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wage growth v inflation chart

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

Venezuela’s Oil -- $13 billion

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

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

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

Trump Family Crypto -- $1.4 billion

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

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

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

Trump Truth Social Insider Trading Sales -- $1.2 billion

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

Selling pardons – $10 million

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

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

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

Jared Kushner Hedge Fund Investments -- $5.4 billion

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

Trump Sons’ Military Contracts -- $315 million

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

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

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

The Biden Crime Family’s Haul

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

Anyhow, here is what I get.

Hunter Biden Burisma Payments -- $4.0 million

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

Hunter Biden Payment from Chinese Businesses -- $2.6 million

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

Hunter Biden Art Sales -- $1.5 million

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trump's Gigantic Increase In Military Spending Dwarfs Everything Else

Trump's Gigantic Increase In Military Spending Dwarfs Everything Else

Trump is asking for $1,500,000 million for the military for next year. That’s close to $600 billion (adjusted for inflation) more than we were spending on the military in fiscal year 2025, before Trump took office.

This increase is huge by any measure. It comes to around $4,600 per household. It is around eight percent of the total budget. This spending request dwarfs sums that are often the subject of major debates in Washington.

For example, last year, Democrats pushed to have the enhanced subsidies in the Affordable Care Act exchanges extended. This would have cost $30 billion a year, one twentieth of what Trump and Hegseth are demanding.

People may recall Elon Musk gleefully putting the USAID into the “wood chipper” last spring. While ending this program is expected to lead to four million additional deaths over the next four years, it only saved around $35 billion a year. That is less than six percent of the increase in military spending that Trump is asking for.

The annual cost of extending the enhanced child tax credit, which cut child poverty in half, was around $100 billion a year, less than one-fifth of Trump’s proposed increase. And the annual appropriation for the Corporation for Public Broadcasting was $550 million, less than one thousandth of the additional spending for the military that Trump is demanding. (It’s in the chart, just small to see.)

People need to know that Trump’s military spending request is really big money, compared to almost anything else that ever comes up for public debate for Congress. Unfortunately, because of incompetent or corrupt budget reporting, few news accounts make any effort to put these huge numbers in a context that makes them understandable for their audience. As a result, most people will probably have little idea of what is at stake with this military request.

Any self-proclaimed deficit hawk who is not all hair on fire about Trump’s budget demand is a lying hypocrite who only uses concerns about the deficit to argue against programs they don’t like. We got along fine with the former level of military spending, which almost everyone, including Donald Trump in his first term, considered adequate.

Is the argument that in just 18 months in office, Trump has made the world so much less safe that we have to increase the defense budget by two-thirds? Most of us knew that making our former allies into enemies was not a good idea, but Trump is placing a huge price tag on this mistake. And remember, this is Trump’s own number, not his critics’.

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.


Worse Coming? Musk Loses Tens Of Billions As Spacex Shares Plunge

Worse Coming? Musk Loses Tens Of Billions As Spacex Shares Plunge

SpaceX’s shares took a big hit last week, ending the week at 124 at the NASDAQ close on Friday. This is more than eight percent below the 135 price at its initial public offering last month, and a drop of almost 15 percent for the week. That corresponds to a loss of more than $200 billion in market capitalization. The Friday close was more than 40 percent below the peak price of 211 hit in the week after the IPO.

SpaceX was hit with some bad news last week, notably a rocket launch on Thursday that had to be aborted. But the company’s troubles may go beyond one failed rocket launch. The company’s stock had been falling for the last three weeks. It’s possible that investors have less confidence that Musk will be turning around a massive money loser into one of the most profitable companies in the history of the world.

Also, the lock-in period for insiders will likely be ending soon. This means that a lot of shares will be dumped by people looking to cash out big gains.

SpaceX wasn’t the only high-flyer seeing some rocky waters. The price of Tesla, Musk’s other big company, fell by 6.6% last week, reducing its market capitalization by $100 billion from the week before.

And it wasn’t just Musk’s companies that had troubles. The big chipmakers all had bad weeks. Nvidia’s stock price dropped 3.9 percent last week, shedding $200 billion in market value. Broadcom’s valuation fell by $140 billion, 7.3 percent of its market value, and shares of both Micron and AMD fell by more than 10 percent.

It’s always hard to say what information moves markets, but there is a clear candidate this week. The Chinese AI company Moonshot unveiled a new model that scores right alongside the top models from OpenAi and Anthropic. The problem for the U.S. AI companies, and the hyperscalers providing the computing power, as well as the chip manufacturers, is not just that China’s leading AI companies can match the power of the U.S. leaders, but also that they sell their product at a fraction of the price.

As noted before, the story of a huge payoff to AI firms rests on three big assumptions, all of which look increasingly questionable. The first and most important is that there will be a massive payoff from AI in the form of an increased rate of productivity growth. To date, we see no evidence of this. Productivity growth has been very weak in the last three quarters. (I’m including the second quarter of 2026 based on estimates of GDP growth and the data we have on hours worked.)

The second is that competition will not push down prices, allowing the benefits of the AI productivity boost to be widely shared by society rather than being locked in as extraordinary profits for the AI makers. The third assumption is that the U.S. AI companies will be the ones getting the big profits.

The latest developments in Chinese AI make both the second and third assumptions very questionable. The Chinese companies are prepared to compete on price, offering a far lower cost product that will be fine for the needs of almost all users. This means both that the profits of AI companies are likely to be limited even if there prove to be massive productivity gains.

Remember, this is the story of Internet providers. Verizon and Comcast are big profitable companies, but they are not earthshaking giants. If Anthropic and OpenAI end up being the Verizons and Comcasts of the next decade, their shareholders will be looking at huge losses. And given the progress of the Chinese AI companies, they may prove fortunate even to achieve the status of the big Internet providers, as Chinese companies are dominating not just third markets, but increasingly the U.S. market as well.

If this story proves to be right, and there is no pot of gold at the end of the AI rainbow, it’s hard to say how long it will take markets to catch up. The Internet bubble took two and a half years to deflate. The financial problems associated with the collapse of the housing bubble also took a long time to percolate through the system.

Nationwide house prices peaked in the summer of 2006, but the stock market continued to rise at a healthy pace through most of 2007. Even the stocks of the soon-to-be-bankrupt companies fared well until near the end. AIG still had a market capitalization of almost $180 billion at the end of 2007, and even in the summer of 2008, just months before its collapse, its market capitalization was over $70 billion.

While markets may be forward-looking, they don’t always see things with clear eyes. There might be some way that the big bets on the AI companies, the hyperscalers, and the chip makers make sense, but it is difficult to see what it is at this point.

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.

Don't Expect Foreign Nations To Pay Trump's Tariffs (They're Still A Tax On You)

Don't Expect Foreign Nations To Pay Trump's Tariffs (They're Still A Tax On You)

As we all know, Donald Trump likes to play the tough guy. Unfortunately, he often does it in really foolish ways, and this time I’m not talking about his war against Iran.

I’m talking about Trump’s tariffs. From the way he talks, he seems to think that foreign countries are sending us checks equal to the tariffs he has imposed on U.S. imports from them. Donald Trump’s mind can be a scary place, so it’s not worth trying to tease out his thought process, except to point out that the idea that foreigners are sending us checks is absurd.

The tariffs are collected here when the goods show up at a customs office. The party paying the tariff most immediately is the importer. The importer could be a wholesaler who may resell it to a retail store, manufacturer, or other business. Or in many cases, it will be a larger retailer like Amazon or Walmart, who arrange for the imports directly.

Either way, it is someone at this end who is most immediately out the money for the tariff. Some of what they pay will be passed on to their customers. To some extent, they will be forced to eat the tariff and make lower profits. (The evidence is that most is passed on.) But in both cases, consumers or companies here are paying the tariff.

The only way that foreign countries would pay the tariff is if the price of the goods they export to the United States falls as a result of the tariff.

We got new evidence on that story on Friday, as the Bureau of Labor Statistics released data on import prices for June. The release showed non-fuel import prices were up 0.4 percent in June and 4.2 percent year-over-year (YOY).

Just to be clear on what these numbers mean, these are prices before any tariffs are applied. That means if the average tariff rate is 10%, then we are paying 14.2 percent more for our imports in June of 2026 than in June of 2025. That doesn’t look like a story where exporters are eating the tariffs.

It is worth noting that this is a change from past patterns. Import prices were actually falling in 2023 and rising slowly in 2024. There are a variety of factors affecting the price of producing goods elsewhere, including Trump’s war in Iran, but in any case, the story with import prices looks worse than before Trump took office, even before we consider the impact of the tariffs.

Looking across countries, it is hard to find evidence that anyone is eating Trump’s tariffs. The price of imports from the EU is up 3.7 percent YOY. The price of imported manufactured goods from Canada is up 10.3 percent. And the price of goods from China is up 1.3 percent.

While the story should have already been clear, the new data just further shore up the case. When Trump threatens countries with big tariffs, he is threatening the American people with big taxes.

This point should be made more clearly in reporting. For example, it is misleading to say that Trump is threatening to hit Brazil, Canada, or whoever with new tariffs. He is threatening to impose taxes on goods that Americans import from these countries. That would make it clear what is at stake.

We may never know, or care, what is in Trump’s head, but we have never seen a president who is so happy to raise people’s taxes.

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.

Real Media Reform: Blocking The Paramount-Warner Merger Isn't Enough

Real Media Reform: Blocking The Paramount-Warner Merger Isn't Enough

Until a couple of months ago, we could get a dose of humor to help us get through the craziness, cruelty, and corruption of the Trump administration. But CBS pulled Steven Colbert off the air, not because of bad ratings; he had by far the most widely viewed network show at that hour.

The problem was Donald Trump is too thin-skinned to put up with a comedian poking fun at him regularly. As a result, he had Brendan Carr, his chair of the Federal Communications Commission, imply that the Ellison family’s effort to take over Paramount, CBS’s parent company, would be blocked if Colbert wasn’t fired. The Ellison family includes prominent Trumper, Larry Ellison, one of the richest people in the world, and David Ellison, his equally right-wing son who most immediately controls Paramount.

But taking over one of the country’s major broadcast networks wasn’t enough for the Ellisons. They also control TikTok, the fifth most widely used social media platform, which Trump wrestled away from a Chinese company and put in Larry Ellison’s hands.

And now, Paramount is looking to take over Warner Brothers. In addition to giving them control over two major Hollywood studios, the merger would allow Paramount to merge CBS’s newsroom with Warner-owned CNN. This would presumably mean arch-Trumper Bari Weiss would be in charge of CNN.

David Ellison put Weiss, who has long-established right-wing credentials, in charge of CBS News soon after taking over the network. In this role, she has already fired or driven away many serious reporters and repeatedly censored 60 Minutes, its highly regarded and widely watched investigative news show. We can expect more of the same at CNN if Paramount’s takeover of Warner is allowed to go through.

While Trump’s Justice Department’s antitrust division has greenlighted the Paramount-Warner merger, there is still a possibility it can be stopped. California and 11 other states sued to stop the merger on antitrust grounds. In addition to merging two of the major news networks, it would also consolidate two massive Hollywood studios.

An analysis by the Media and Consolidation Research Organization Lab, at the University of California, San Diego, found that the resulting reduction in competition would almost certainly mean fewer new movies are produced and less employment in the industry. It also would likely mean higher streaming prices for consumers. This is in addition to the problem of giving Trumpers even more control of the media.

There is at least some chance that the courts will block this merger on the merits. However, if it goes through the appellate process, the Republican Supreme Court may find the opportunity to provide another gift to Trump supporters irresistible. Still, the prospect of a years long delay could persuade Paramount to compromise and offer at least partial divestment of some of Warner Brothers holdings to facilitate the merger. In any case, the antitrust lawsuit raises the possibility of blocking the merger in its current form.

While further consolidation of the media and placing ever more of it in the hands of Trumpers is definitely bad news, it would be wrong to imagine that we previously had a golden age of media. News outlets owned and run by rich people tend to present news in a manner that is acceptable to the bosses. Stories about the upward redistribution of income over the last half-century, and anti-worker practices by businesses, tend to get short shrift. But there is no doubt they would get even less attention in a Trumper-controlled media universe.

However, we should be looking for something better. One route is a system of individual tax credits, say $100 per person, to support a person’s favorite news outlet(s). This would be a credit, not a deduction, and fully refundable, so even the poorest person would get a $100 to support the news outlet of their choice.

The model is the tax deduction for charitable contributions, except that everyone would get the same amount. There are many design issues that would have to be ironed out, but such a system could create a large pool of money to support news reporting in various forms that is not controlled by rich people.

This system also has the advantage that it can be done at the state or even local level. That means that cities run by progressives, like New York and Seattle, could pave the way by putting this sort of system in place. (Seattle’s new mayor, Katie Wilson, is a big supporter of this sort of system.)

It is hugely important to do what we can to block further consolidation of the media in the hands of the Trumpers. We also need to do other things, like reforming Section 230 to take away the special protection it gives the huge social media platforms. But the most important longer-term measure to protect a free press is to set up an alternative funding mechanism. An individual tax credit system is a promising route, but we need to get these alternatives on the table and start moving forward with them.

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.


Social Security Deficits Are Caused By Inequality, Not Demographics

Social Security Deficits Are Caused By Inequality, Not Demographics

The rich almost completely control debate in this country. There is no better proof of this fact than the current debate over the future of Social Security.

This has been conveniently framed as a problem of demographics. You know, too many people living long into retirement and not enough kids entering the workforce. That sounds compelling, as long as we don’t try to think about it too much.

First, we knew this basic story long ago. On the life expectancy side, we’re actually doing somewhat worse (better from the standpoint of the program’s finances) than was expected in 1982, the last time there was a major reform to the program. The projections from that year showed men living on average 16.6 years after they turned 65. We are beating that some in the current projections at 18.2 years. But the story for women looks considerably worse than was projected in 1982, 20.7 years now compared to a projection of 22.6 years in 1982. So, we can’t say the problem is people are living longer than expected.

The fertility rate has fallen behind projections. and that has made the financing of the program worse, but the big story is that wage growth has fallen far behind the pace projected in 1982. The projection in 1982 was that real wages (the gap between wage growth and prices) would grow 1.8% percent annually for the indefinite future. And this wage growth was assumed to be for the workforce as a whole; there was no anticipation that there would be substantial changes in the wage distribution.

Inequality Matters Big Time for the Finances of Social Security

If real wages had grown as projected, they would have increased by more 120 percent between 1982 and the present. Instead, median wages have risen by just over 30 percent.

A big part of this story is that productivity growth has been weaker than was projected. But an even larger part is that there has been a huge upward redistribution of income over this period. If wages had kept pace with productivity growth, they would be more than 60 percent higher than they are today.

This directly matters for Social Security’s finances for two reasons. The first is that a much larger share of wage income has gone over the payroll cap. The cap rises in step with average wages, not the typical worker’s wages. As a larger share of wage income went to those at the top, Wall Street types, CEOs and other top executives, and highly paid professionals, less was subject to the Social Security tax. In 1982. only 10 percent of wage income avoided taxation. Now it’s close to 18 percent of wage income.

And since the turn of the century, a larger share of income has been going to corporate profits. This money also escapes taxation for Social Security.

There is also the issue that if wages had been growing more rapidly over the last half-century, tax revenue would be higher relative to benefit payments. Benefit payments after retirement are indexed to prices. If wages outpace prices, tax revenue increases relative to benefits. The Trustees calculate that a 0.1 percentage point increase in the annual rate of real wage growth is equivalent to a 0.2 percentage point increase in the tax rate.

If real wages had grown by roughly 1.0 percentage point faster over the last half-century, and were projected to continue to grow at that pace, it would eliminate most of the projected shortfall in the trust fund.

The Indirect Effect of Growing Wage Inequality

This direct effect of growing inequality accounts for far more than half of the gap in Social Security’s finances, but there is also a very important indirect effect. In 1960, the Social Security tax rate was 6.0 percent, combining the employer and employee side contributions. By 1990, the tax rate had risen to 12.4 percent, an increase of 6.4 percentage points over 30 years. In the last 35 years, the tax rate has not increased at all.

In the context of weak real wage growth and a massive upward redistribution of income, it is understandable that there would be enormous resistance to any further tax increases to support Social Security. But suppose real wage growth had kept pace with productivity over the last half-century, and we had not seen the massive upward redistribution to Elon Musk, Mark Zuckerberg, and the rest.

I’m an economist, not a political consultant, but my guess is that if real wages were more than 60 percent higher, most workers would be okay with a 1-2 percentage point increase in the tax rate to secure Social Security for themselves and their children. This was the case for workers in the decades from 1960 to 1990, who put up with much larger tax increases.

The Government DID Upward Redistribution; It Didn’t Just Happen

The other part of this story that is essential for everyone to understand is that the upward redistribution was brought about by government policy; it did not just happen. The most obvious way this happened was through government-granted patent and copyright monopolies. These government-granted monopolies make folks like Larry Ellison and Bill Gates incredibly rich. They also make prescription drugs and medical equipment very expensive, when they would be cheap in a free market.

The government has protected the financial industry with bailouts, tax policy, and bankruptcy laws that allow private equity barons and Wall Street tycoons to become rich at the expense of the rest of us. If we drafted the laws to promote efficiency, we would have a much smaller financial sector and fewer and poorer billionaires.

We also have written and enforced labor laws to the detriment of unions and workers. Most obviously by banning contracts that require all workers who are represented by a union to pay for that representation. While these contracts are not enforceable in most states, contracts that prevent workers from working for a competitor are enforceable.

These and other policies that were designed to redistribute income upward have had their intended effect of taking money from the rest of us and giving it to the rich and very rich. And now that their upward redistribution has had the effect of undermining the financing of the country’s most important social program, they want to cut Social Security. It’s essential that people stand up to the lies; the problem is the rich taking too much of our money, not overly generous Social Security benefits.

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.

Boom? If AI Sales In The US Go South, Let's Not Bail Out Big Money Bettors

Boom? If AI Sales In The US Go South, Let's Not Bail Out Big Money Bettors

I was struck by a graph showing OpenRouter’s measure of AI usage this year. (It appears in a newsletter published by Deutsche Bank’s chief economist, Jim Reid.)

There are two striking features to the graph. The first is that usage of Chinese AI passed the usage of U.S. AI in the last week in May. This had also happened for the last week in March, but the U.S. went back into the lead in April. However, this time around, the Chinese models extended the lead through June so that for the first week in July, they look to be about 40% higher. That might be great news for Chinese AI, but not so good for U.S. makers.

The other feature to the graph that is even more striking is that usage of U.S. models actually fell in the most recent week. The story of a huge AI boom is usage increasing at an extremely rapid, and maybe even increasing, pace. A decline in usage is not supposed to be in the cards.

To be clear, this is just one week, and perhaps there were unusual factors that depressed AI usage in the first week in July, like the holiday. But even if the one-week fall can be dismissed, total usage was roughly back to where it was four weeks ago, as there was very little growth in the prior two weeks. That is clearly not a story of an AI boom, or at least a boom in U.S. AI. We have to wonder how many weeks of weak sales will it take before some of the big AI investors get worried?

If there is any possibility that the massive investments the AI companies will pay off, usage has to increase hugely from current levels. The fact that it levels off for even a short period should be concerning, as should the rapid growth in the usage of Chinese AI. The U.S. companies have to both be able to sell a huge amount of their AI, and they also have to be able to sell it at a high price. Chinese AI that is comparable in quality for most uses and sells for a fifth or even a tenth the price will pose a serious obstacle.

Can the Big Money Folks Really Be That Clueless?

It may seem hard to imagine that people who manage tens, or even hundreds, of billions of dollars in pension funds or hedge funds can be totally clueless about the market prospects for the companies on which they are placing big bets. But the housing bubble wasn’t that long ago.

Back then, huge funds were prepared to believe that securities that were backed by subprime mortgages, often made with no money down, were a safe bet. And AIG, the largest insurer in the world, was prepared to back up these bets with hundreds of billions of dollars in credit default swaps. When the bubble burst, its bankruptcy was a certainty had it not been for a massive government bailout.

And it was only four years ago that the geniuses who ran Silicon Valley Bank had to be taught that the value of bonds falls when interest rates rise. Of course, they also got a government bailout, so maybe that is the lesson the big money folks learned.

Anyhow, it would be good if we could get the rich to show a little respect for the market. If the AI bubble bursts, there should be some real career consequences for the folks who lost tens of billions for their clients, no “who could have known?” amnesties. And no government bailouts for the swashbuckling AI barons. Let them eat their losses.

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.

Not 'Liberated' Yet: Trade Deficit Hits Highest Level Since March 2025

Not 'Liberated' Yet: Trade Deficit Hits Highest Level Since March 2025

Donald Trump has made reducing the trade deficit a centerpiece of his economic agenda. As he has put it, the deficit means foreigners are ripping us off. Trump’s whole “Liberation Day” story was about putting an end to the rip-offs.

We can debate the extent to which the trade deficit means we are getting ripped off, but even accepting Trump’s claim, he is not doing a very good job by his own metric. On Tuesday, we got data from the Commerce Department showing that the monthly trade deficit jumped by $23 billion in May to $77.6 billion. The deficit would be $931 billion if this rate continued for a full year. This is the highest it’s been since March of 2025. If the trade deficit measures the extent to which we’re being ripped off, we’re going the wrong way.

To be clear, the story is a bit more complicated. The trade deficit had averaged $70.9 billion through the first ten months of 2024. It then jumped after the election, hitting $96.9 billion in December, as people rushed to buy cars, appliances, and other big-ticket items, and businesses stocked their inventories, before Trump’s promised tariffs went into effect.

It rose further in the first three months of 2025 as people became more convinced that Trump was serious about his tariffs. The peak was $133 billion in March. The deficit then fell sharply in April. Part of this story was the impact of the tariffs themselves, and part was that people who had bought cars and other big-ticket items in anticipation of the tariffs were not about to buy them again.

The impact of people buying in anticipation of tariffs had probably worn off by the start of this year, so we could see the direct impact of tariffs on the trade deficit. The average for the first four months of 2026 was $55.1 billion. That would translate into an annual trade deficit of $661 billion, a bit more than 2.0 percent of GDP. That is down from the $850 billion annual rate we had in the first ten months of 2024, but still far from balanced trade for those who care about such things.

But we then took a big step in the other direction in May. It seems the main story here is imports of AI-related capital goods. Imports of capital goods were $1.1 billion higher in May than they had been in April and $17.2 billion higher than they had been in January.

Many of the computer chips and other items that the big AI companies need for their data centers are imported, mostly from Taiwan and South Korea. If we think the trade deficit means we are being ripped off by foreigners, the AI bubble is increasing the extent of the rip-off.

Monthly trade data are highly erratic, and it’s possible that the May jump will be reversed in June or subsequent months. But for now, the data make it look like Liberation Day didn’t have its intended effect.

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.

Fire Any Financial Adviser Who Suggests Investing In Trump Accounts

Fire Any Financial Adviser Who Suggests Investing In Trump Accounts

I’m serious, and this is not just my disgust with everything Trump. There is no good reason for the overwhelming majority of people in the country to ever put a dollar in a Trump account for their kids.

To be clear, I’m not in favor of tax-sheltered accounts in general. They strike me mostly as a very inefficient way to accomplish public goals, in this case making education more affordable. The more efficient route would be to have more public funds go to support public colleges and community colleges.

The tax-sheltered account route also favors higher-income people. Over a quarter of households owe no income tax, meaning they would get no benefit whatsoever from putting money in a tax-sheltered account. Another 20 percent are in the 10 percent bracket, meaning the account would just save them just 10 cents on every dollar invested. By contrast, the highest income households save 37 cents on every dollar invested in a tax-sheltered account.

In addition, tax-sheltered accounts put a lot of money in the hands of the financial industry. Tens of billions of dollars go to the people and companies who administer these accounts, creating a pointless layer of wasteful bureaucracy.

To be fair, the Trump accounts limit fees to 0.1 percent of assets, far lower than is charged by many accounts. This is an important point. People can get low-cost funds in other accounts also. Stock index funds generally have the lowest fees, and most people would be wise to take advantage of them. People will tell you that they will beat the market, but most won’t, and you’ll just end up wasting money in higher fees and trading costs.

But that has nothing to do with individuals’ decisions on where to put their money. For better or worse, Trump accounts exist. The question is whether people will be helping their kids by putting money into them. And, as I said above, the answer for almost everyone is no.

The main reason is that we already have 529 accounts for the purpose of saving for a kid’s education. The big difference between the accounts for this purpose is that it is possible to withdraw money from a 529 account, if it’s needed, where it is not possible to withdraw money from a Trump account for any reason, until the kid turns 18.

People do pay a penalty for taking money out of a 529 early, but at least they can have access to it, if they need it. And unexpected events do happen. People can lose a job, have serious medical expenses, or get divorced. These and other unanticipated situations can require people to dip into whatever savings they have. With a 529 plan, they can use the money if they really need it. With a Trump account, they are out of luck.

It is important to recognize that withdrawals for non-education purposes are fairly common. A recent study by Vanguard found that 2% of accounts had an unqualified withdrawal in an average year. If an account is open on average for 20 years, this would mean that 40% of accounts have an unqualified withdrawal. People don’t expect bad things to happen, but they do.

Also, since the penalty is based only on the earnings portion of the 529 plan, not the whole sum in the plan, in most cases it is likely to be small. Suppose someone pulls $5000 out of a 529 plan, where earnings are currently 40 percent of the money in the plan. That means they would pay taxes on $2,000, plus a penalty of 10 percent.

If they are in the 10 percent bracket, their taxes would be $200, and their penalty would be $200. If they were in the zero bracket, say because they had lost their job, they would only pay the $200 penalty. That compares to being unable to touch their money at all in a Trump account. (The money in a 529 is not taxable at all if used for educational purposes. The earnings in a Trump account are taxable.)

It’s also worth mentioning that it’s not even possible to change asset allocations in a Trump account. Suppose your kid is 17, one year too young to make a withdrawal. If you’re worried there is an AI bubble likely to burst, and you would rather have your money in Treasury bonds, you’re out of luck. Trump accounts won’t let you make the switch; you have to go down with Elon Musk and the rest of the market.

The silliest argument given by proponents of Trump accounts is that they can be rolled over into an IRA to allow for lifelong wealth accumulation. So can the money in 529 accounts, up to a ceiling of $35,000.

The Trump gang makes a big issue of the $35,000 ceiling, but this is something only elite types with lots of money would care about. Very few people ever accumulate more than $35,000 in a 529 account, and the vast majority of people who do will find some education-related expense that would reduce the value of the account to less than $35,000. Remember, even food and housing can count as education-related expenses.

But let’s say someone ends up with an amount over $35,000 that they can’t use for education-related expenses. Suppose they have $40,000 that they want to roll over into an IRA. In this situation they would have to pay a 10% penalty on the amount over $35,000. That would be $500 on the $5,000 difference.

They would also have to pay taxes on the $5,000. The beneficiary is the one receiving the money, so they would be paying the tax. Since they are just beginning their working career, they likely have a relatively low income. This means they will almost certainly be in the 10% or 15% tax bracket, and quite possibly the zero bracket.

So, this is the bad scenario that Trump account proponents say it is important to avoid, and therefore skip a 529 and put your money in a Trump account instead? That seems pretty whacky, and why you need to fire your financial adviser if they suggest putting money in a Trump account.

To be clear, take the $1000 that Trump wants to give newborn kids. It would be a much better use of tax dollars if we provided food and medical care to kids from low-income families than giving out $1000 checks to millions of families that don’t need it. But you aren’t going to change the policy by turning down the money. If it bothers you, donate the money to a good cause, but do take the money and don’t ever put another penny in a Trump account.

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.

The Same Politicians Who Invented 'Pet-Eating' Migrants are Yelling Fraud!

The Same Politicians Who Invented 'Pet-Eating' Migrants are Yelling Fraud!

Republicans may not be very good at governing, but they are world-class at exploiting racism. It is a proud tradition dating back more than half a century.

In the 1960s, Richard Nixon yelled about “soft-on-crime” Democrats to get into the White House. Ronald Reagan pushed his stories about the welfare queen driving to pick up her check each month in a new Cadillac. The senior George Bush used Willie Horton, a convicted murderer in Massachusetts, who was given a furlough from prison on which he committed a series of brutal crimes.

Donald Trump’s foray into national politics began by inventing a Kenyan birth certificate for President Obama. His last campaign centered on pet-eating migrants, along with schools that turn children from boys into girls during recess.

With the economy and Trump’s Iran War both going badly, the Republicans are again doubling down on racism. This time, the cry is “fraud,” which they insist is massive in Medicare, Medicaid, and the Affordable Care Act (ACA) in the exchanges.

Not only is the latest round of accusations almost completely evidence-free, pretty much the norm for most Republican claims, it doesn’t even make any sense. In contrast to claims that people might cheat on things like Temporary Assistance for Needy Families (TANF), food stamps, or small business loans, beneficiaries of these programs get no direct benefit from cheating, other than possibly getting healthcare provided for which they were not entitled.

This takes an even more bizarre twist in the claims being pushed now by HHS Secretary Robert F. Kennedy Jr. and Dr. Mehmet Oz, the director of the Center for Medicare and Medicaid Services. RFK Jr. claims that one million people have insurance on the exchanges without identifying Social Security numbers. Dr. Oz claims that 40 percent of the people in the ACA exchanges never filed a claim.

Dr. Oz’s evidence of fraud isn’t quite the slam dunk he seems to believe. According to the Employee Benefit Research Institute, 20 percent of the people with employer-provided insurance don’t file any claims in a year.

Since the average period people have a policy in the exchanges is just eight months, we would expect 30 percent of beneficiaries never to file a claim, if its population were the same as it is for employer-provided insurance. But we know that the age distribution in the exchanges skews younger, which means that they would be less likely to file claims than people getting employer-provided insurance. This means there is nothing obviously suspicious in Dr. Oz’s factoid.

But beyond the questionable status of these claims, the question is, who is committing fraud? If there is a fake policy in someone’s name, and they never even file a claim, how are they benefiting?

There are intermediaries who match people to plans in the ACA exchanges. These people get between $15 and $30 per member per month. That does provide an incentive to push phony policies, although it’s not clear anyone will get too rich this way. One hundred phony policies would get someone between $1,500 and $3,000 a month. We would want to crack down on this fraud, but $36k a year is not exactly big bucks.

The real bucks would be in the pockets of the insurers. The average plan in the exchanges costs around $600 a month, or $7,200 a year. Insurers don’t have to worry about paying out much in premiums on fake plans. That means they can pocket the full $7,200 paid by the government. If they have an agent who gave them 100 fake plans, they can pocket $720,000 a year. A thousand agents getting them fake plans at this rate would net them $720 million, which is real money even for a large insurance company.

It’s not clear how big a problem fake plans are, but it is clear that the main beneficiaries are the big insurance companies. And while we can’t expect insurance company CEOs making tens of millions of dollars a year to be very sharp, if their companies are pulling in hundreds of millions of dollars a year from fake policies, surely they have some idea.

This means that if Robert F. Kennedy Jr., Mehmet Oz, and the rest of the Trump administration are serious about cracking down on fraud in the ACA exchanges, we should be looking to see some of the CEOs of the major insurance companies doing a perp walk. And Republicans do know about insurance companies defrauding the government, since Sen. Rick Scott was involved with the largest Medicare fraud at the time when he was CEO of HCA.

Locking up insurance company CEOs may not be the fraud that Trump politicians want us to envision, but it is likely the fraud that would be closer to reality, even if all the perps are white.

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.

Troubling Signal: 'Fast-Food Index' Of Consumer Sentiment Is Falling Fast

Troubling Signal: 'Fast-Food Index' Of Consumer Sentiment Is Falling Fast

For the last several years, I’ve been using real spending at fast food restaurants as a gauge for assessing how the non-rich are feeling about their personal finances. The logic is that it is a type of discretionary spending where people can easily make cutbacks if they are feeling squeezed.

Also, it should not be affected much by the spending of the rich. It’s not likely that Elon Musk eats more Big Macs when his wealth increases or he cuts back when SpaceX’s stock plunges.

And to be clear, I’m not saying the rich don’t eat fast food. I’m sure they do. The claim is just that their consumption of fast food is not affected much by changes in their short-term financial situation.

Anyhow, the story the index has been telling us in the last year is not a good one.


After rising at a healthy pace through 2023 (the January number was an upward blip), spending had been largely flat through 2024 and the first half of 2025. It then rose in the summer and peaked at an annual rate of $386.2 billion in September. Since then, it has fallen sharply, hitting $366.8 billion in May, a decline of just over 4.0 percent from its peak.

That would seem to indicate that people are feeling pretty bad about their economic situation. This is consistent with the bad numbers being reported in the consumer confidence indexes.

I’ve had people suggest to me that this decline could be driven by the increased use of Ozempic or related drugs. This would be a positive spin, since it would probably be good for people’s health if they consumed less fast food.

Unfortunately, that does not seem likely to explain this sort of decline. By 2024, 12 percent of the adult population was already taking a GLP-1 drug. The increase in usage did not prevent fast-food consumption from rising rapidly in 2023 and at least staying flat in 2024.

The number of people using these drugs has undoubtedly continued to rise, but probably not by enough to explain the sharp drop in consumption over the last 8 months. The drop in spending is likely giving us bad news about the state of the economy, not good news on public health.

People’s negative assessments of the economy continue to be somewhat of a mystery. The recent run-up in gas prices and inflation more generally is unambiguously bad news, but is this the worst economy ever, as some of the consumer confidence measures have been showing? Real income for those at the middle and bottom has generally been rising by standard measures, so it seems that we’re missing something, and I’m not sure any of us have figured out what.

The fast-food index is telling us what people do and not just what they say. And what they do is telling us that they don’t feel very good about the economy.

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.

RIP Alan Greenspan: Why New Fed Chair Warsh Shouldn't Imitate His Cryptic Style

RIP Alan Greenspan: Why New Fed Chair Warsh Shouldn't Imitate His Cryptic Style

I was not an Alan Greenspan fan, but I will give him some serious credit on his passing. I’ll also give him serious blame for missing two huge bubbles, the collapse of which gave us serious recessions. I’ll also add a comment about the opaque way he ran the Fed, to which I fear our new Fed chair is returning.

Starting with the positive, Greenspan allowed the unemployment rate to fall to 4.0% as a year-round average in 2000. This was huge. The prevailing view in the economics profession had been that the unemployment rate could not fall much below 6.0% without triggering spiraling inflation.

Greenspan was not a mainstream economist and therefore did not accept this view. In 1995, when the unemployment rate was already under 6.0%, he famously argued with two ostensibly more liberal Fed governors, Janet Yellen and Lawrence Meyer, over this point. They both wanted Greenspan to raise rates to head off inflation. Greenspan insisted that he didn’t see evidence of inflation and was not going to raise rates just because the unemployment rate was low.

Greenspan stood pat as the unemployment rate fell to 5.0% and then 4.5%, and finally in 2000 to 4.0% as a year-round average. We actually had several months of 3.9% and 3.8% unemployment. This allowed millions of workers to get jobs who would have otherwise remain unemployed if Yellen and Meyer had gotten their way.

Even more importantly, the low unemployment of the late 1990s gave tens of millions of workers the bargaining power to secure real wage gains. This was the first period of sustained real wage growth for low- and middle-wage earners since the early 1970s. The low unemployment of this period also set a benchmark for the future, where economists recognized that 6.0% unemployment was not a floor. (Yes, we can do better with a federal jobs policy, but that is not Alan Greenspan’s domain.)

Greenspan and the Bubbles

Greenspan decided to ignore the two huge bubbles that grew under his watch. He famously commented about the irrational exuberance in the stock market in 1996, which quickly sent stocks tumbling. Greenspan then mumbled some nonsense about growth possibly justifying market prices, and stocks recovered and continued to rise for another three and a half years.

The bubble began to deflate in March of 2000, and the market eventually lost close to half its value. The NASDAQ, where the major tech stocks were listed, lost almost 80%. The popular wisdom is that the resulting recession in 2001 was short and mild. This was not true from a labor market perspective. We went four full years without creating jobs and the strong real wage growth of the late 1990s quickly stopped and went into reverse.

The next bubble was even worse. There was already some evidence of a housing bubble in the late 1990s, as house sale prices began to outpace inflation. They also outpaced rents, which were still rising roughly in step with overall inflation.

This divergence increased in the 00s, triggered in part by low interest rates, but also incredibly lax lending standards. At their peak in 2006, house sale prices had risen 70% in real terms compared to where they were a decade before. The subsequent collapse gave us a financial crisis and the worst recession since the Great Depression, as the unemployment rate nearly reached 10.0%.

After the collapse all the people in economic policy positions gave themselves a “who could have known?” amnesty. The answer of course was everyone should have known. The dodgy lending practices of mortgage issuers were hardly a secret; they were bragging about it. People were buying houses with no money down and in many cases even borrowing more than the value of their home to cover moving expenses and closing costs. The same was true for the securitization that allowed issuers to offload any mortgages immediately after it was sold, regardless of the quality.

In an interview that Greenspan gave to the Washington Post after the crash, he commented that he had become concerned that the share of subprime mortgages had jumped to 25% in 2005. He said he couldn’t remember if he had passed this information on to his successor, Ben Bernanke, when he stepped down in 2006.

This was infuriating. The idea that the Fed chair was not aware of the explosion in subprime lending (even worse Alt-A, which had risen to 15%) was truly incredible. It’s not clear if it would be worse if Greenspan’s claim was true or not.

Remedies for Bubbles

I have written about this before, but I’ll just make a couple of points here. First, in the case of the stock bubble, I think talk would have gone a long way. Greenspan’s offhand “irrational exuberance” comment had a huge effect. Imagine he had the Fed churning out papers showing how stock prices were completely out of line with pretty much all projections of future GDP and profit growth.

The point is not that investors had to agree with Alan Greenspan, but they would have to answer him. The “who could have known?” defense might save a fund manager when it is just random gadflies yelling about a bubble. It is a very different story when a Fed chair is putting out the warning. A person managing tens of billions at a pension fund or endowment will be looking at the unemployment line if, after the crash, they say they didn’t pay Greenspan any attention.

In the case of the housing bubble, in addition to warnings, the Fed has substantial regulatory authority. The bad practices of banks and other financial institutions were easy to see. The Fed could have cracked down. Instead, they could not even be bothered to issue updated mortgage lending guidelines until after the crash.

Greenspan Thought the Fed Should be Opaque

This one is timely since our new Fed chair, Kevin Warsh, seems to want to turn back to the Greenspan era. Since I just wrote about this last week, I’ll pick up part of what I said.

“Under Alan Greenspan, the Fed was deliberately opaque. I remember walking to work one day in the mid-1990s, the day after Greenspan had given some big speech. Back then, we had newspaper boxes where you could buy the paper. I always glanced at the machines as I walked by. Half of the papers had headlines saying something to the effect of “Greenspan Plans to Raise Rates.” The headlines for the other half were something to the effect “Greenspan to Leave Rates Unchanged.”

“Greenspan, who followed his press closely, was reportedly delighted. He had given a major speech, and no one had any idea what he was talking about.

“Ben Bernanke, his immediate successor, wanted the Fed to be more transparent. He explicitly introduced the concept of “forward guidance” to Fed policy: the idea that the Fed would tell people where it expected interest rates to go in the near-term future. In their tenures as Fed chair, both Janet Yellen and Jerome Powell continued this policy. Their view was that they did not want the public to be surprised by the Fed’s decisions.”

I argued that this makes good sense both from the standpoint of the economy, being clear about Fed plans creates more certainty for investment decisions and is also important for reducing corruption. As I noted:

“Wayne Angell, who served as a Fed governor from 1986 to 1994, began consulting at the rate of $100 a minute (roughly $220 in today’s dollars) after he stepped down from his position in 1994. Angell may have been an insightful observer of the national economy, but he was obviously being paid for his knowledge of his former colleagues’ views on interest rates.

“If the Fed is fully transparent about its intentions, no one is going to get paid $220 a minute for their insights on what the FOMC is thinking. We don’t know how far Warsh will look to go with this move away from Fed transparency, but the further he goes the more room there is for corruption.”

Anyhow, Greenspan’s deliberate opaqueness was not a good policy for the Fed. We should hope that Kevin Warsh does not follow his example as chair.