imports the product. There is a possibility that the exporters lower their prices to offset the tariffs. To some extent this does happen, but research shows that only a small share -- five to 15 percent -- of the tariff is offset in the form of lower prices charged by exporters. This means that the overwhelming majority of Trump’s tariffs are paid by businesses and consumers in the United States.

And we already have the data on this with Trump’s tariffs. The price we pay, not including the tariffs, for our imports has been rising since Trump’s “Liberation Day,” not falling. This means there is no doubt, people here are paying the bulk of Trump’s tariffs, not anyone in foreign countries.

But Trump’s tariff craziness goes further. He is obviously very concerned that the Supreme Court will rule against him on the legality of his tariffs. They may decide that the first paragraph of section 8 of the Constitution, laying out the powers of Congress which says Congress has the power to impose taxes, means something like Congress has the power to impose taxes. That would mean that Trump would have to end most of his taxes and likely refund the money he raised.

Trump clearly seems to view this as a disaster. He constantly whines over this prospect. He has even taken to claiming that the Supreme Court was given “wrong” numbers on the revenue raised from his tariffs.

This is incredibly crazy for two reasons. First, Trump’s lawyers were the ones giving the court the numbers. Is he claiming that his own lawyers gave inaccurate numbers to the Supreme Court? If that were really the case, the President who is best known for his role in The Apprentice, should have used his signature “you’re fired” line at the point his case was argued.

The other reason Trump’s claim is totally crazy is he somehow came up with the number of $3 trillion as the amount that would have to be refunded. This number is beyond absurd. In a full year, our goods imports are roughly $3 trillion. Does Trump think he imposed 100 percent tariffs on all goods imports? And most of his tariffs have only been in place for half a year.

But the crazy gets worse. Trump insists that tariff revenues are about to skyrocket, as companies have drawn down inventories and will now have to bring in more goods on which they will be paying his tariffs.

There are several problems with this latest Trump story. First there is no evidence that inventories are unusually low right now. The most recent data we have show them to be somewhat higher than at the same point last year.

The second problem is one of simple logic. If tariff revenue is about to soar that would mean that imports and our trade deficit are about to soar. Trump had promised to bring our trade deficit down. Is he now claiming that it is about to go sharply higher?

But the third problem from Trump’s claim is that, if true, it would mean that we will soon be paying much higher taxes. This means that the problem of high prices and affordability that has gotten so many people upset will soon get much worse. That would be very bad news for the tens of millions of people struggling to make ends meet and a big hit to the economy’s growth.

The good part of the story is that the prospect of soaring tariffs is a Trumpian fantasy. If anything, tariff revenue is likely to be somewhat lower in the months ahead as Trump has reduced tariffs on bananas, coffee, and a number of other food items.

Also, as trade patterns adjust to higher prices, import volumes will inevitably fall. The process will be accelerated as foreign companies and countries increasingly recognize that the United States is no longer a reliable trading partner and instead look to other markets. For these reasons, the taxes we pay for Trump’s tariffs will be going down, not up.

But the bad news is that Trump clearly has no idea what he is talking about when it comes to his signature policy. He has no idea of the magnitudes or mechanisms involved in what he calls the most beautiful word in the English language. Maybe Trump doesn’t know English very well.

Why Ezra Klein Needs To Look More Closely At His Own Housing Chart

Why Ezra Klein Needs To Look More Closely At His Own Housing Chart

Ezra Klein had a classic column in the New York Times the other day which he advertises in its title: “America’s Housing Crisis, in One Chart.” The chart he highlights, new housing units per capita, is informative, but not quite in the way he says.

The chart shows the cyclical ups and downs in the housing market and then a massive plunge in construction following the collapse of the housing bubble in 2007-2008. Construction falls to one-third of the long period average by 2010. It gradually creeped up so that it was 75 percent of the long period average by the pandemic. It rose somewhat further after the start of the pandemic, fueled by low interest rates and increased demand.

Klein looks at his chart and sees massive underbuilding of housing, which he attributes primarily to excessive government restrictions on building, such as zoning and outdated safety requirements. I look at his chart and see the lasting devastation to the housing market that resulted from letting a bubble grow unchecked in the first decade of this century.

Source: US Census Bureau

Asset Bubbles Are Bad News

While some of us were trying to warn of the risks of the bubble; the big names in economics (e.g. Alan Greenspan and Larry Summers) were singing the praises of innovative financing and the resulting increase in homeownership. When the bubble burst, not only did we get a financial crisis and the worst recession since the Great Depression; we also got long-lasting damage to the housing market that is still being felt today in the form of higher house sale prices and rents.

The reason for highlighting the impact of the bubble and its bursting, rather than the problems cited by Klein, is we need to have a sense of relative importance. Restrictive zoning is definitely a problem, and we should look at regulatory constraints, especially on manufactured housing, that may needlessly limit supply and push up prices.

But we had restrictive zoning and needless regulations before 2008 and still managed to build plenty of housing. That suggests that these are not the main obstacles to more construction.

The Collapsed Bubble Explains the Housing Construction Shortfall

In fact, if we look at Klein’s chart, it seems that most of the shortfall in housing, which he and others put at between 2-5 million units, was the result of the plunge in construction immediately after the collapse. Using 1.5 million units a year as a target for balancing the market (people are welcome to use a higher or lower one), we fell 6.4 million units short of needed construction levels in the decade from 2008-2017.

Construction has continued to climb upward in subsequent years so that in 2024 we were at 1.6 million completed units, somewhat above the 1.5 million target level used above. Construction will fall this year and next, as the rise in interest rates slowed starts, which will mean fewer completions in 2026.

This history doesn’t change the fact that housing costs too much and we need more construction, but it suggests that the problems may not be as deeply entrenched as Klein’s analysis implies. Rents and house sale prices were just moderately outpacing inflation until the pandemic.

When COVID hit, the pandemic relief packages put money in people’s pockets, at the same time the opportunity to work remotely expanded enormously. This both meant that people were saving money on commuting costs, which they could spend on housing, and that they needed more room at home to accommodate an office.

Those factors, together with low interest rates, led to a buying boom in 2021-22, and a surge in house sale prices. The Case-Shiller house price index rose by more than 50 percent in the five years from February 2020 to February 2025. Rents also surged, but not quite as dramatically.

Price and Rents Are Now Falling in Real Terms

But this was a one-time effect. With the number of people working remotely having stabilized, there is no longer a big surge in demand. The weakening economy also helps on this one. House sale prices have actually taken a modest downward turn since February, falling by almost 1.0 percent as of August. That translates into a 2.5 percent real decline, adjusting for inflation. It is likely this decline will continue and perhaps accelerate somewhat. (I am not anticipating the sort of collapse we saw in the 2008-2010 period, since homeowners are not heavily leveraged and in need of selling.)

There is also evidence that rents are falling, certainly in real terms and possibly also in nominal terms. The rent indexes in the Consumer Price Index (CPI) have a serious lag, reflecting long-term leases, but indexes that measure rents on units that come on the market are showing flat or declining prices. This is also the case with the Bureau of Labor Statistics’ New Tenant Rent Index, which uses the CPI methodology, but only on units that come on the market.

This means that the problem of high housing costs may be correcting itself, but it would be good to hasten this process. Telling people that they have to wait three or four years for an apartment or house to become affordable is not a good story and certainly not good politics.

Reviewing safety regulations is definitely a good place to start. I’m less convinced on zoning. As much as it would be desirable to have denser housing in many areas, the politics of zoning are difficult, as Klein acknowledges.

The story also is rarely unambiguous. I am sure I will never be able to afford to live in San Francisco, but I still think that when I visit the city it is really neat to walk through neighborhoods filled with houses and small apartment buildings, constructed in the early part of the last century.

This is not just a personal preference. San Francisco has a huge tourism industry, as do New York and Paris and many other cities that have preserved a large portion of their past. It would be wrong to dismiss this preservation as simply selfish NIMBYism.

So, I would encourage efforts to reform zoning with the caution not to expect too much from them. (I will say that my friend Jared Bernstein’s proposal for a rent subsidy for high-cost cities taking steps to increase construction, which is endorsed by Klein, is almost certainly a political non-starter. It would imply transferring money from relatively poor red areas to relatively wealthy blue areas.)

Other Schemes

I would also throw in a few other ideas that could provide some modest short-term help. A progressive property tax that would, for example, have a higher marginal tax rate on homes that sell for more than twice the median in an area, would provide incentive for rich people to take up less space. It also has the advantage that assessed valuations are already on the books, so it requires no new administrative structure.

The same is true for vacant property taxes. This would provide disincentive for leaving units vacant. San Francisco and some other cities have already tried this policy. Even if this tax just leads many property owners to lie, it still raises the costs for them to have a vacant unit.

Incentives for converting office space to residential are also a good policy. Some office buildings are less well-suited for conversion than others. This means we want offices to move from the places that are easy to convert to the ones that are difficult. Government can help here.

And moderate rent control can be useful, especially as a short-term solution. There is also evidence that increased concentration in the construction industry following the collapse of the housing bubble has reduced building. This suggests that anti-trust policy may have a role to play in bringing down housing costs.

But the main point here is that the major shortage of housing the country faces now is not the result of zoning or regulatory obstacles but rather an overreaction to a collapsed bubble. Just as investors can be irrationally exuberant in driving a bubble, they also can be irrationally pessimistic in the wake of a collapse. It also didn’t help that the weak labor market coming out of the Great Recession meant that tens of millions of people didn’t have the regular income they needed to secure a mortgage. Also, millions had their credit ruined by a foreclosure after the crash.

All of this should just remind us that asset bubbles are not fun, at least not after they burst. We should remember this when we hear people singing the praises of AI.

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.

Tardy September Employment Data Reflects Trump's Weakening Job Market

Tardy September Employment Data Reflects Trump's Weakening Job Market

The data nerds among us were happy to finally get their September jobs report fix, even though these data are somewhat stale now. However, we still learned a few things about the state of the economy.

Before saying what we learned, it’s worth a few words on what we didn’t learn but people are saying anyway. First and foremost, this was not a strong report in any real-world sense of the term.

To be clear, the 119,000 jobs reported for the month was stronger than most analysts had expected, including me. But this hardly implies robust job growth. We averaged 170,000 jobs a month in 2024, so now we’re supposed to be celebrating a report showing job growth that is 70 percent of last year’s average?

But it gets worse. The prior two months’ data were both revised down. The average growth for the four months ending in September was less than 40,000. Furthermore, almost all the growth was in healthcare. Since May, the economy has added 174,000 jobs. The healthcare sector added 157,000 jobs, accounting for more than 90 percent of job growth over this period.

The job growth number for September is also likely to be revised downward. The direction of revisions tends to be autocorrelated. If the prior month was revised downward, then it’s better than a 50 percent chance this month’s number will be revised downward. When we get revisions for September in a few weeks, we will likely be looking at a lower number than 119,000.

Sectors that Are Not Growing

While healthcare continues to add jobs at healthy pace, although down from its 56,000 monthly average in 2024, most other sectors are not. Notably, manufacturing, which has been a main focus of the Trump administration, is shedding jobs. It lost 6,000 jobs in September; employment is down 49,000 since January.

Mining is also shedding jobs. The sector lost 2,000 jobs in September, pushing employment 8,000 below its January level. One of the many things that Trump seems to not understand is that if oil prices are low, oil companies don’t want to drill baby drill. With the current price hovering near $60 a barrel, drilling is unprofitable in many areas.

Construction employment was at least moving in the right direction, adding 19,000 jobs. But this just took employment back to its May level. Since January, the sector has created 19,000 jobs, an average of 2,400 a month. That compares to an average of 16,000 a month in 2024.

Sectors Not Growing by Design

Trump made his desire to cut federal government employment explicit and set Elon Musk to the task on his first day. The sector lost 2,700 jobs in September and is down 85,100 (3.6 percent) since Trump took office. Many of the workers taking Musk’s deferred departure were still on payroll through September. This should mean there will be a sharp fall in the October data.

Employment growth in state and local governments has also slowed considerably. Budget cuts at the federal level are playing a big role in stressing state and local governments. They have created 91,000 jobs since January, an average of 11,400 a month. That is down from a rate of almost 34,000 a month in 2024.

The category, “scientific research and development services” has lost almost 20k jobs this year (2.0 percent). It had been growing modestly, adding 6,400 jobs in 2024.

One final point on job growth, as has been widely noted, the clamping down on immigration means the labor force is growing far more slowly. We likely need only 30,000-60,000 jobs a month to keep the unemployment rate stable.

Employment of Native-Born Workers Is Not Surging

One of the incredibly foolish things Republicans are saying is that the September employment report shows employment of native-born workers is soaring. Just looking at the published numbers, employment of native-born workers is up by 2,500,000 over the last year and by 680,000 in September alone.

The problem with this story is that it misunderstands how the Bureau of Labor Statistics constructs its employment survey. The survey has population controls, which impute a certain population every month based on the data from the prior year and estimates of growth due to birthrates, death rates, and immigration. The controls are locked in regardless of what actually happens in the world.

The controls fix the size of the population, but the number of people reported as foreign-born is taken from the survey. This number has fallen sharply. Part of that is due to people being deported or choosing to leave. Part of the drop is due to people not answering the survey and part of it is due to people lying and identifying as native-born, which is understandable under the circumstances.

Given the construction of the data, a drop in the number of foreign-born workers automatically leads to an increase in the reported number of native-born workers, since the total is fixed by the population controls. This means if Steven Miller took speed, stayed up all week, and deported every last foreign-born worker, the data would show an increase in native-born employment of 32,000,000. (I go into this in a bit more detail here.)

Anyhow, we surely have lost some number of foreign-born workers as a result of the Trump administration’s deportation drive. At this point, we don’t have any good basis for knowing the change in native-born employment, although the employment-to-population ratio is a good start. At 59.0 percent, it is 0.3 percentage points less than it was in September of 2024.

Unemployment is Edging Higher and Labor Market Is Weakening

As many of us had suspected, we are seeing a gradual weakening, not a collapse, of the labor market. By historical standards, 4.4 percent is relatively low, but we are a full percentage point above the recovery low in April of 2023.

For disadvantaged groups the increase has been considerably larger. The unemployment rate for Black workers stood at 7.5 percent in the September report, while the unemployment rate for young workers (ages 20-24) was 9.2 percent.

Both figures are the same as in the August data, but the unemployment rates for these groups are highly erratic. This means that the sharp deterioration in the labor market situation reported for these disadvantaged groups reported in prior months was not an aberration. The unemployment rate for Black workers had been at 4.8 percent in April of 2023 and the unemployment rate for young workers bottomed out at 5.5 percent in the same month. It is not surprising that these disadvantaged groups would rise much more than for the workforce as a whole in a weakening labor market.

We Are in a Low Quit, Low Hire Economy

Many analysts have long noted the sharp falloff in job movers reported in the JOLTS and other data. This report strengthens that view. The share of unemployment due to voluntary quits rose slightly to 11.8 percent, but that is still down from an average of 13.2 percent in 2018-2019, when the unemployment rate was comparable. Even more discouraging, the share of unemployment due to permanent layoffs rose 0.8 pp to 35.8 percent, the highest level since December 2021. That compares to an average of 33.3 in 2018-2019.

One piece of data that argues against much deterioration in the labor market is the relatively modest rise in the number of new and continuing unemployment insurance (UI) claims. Guy Berger regularly cites this statistic in his excellent Substack, High Frequency Labor Market Indicators.

While the weekly data on claims are useful, Guy also includes an index of weekly Google searches for “file for unemployment insurance.” This index had tracked the weekly claims data closely until early 2025 when the search measure rose rapidly, but the claims data remained pretty much flat.

There is not an obvious explanation for this divergence but let me throw one out. Even though most undocumented workers would not be eligible for UI, there are many people with some type of temporary status, who could end up unemployed. There are also people who might be here legally but have family members whose status is ambiguous. People in these situations may not want to risk calling attention to themselves by filing for unemployment insurance.

If there was a falloff in the willingness of foreign-born workers to file for UI, it could offset an increase in the number of people facing unemployment. A bit less than 20 percent of the workforce is foreign-born, so a substantial falloff in the probability of laid-off foreign-born workers applying for benefits would conceal a rise in layoffs. This story is obviously speculative, but the sudden divergence of searches and applications does indicate something different is happening in 2025.

A Rise in Wage Growth?

There was some good news in the September report. Wage growth picked up by my preferred measure. This takes the average hourly wage for the last three months (July-Sept) compared to the average for prior three months (April-June). That rose to a 4.0 percent annual rate. This is roughly the same as its rate in 2023 and 2024. It had shown some signs of slowing in prior months. The rate of wage growth for non-supervisory workers in the low-paid restaurant sector also picked up to 3.9 percent; it had been under 3.0 percent.

I said this is my preferred measure, but it is not widely used. If we take the year-over-year rate of wage growth, there has been little change. It stood at 3.7 percent in September, the same as the August rate.

I am not thrilled with using the year-over-year rate since it includes data that at this point is quite old. If wages grew rapidly at the end of 2024, we would show a high pace of wage growth even if the rate had slowed substantially over the last few months.

Taking a single month, whether it be for a one-month period or even a three or six-month period, suffers from the fact that the monthly data are highly erratic and subject to large revisions. For example, the average hourly wage for August was originally reported as $36.53. It was revised up this month to $36.58.

This gives a hugely different story on the pace of wage growth using August as an endpoint. Annualizing the three-month rate for the originally reported number of $36.53 gives a 3.4 percent rate of wage growth. Annualizing using the revised $36.58 number gives a rate of wage growth of 3.9 percent. These are very different pictures of the labor market.

Taking an average of three months reduces, but does not eliminate, this problem. We’ll have to see whether the measure I prefer ends up being a useful predictor of future wage growth in this case. But for September, it does show a better picture than the data had indicated in prior months. Wage growth had been falling towards the inflation rate, meaning that real wage growth was stalling. The September data imply that wages are still outpacing inflation by close to a percentage point.

What About More Recent Data?

The September jobs report is giving us historical information at this point. The household survey that gives us the unemployment rate was taken more than two months ago. The more recent data seem to support the story of further labor market weakening.

The data from the payroll company ADP, now released weekly, show the private sector losing a modest number of jobs in October. With all delayed layoffs in the federal government from DOGE ending in September, there will be some additional job loss in the public sector as these workers will no longer be on the payroll.

The Indeed data for job listings continued its downward path, although there was a modest uptick in the mid-November figure. Continuing unemployment insurance claims also show a modest uptick, which is consistent with some further deterioration in the labor market.

We will not get unemployment data for October. The survey was not conducted and asking people to look back will not give reliable data. (This may sound stupid, but it really does matter exactly how and when the questions are asked.)

My expectation is that there will be a further rise in the unemployment rate for November when we get the data in the middle of next month. (This one is delayed a couple of weeks because of the shutdown.) I will be looking closely at the wage data. I will be surprised if there really is an uptick in the pace of wage growth.

The weakening of the labor market is bad news for tens of millions of workers who are trapped in their jobs and seeing lower real wages due to inflation. But it is not full-fledged recession stuff. That will have to wait for the collapse of the tech 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.

Reprinted with permission from Dean Baker.

The Media's Rich Owners Want Generations To Fight Each Other -- Not Classes

The Media's Rich Owners Want Generations To Fight Each Other -- Not Classes

The idea of generational warfare is pernicious tripe. It gets pushed endlessly in the media because rich people would rather see kids lashing out at their parents than at them. And since the rich own the media, we hear a lot about generational inequality. Jeff Bezos’ Washington Post gave us the latest effort at generational warmongering.

Just to give some basic facts that are not in dispute, the country is getting richer year by year. Using the projections from the Social Security Trustees, per capital income is projected to be 15.4 percent higher in 2035, 32.6 percent higher in 2045, and 54.3 percent higher in 2055, when virtually all the baby boomers will be dead.

Since the baby boomers are for the most part not going to be partaking in these higher levels of consumption, who do the generational warriors think will be getting this income? It’s worth mentioning that these could prove to be very conservative projections of income growth. If AI has anywhere near the impact its proponents are claiming, per capita income will grow by far more than the Social Security trustees are projecting.

Given the indisputable fact that the country is getting richer, how can there be a story where Gen Xers, Millennials, and Gen Zers will be poorer on average than baby boomers? There is a story where generations can do worse through time, but that would be a story of within-generation inequality, not between-generations inequality.

The problem is not greedy boomers, but rather ridiculously rich people like Elon Musk, Jeff Bezos, and Mark Zuckerberg hoarding the country’s wealth for their own use and the use of their heirs. People are less likely to see that story because these super-rich people are the ones who own the major media outlets and social media platforms, but that is reality.

Given these simple and undeniable facts, it is striking how often we see this generational inequality nonsense. As is the case with this Post piece, they often push outright lies to make their case. For example, this piece tells readers:

“’Baby boomers “entered the labor force during decades of strong economic growth, rising productivity and relatively high real wages,’ Mitchell said. They were in their prime earning and saving years during long bull markets, namely in the 1980s and ’90s, she said, as well as the economic recovery that followed the Great Recession.” ….

“And ‘particularly for middle-income workers, real wage gains since the 2000s have been modest, compared to the robust wage growth that boomers benefited from mid-career,’ Mitchell said.” [Prof. Olivia Mitchell, who teaches business economics and public policy at the University of Pennsylvania’s Wharton School.]

“Post-World War II, ‘you had this tremendous boom that many got to ride for a very long period of time,’ Ney said.” [Jeremy Ney, a professor at Columbia University’s business school.]

This turns reality on its head. As I wrote in a piece last month:

“There was in fact a golden age, but it predated the entry of most boomers into the labor market. The economy experienced a period of low unemployment and rapid real wage growth, which was widely shared, from 1947 to 1973. At the endpoint of this boom period, the oldest boomers were 27, and the youngest were 9.

“After 1973, the economy took a sharp turn for the worst. The most immediate cause was the Arab oil embargo, which sent oil prices soaring. The economy at that time was far more dependent on oil than is the case today. Soaring oil prices sent inflation higher, which prompted the Fed to bring on severe recessions, first in 74-75 and then again in 1980-82.

“The full story is more complicated and highly contested, but what happened to the economy is not. We had a period of far higher unemployment and stagnant real wage growth that lasted until the mid-1990s. The median real wage in 1996 was actually 4.4 percent lower than it had been in 1973.

“The average unemployment rate for people between the ages of 20-24 over the years 1973 to 1988 (when the last boomer hit 24) was 11.3 percent. By comparison, it averaged 7.2 percent over the last decade, although it has been rising rapidly in 2025.”

After stagnating for two decades, the median real wage has been rising modestly for the last three decades.

Finally, the piece includes this inadvertently damning comment for the argument it is trying to push on readers.

“’In 1940 there was a 90 percent chance that you were going to earn more than your parents. To somebody born today, it is just a coin flip,’ Ney said.”

Since average income has risen consistently over the last seventy years and is universally projected to continue to rise (barring a climate disaster), the only reason why most workers won’t earn more than their parents would be a further rise in inequality. In other words, more money going to people like Washington Post owner Jeff Bezos and less money going to ordinary workers.

If there is not a further increase in inequality, then most workers in ten or twenty years will be earning considerably more than do workers today. That is irrefutable logic, which apparently has no place in the Washington Post.

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.



Inherited Conditions: Biden Left Trump The Best Economy In Half A Century

Inherited Conditions: Biden Left Trump The Best Economy In Half A Century

Donald Trump may not be able to remember what things were like five years ago, when he handed the economy and the country to Joe Biden, but it is important that the rest of us do. As in so many other areas where Trump tries to turn reality on its head, he pushes the story of Biden inheriting a great economy, which he then wrecked. The reality is the opposite, Biden turned around an economy in shambles due to the pandemic, and handed off an economy that was widely touted as the envy of the world.

The most important reversal was in the labor market. More than 19 million people were laid off in the pandemic shutdowns in the spring of 2020. Many quickly came back to work in the summer and fall, but the huge bounce back had stopped by the time Biden took office.

Job growth averaged just 150,000 in the last three months of the Trump administration. In fact, the economy actually lost jobs in December of 2020, so it is clearly wrong to imagine that there was a surge of rehiring at the time Biden took office. Employment was still 9.4 million below its pre-pandemic peak in January of 2021. The unemployment rate stood at 6.4 percent.

Biden’s recovery package quickly turned the economy around. Unemployment was down to 4.0 percent by the end of 2021. Employment levels regained the lost ground by June of 2022. It would have taken more than six years to get back to pre-pandemic employment levels at the rate of job growth in the last three months of the Trump administration.

One cost of Biden’s aggressive recovery package was a surge in inflation. The year-over-year inflation rate began to rise rapidly from pandemic lows, peaking at 9.0 percent in June of 2022. Clearly the recovery package contributed to this increase, but most of the story is the world-wide supply chain crisis stemming from the pandemic. (The surge in energy prices following Russia’s invasion of Ukraine was also a big factor pushing inflation higher.)

The story here is straightforward. As a result of the pandemic, people were not spending money on services like restaurants and travel. Instead, they spent it on goods, like appliances, television sets, and cars. The world could not meet this huge surge in demand, especially at a time when many production and shipping facilities were still crippled by the pandemic.

It is also important to recognize that this shift from services to goods was not the result of governmental restrictions. It was due to people not wanting to go into crowds and risk getting a potentially deadly disease that they could then transmit to friends and family members. Service spending did not return to its pre-pandemic share of consumption until early 2024.

However, the rate of inflation fell quickly. By the fall of 2024 the year-over-year rate was down to 2.5 percent, only slightly above the Fed’s 2.0 percent target. It’s also important to note that wages outpaced inflation over the Biden years, with the lowest paid workers seeing the largest real wage gains in more than half a century. It’s also important to note an increase of 20 million in the number of people who work from home, which is estimated as equivalent to a wage gain of 8 percent.

Finally, there is the question of overall economic growth. The economy had an unprecedented plunge in the spring of 2020 associated with pandemic shutdowns. It shot back in the summer and fall, but it had lost momentum by the end of the year. GDP in the fourth quarter was still 0.9 percent below its year ago level.

The recovery package quickly ramped up growth. The economy had some shaky times due to supply chains issues, two subsequent and unanticipated waves of covid in the summer of 2021 and winter of 2022, Russia’s invasion of Ukraine, and the sharp rate hikes by the Fed beginning in March of 2022. But it had settled down to a healthy pace of growth by 2024, with a year-over-year rate of 2.4 percent in the fourth quarter. That is the economy Joe Biden handed off to Donald Trump.

Source: BLS and BEA

It would be foolish to say everything was great when Biden left office. The United States has a badly undeveloped system of social supports. Tens of millions of people struggle to put food on the table, pay the rent, and cover medical bills. But by almost every measure most of the country was doing better in 2024 than they had been doing in 2020 or even before the pandemic in 2019.

Donald Trump might want people to forget this fact, but just because he has memory problems, it doesn’t mean the rest of us should.

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.

Is Trump Hiding Jobs Report? Workers Seek Seasonal Positions As Employment Dips

Is Trump Hiding Jobs Report? Workers Seek Seasonal Positions As Employment Dips

Trying to understand the economy is always like putting together a jigsaw puzzle. We get all sorts of pieces of disparate data which we try to put together to get a clear picture of the economy. Sometimes they all go in the same direction, so the story is easy. Sometimes they don’t and the puzzle becomes difficult.

Now is one of those times, and the story is made much more difficult by the fact that we have not been getting data from the federal government for a month and a half. We have missed two monthly jobs reports, one monthly CPI report, one quarterly GDP report, and a variety of releases of less consequence.

There were some things that were clear even before the shutdown. The labor market was definitely weakening. Job growth had slowed to a trickle. The economy created less than 30,000 jobs a month in the four months from April to August, according to Bureau of Labor Statistics (BLS) data. That is down from a pace of 150,000 a month over the prior year.

We don’t have the September data, but we can infer that it was weak. BLS had compiled the data, and it would have been mostly ready for release at the time of the shutdown. While ordinarily the data would not be shared with the president or his political appointees until just before the official release, there is no reason to believe Donald Trump would respect this norm. He, or his aides, likely reviewed the September data and made a decision not to release it.

Even though we don’t have government data for the period after August, we do have private data sources, notably the series on jobs numbers produced by the payroll firm ADP and the job listings data compiled by the hiring firm Indeed. These both show a very weak labor market.

ADP shows average private sector job growth of just 10,000 a month for the three months from July to October. Since this excludes the government sector, which likely shed jobs over this period due to federal layoffs (even pre-shutdown), the ADP data imply essentially zero job growth over this period. Indeed shows its hiring index fell to the lowest level since February of 2021, just 1.7 percent above its February 2020 base level. (The index from the hiring firm Revelo also shows weakness, but I am less familiar with its data.)

While job growth has clearly slowed, a big part of this story is the plunge in immigration has slashed labor force growth. This means that it takes far less job growth to keep pace with labor force growth.

However, there are some indications that job growth is not keeping pace even with the slower growth in the labor force. One item supporting this view is the surge in the number of people looking for seasonal employment for the holidays. Indeed reports that the number of seasonal job seekers is up 27 percent over the 2024 level and 50 percent from 2023.

Seasonal jobs are by definition temporary and mostly low paying. The fact that so many people are seeking these jobs suggests that many workers do not feel they have very good job prospects.

This is consistent with the modest rise in unemployment we have seen in the data through August. Unemployment had inched up to 4.3 percent in August from an average of 4.1 percent in the second half of 2024.

The rise is clearer for disadvantaged groups, as I have noted in the past. For Black workers the unemployment rose from 5.7 percent last October to 7.5 percent in August. For young workers between the ages of 20-24, the unemployment rate was 9.2 percent in August, up from 7.8 percent last October and 6.9 percent in October of 2023.

To my mind, the data are consistent with a somewhat further rise in the unemployment rate, likely to 4.5 to 4.6 percent in October, with a further rise to 4.7 percent this month. These numbers are still low by historical standards, but they imply a noticeable weakening of the labor market. (The Chicago Federal Reserve Bank estimates there was a more modest rise in unemployment in October to just 4.36 percent.)

The other part of the story is that wage growth also seems to have slowed especially for workers at the bottom end of the wage distribution. The slowing of wage growth is clear in the Indeed data, which showed year-over-year wage growth of 2.5 percent for listed jobs. This is 0.8 percentage points below the year ago pace.

There is also evidence of slowing wage growth in the payroll data released before the shutdown. The average hourly wage increased 3.7 percent year-over-year as of August. This is down from a 4.0 percent rate in 2023 and 2024. It rose at just a 3.5 percent annual rate, taking the average of the last three months (June, July, August) compared with the prior three (March, April, May).

The slowing has been even sharper for low-paid workers whose wages are most sensitive to labor market conditions. The annual rate of wage growth for low-paid non-supervisory restaurant workers has been just 3.2 percent, comparing the last three months with the prior three. With inflation edging up to 3.0 percent, this implies close to zero real wage growth.

I may be overly pessimistic here, and I encourage everyone to read Guy Berger’s somewhat more optimistic take, but it looks to me like we are looking at a labor market with near zero labor force growth and near zero real wage growth. This means that real labor income in the economy is essentially flat.

That fits with the story that Mark Zandi and others are saying where all the consumption growth is coming at the top end of the income distribution. People whose income depends on their wages are not seeing any increase and therefore cannot spend more. It’s only people at the top end who have substantial holdings in stock or other assets who are seeing their income grow.

That is not a pretty picture from the standpoint of the bulk of the population, and it does not describe a very stable path of economic growth. When the AI bubble bursts, things might get really ugly really fast.