@DeanBaker13
Why We Don't Need (Or Want) Bernie Sanders' AI Sovereign Wealth Fun

Why We Don't Need (Or Want) Bernie Sanders' AI Sovereign Wealth Fun

I’m a big fan of Sen. Bernie Sanders (I-VT). He has done an enormous amount to move American politics and especially the Democratic Party to the left. He constantly stands up to the rich in the name of ordinary working people.

But I have to disagree with him on the idea of an AI sovereign wealth fund. This strikes me as wrong-headed from every angle.First and foremost, Donald Trump is doing his best to show us why it is often a bad idea to have the federal government directly involved in running private businesses. He is using the power of the government to stuff his and his family’s pockets in every way imaginable.

He also is using the government to force private businesses to suppress criticism as you’ll see on the Colbert show tonight. Why on earth would any progressive want to give this demented jerk more power?

We can say that Trump is an aberration, which we should all hope he is. But we elected this aberration twice. Does anyone want to say it can’t happen again?

The economics on this look even worse. The job-killing effect of AI exists much more in the minds of our political elite than in the data. Productivity growth, the measure of job killing, has been extremely weak the last two quarters. Quarterly data are erratic and perhaps the future will be different, but if AI is killing off large numbers of jobs, it is doing a great job concealing the evidence.

Most likely the AI sector is in a massive bubble. At its peak value, Nvidia’s market capitalization was roughly 20% of U.S. GDP. In the late 1990s tech bubble, Microsoft’s market cap peaked at less than 6% of GDP.

An AI sovereign wealth fund is likely to end up being a mechanism to shovel yet more money to Elon Musk, Mark Zuckerberg, and the rest of the right-wing billionaire gang. We have already given this crew enough money.

I doubt that we will see massive AI-related job displacement, but if we do, we have old remedies that should work just fine.

1) a workable corporate income tax at a higher rate, for all companies. The best way to do this is to require companies to turn over non-voting shares equal to the targeted tax rate (e.g. 25% of shares for a 25% tax rate).

2) serious anti-trust enforcement. It is likely that Chinese AI will be very competitive, and probably much cheaper, than the domestic stuff. We let in Chinese-manufactured goods to screw large segments of the blue-collar workforce. We should not have protectionism to keep Elon Musk and Mark Zuckerberg ridiculously rich.

3) Stronger labor standards. We set the 40-hour workweek 90 years ago and have not changed it since. Other countries have shortened the work week/work year. If AI is going to give us the promised boom in productivity, let’s lower the threshold to 32 hours, or possibly even lower. We can also double the overtime premium to 100% rather the 50%.

We have all the tools needed deal with an AI productivity boom; we just lack the political will to use them. The sovereign wealth fund idea is a massive leap in the wrong direction.

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.

Despite Strong May Jobs Report, Wages Aren't Keeping Pace With Inflation

Despite Strong May Jobs Report, Wages Aren't Keeping Pace With Inflation

The May Jobs report was stronger than most people, including me, had expected. The 172,000 jobs created is not exactly earth-shattering, but in a context where immigration has been largely shut off and the labor force is barely growing, it is a lot. Plus, the two prior months’ data was revised up, so the average over the last three months is 188,000.

That looks pretty good, but the separate household survey looks less good. The unemployment rate held steady at 4.3 percent, which by historical standards is low, but it’s almost a full percentage point higher than the 3.4 percen t low hit in the spring of 2023.

More striking is that the rate did not fall, given the rapid job growth reported in the establishment survey. As the establishment data has shown strong job growth, the household survey actually showed a small drop in employment from the February level. To be clear, the surveys often are not aligned, so this discrepancy is not especially striking, but it is worth noting.

Anyhow, I have five main takeaways from the May report.

1) Jobs are growing far faster than the breakeven rate

2) Wages are not keeping pace with inflation

3) Workers are still reluctant to leave jobs

4) Job-killing AI is not visible in the data

5) Self-employment is lagging

Good Job Growth, but Heavily Concentrated

The entire 172,000 job growth came from three sectors: leisure and hospitality, local governments, and healthcare and social services. These sectors added 70,000 jobs, 55,000 jobs, and 47,200 jobs, respectively. To be clear, other sectors added some jobs. Construction added 17,000 jobs, manufacturing added 7,000 jobs, but with sectors like finance and wholesale trade losing jobs, the net outside of these sectors was zero.

The job growth in the healthcare and social services sector was not surprising. It has been adding jobs at a rapid pace throughout the recovery. This is the story of aging baby boomers needing more care. Most of the growth in the social service category is home healthcare aides. This growth will likely continue.

The growth in local government employment is a surprise. Most local governments are facing financial problems as funding from the federal government has been curtailed in many areas. It is unlikely this growth will continue and may be reversed in future months.

The leisure and hospitality story is the hardest to explain. Most of this growth (48,000) was in restaurants. This doesn’t seem to fit the data on spending. According to the Commerce Department, inflation-adjusted spending in restaurants is down by 1.0 percent since September. Yet employment is up by 154,000 or 1.2 percent. These changes will never match up precisely, but this is a large divergence. Maybe restaurant workers are getting less productive for some reason.

There are some interesting stories in construction and manufacturing. Construction has added 65,000 since December, an average of 13,000 a month. That is not exactly earth-shattering, but the sector lost 4,000 jobs in 2025.

Similarly, manufacturing is showing modest job gains this year, adding 25,000 jobs since December. The durable goods sector has been doing even better, adding 46,000 jobs. Again, this is not exactly a great story, but at this pace the sector could get back the jobs lost in 2025, sometime next year.

In any case, with immigration likely near zero, the number of jobs needed to keep pace with the growth of the labor force is in the 30,000-60,000 range. We are well above that pace in the last three months.

Wages Are Falling Behind Inflation

Wage growth is continuing to slow, with the year-over-year increase at just 3.4 percent. That is down from being slightly above 4.0 percent in 2023 and 2024. Tariffs and the war-related surge in energy prices have pushed inflation higher. It had been slowing toward 2.0 percent in 2024, but it now is at 3.8 percent and likely to hit 4.0 percent when we get the May Consumer Price Index next week.

Slowing wage growth in the face of rising inflation seems hard to reconcile with strong job growth and relatively low unemployment. Workers should be in a position to get higher wages, but that does not seem to be the case.

Workers Are Reluctant to Leave Their Jobs

One factor that can help to explain weak wage growth is the reluctance of workers to leave their jobs. We know from the Job Openings and Labor Turnover Survey (JOLTS) that both quits and hires are very low. This is also reflected in the relatively low share of unemployment due to voluntary quits. This rose from 11.3 percent in April to 12.5 percent in May, but that is still below the 13.2% average in the 2018-19 period of comparably low unemployment. The fact that the duration measures of unemployment are all relatively high, and rose last month, suggests that workers are right to be wary.

The Job-Killing AI is Still Hiding from the Statistical Agencies

If AI is allowing us to do more with fewer workers, it should show up in more rapid productivity growth. We are not seeing this in the data. Productivity growth was just 1.6 percent in the fourth quarter and 0.3 percent in the first quarter. We had been seeing growth in excess of 1.5 percent earlier in the recovery. And we had growth of just under 3.0 percent annually in the long post-war boom from 1947-1973.

Based on the April and May data, it looks like hours will grow at close to a 2.0 percent rate in the second quarter. Unless we get some blockbuster growth numbers for output in June, we will have another quarter of weak productivity growth. Either the story of job-killing AI is yet another economic myth, or the AI is much smarter than we think, and is hiding from the statistical agencies.

Self-Employment is Weak

One story of AI is that it is supposed to make it easier for people to start businesses. We are in fact seeing a strong uptick in new business formation. However, this is not showing up in the data on self-employment.

Taking an average of the last three months, incorporated self-employment is down by 1.0 percent from the year ago, while unincorporated self-employment is down by 4.2 percent. This is a contrast from earlier in the recovery when self-employment was rising rapidly. Incorporated self-employment in the months from March to May was 10.8 percent higher than it had been in 2019, before the pandemic. Unincorporated self-employment was 6.0% higher. This story could change, but for now, it doesn’t look like AI is leading to a boom in self-employment.

Questions for Next Month

The May report definitely had some good news, but also raises many questions. What good jobs report doesn’t?

Some of the things I will be looking for is what happens to local government employment, is wage growth picking up, are people quitting their jobs? But we have a month to worry about these things.

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.


Following Biden Boom, New Factory Construction Keeps Falling Under Trump

Following Biden Boom, New Factory Construction Keeps Falling Under Trump


Yesterday, the Commerce Department released data on construction in April. It showed that factory construction is continuing to fall. In nominal terms, it dropped another 1.2 percent in April from its March level. Adjusting for inflation, the decline would be roughly 1.3 percent.

Factory construction has been on a downward path since the third quarter of 2024. It is now down by close to 27 percent from its recent peak.

Source: US Bureau of Economic Analysis Chart by Federal Reserve Bank of St. Louis (FRED)

It is striking that we have seen this plunge even as Donald Trump is boasting about a manufacturing boom. This turns reality on its head.

As I’ve pointed out in past notes, there was an unprecedented boom in factory construction under Biden. The peak in 2024 was well over twice the pre-pandemic level. This boom was driven by three major bills that Biden was able to get through Congress: his bipartisan infrastructure bill, the CHIPS Act, which provided incentives to build advanced semiconductor manufacturing in the United States, and the Inflation Reduction Act, which provided support for clean energy and EVs.

This boom went largely unnoticed by the media. As a result, most people never realized it took place.

In any case, with Trump quite explicitly trying to reverse most of Biden’s policies, the boom is going in reverse, with factory construction dropping rapidly. Trump may not yet be aware of this reality, but the rest of us are.

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.

JD Vance

JD Vance's Racist 'Fraud Task Force' Conceals Real Fraud In Trump White House

JD Vance’s first claim to national attention as vice president was when he admitted to making up lies about pet-eating Haitian migrants. Vance justified the lie by saying that he was prepared to lie if that was needed to push Trump’s anti-immigrant agenda. With his anti-fraud task force, Vance is continuing his practice of pushing racist lies.

To be clear, there is fraud in government social programs and some of it is done by immigrants from developing countries. But there is no plausible story where this fraud accounts for a large share of the budget, or that immigrants are especially likely to be fraudsters. And there is no remotely plausible story where, as Trump henchman Stephen Miller claimed, that eliminating fraud could balance the budget. It is also absurd to imagine that the Biden administration was not pursuing fraud.

In fact, the vast majority of the fraud is not done by the beneficiaries of these programs, but by businesses that profit from them. For example, the Government Accountability Office estimates that in 2023, there was over $100 billion worth of improper payments in the Medicare and Medicaid programs, roughly seven percent of total spending.

Most of this was not fraud. It was often overpayments for procedures, or in some cases, simply a failure to properly document a payment request. In any case, this was money being paid to providers, hospitals, nursing homes, and doctors’ offices, not undocumented immigrants from Latin America or Africa.

It doesn’t seem like JD Vance has much interest in going after these people. In fact, Donald Trump has been getting a lot of money from issuing pardons to these fraudsters.

It’s also again worth pointing out that eliminating fraud will not come close to balancing the budget. The government was looking at a deficit of almost $1.9 trillion this year on $7.4 trillion in total spending, and that was before Trump started his war with Iran.

A more vigilant crackdown on fraud would be lucky to get into double-digit billions, reducing the size of the deficit by maybe one percent, and that would be high-end. For folks with bad memories, it was just a year and a half ago that Trump enlisted Elon Musk to crack down on waste, fraud, and abuse. He mostly came up empty-handed, although he did fire a number of people at government agencies, who they then had to hire back. He also dismantled USAID, contributing to tens of thousands of deaths due to AIDS, and also leaving the world unprepared to deal with the Ebola outbreak.

The government also has inspectors general (IG) attached to most departments and agencies. Their job is to ferret out fraud and waste. One of Trump’s first acts was to fire most of these IGs, presumably because he didn’t want people calling attention to his own fraud, waste, and abuse.

If Vance seriously wanted to crack down on fraud and reduce the deficit, he could be working with the I.R.S. to collect some of the $600 billion in taxes that go unpaid each year. But this would mean disproportionately going after white people who are Trump’s campaign contributors, not the look Trump wants for the fall elections. Also, Musk disproportionately went after workers at the I.R.S., leaving it less able to crack down on tax cheats.

It should be apparent to all but the hopelessly naïve that the point of Vance’s fraud task force to stir up racist resentment for the fall election. With his war with Iran going badly, his tariffs an economic disaster, and inflation jumping to rates not seen since the worst of the pandemic, Trump desperately needs a distraction.

Racism has been Trump’s strong suit since his earliest political forays, such as calling for the death penalty for the Central Park Five, Black teenagers who were charged and did prison time for a brutal rape. They were later exonerated. More recently, we were treated to his nuttiness on President Obama’s birth certificate. Trump may not be very good at running a business or the country, but he is a superstar when it comes to exploiting racism, and JD Vance is a willing and able sidekick.

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 Heroic IRS Whistleblower Who Deserves A Payout From Trump's Slush Fund

The Heroic IRS Whistleblower Who Deserves A Payout From Trump's Slush Fund

As Donald Trump establishes his $1.8 billion taxpayer-funded slush fund to reward the people who tried to overthrow the government on his behalf, it is worth taking a moment to honor Charles Littlejohn. He’s the person who made it all possible.

Most people are probably not familiar with the name. Littlejohn is the person who leaked Donald Trump’s tax returns, along with those of thousands of other rich people. Littlejohn had been working as a contractor with the I.R.S. In this capacity, he had the opportunity to see that many of the very rich paid little or no income tax. Unlike those of us who work for a living, billionaires like Elon Musk, Jeff Bezos, and Donald Trump often get away with paying almost, or sometimes literally, nothing.

This apparently bothered Littlejohn. He shared the tax returns of thousands of these people with major news outlets. That was a clear violation of the law. Tax returns are supposed to be confidential and not seen by anyone outside the I.R.S. Littlejohn’s leak broke this confidence.

But Littlejohn didn’t break the law for personal profit; he did it as a public service. He wanted people to know how the very richest among us can often avoid paying taxes.

In doing so, he also exposed some of the obvious tricks the rich use. The simplest is just borrowing to support their consumption, instead of selling stock and paying taxes.

This one is worth explaining since it is so simple and pernicious. Take a very rich person, like Elon Musk or Jeff Bezos. Let’s say they spend $200 million a year on their boats, cars, travel, clothes, jewelry, and parties. Since both of these people own stock worth more than $200 billion, they could easily sell some and cover their expenses.

If they sold $250 million in stock, let’s say they would have capital gains of $200 million, which means, at the 20% capital gains tax rate, they would have to pay $40 million in taxes. But the billionaires don’t feel like paying taxes.

Instead, they can just borrow $200 million from a bank. Since their stock is worth 1000 times this much, banks are happy to lend. They don’t have to pay a penny in taxes on the money they borrow, nor on their stock, as long as they don’t sell it.

Borrowing against wealth to support consumption and avoid taxes is not exactly rocket science. The possibility probably occurred to anyone who thought about it for ten seconds. But most of us didn’t think the billionaires would be so greedy and pathetic as to actually take this route. Or at least we didn’t until Littlejohn leaked the tax returns. Now we know that nothing is too sleazy for the richest among us.

Littlejohn knew his leaks were illegal and presumably understood he faced prosecution if he was caught, just as many others who broke the law for a greater purpose, like civil rights protestors in the '50s and '60s, understood. He probably did not anticipate that he would get a judge who would sentence him to five years in prison.

This sentence is longer than people typically get for stealing hundreds of thousands, or even millions, from the government on their tax returns. It’s a longer sentence than many people get for committing manslaughter. Manslaughter means someone died because of a person’s actions. In this case, Elon Musk, Jeff Bezos, and Donald Trump were embarrassed.

We know Donald Trump’s “Justice Department weaponization” slush fund is a joke. But if he actually wants to compensate someone whose prosecution was politically motivated, he needs to look no further than the guy who leaked his tax return.

Since Trump is not going to use his fund to compensate someone who deserves it, we could do the next best thing. There could be a statue erected of Mr. Littlejohn on Pennsylvania Avenue, right across from Trump’s ballroom. That doesn’t compensate for five years in prison, but it would be at least a bit of justice.

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.

Unrig The Bankruptcy Laws That Privilege Super-Rich Private Equity Oligarchs

Unrig The Bankruptcy Laws That Privilege Super-Rich Private Equity Oligarchs

In 2017, Toys R Us, the nationwide toy store chain, filed for bankruptcy. It had $800 million in unpaid bills: money owed to lenders, suppliers, and workers. While Toys R Us didn’t have the assets to make good on these debts, the private equity (PE) firms that owned it, Bain Capital and KKR, had plenty of money. But because of the way we structure the bankruptcy laws, the assets of the PE firms could not be touched by the creditors of Toys R Us.

The story of this bankruptcy is not unusual. While it is larger than most, bringing companies to the edge of bankruptcy, and often over the edge, is the standard way PE companies operate. They routinely strip the assets of companies they take over, typically selling any real estate they own, including the buildings that a store, restaurant, or hospital operates in. They also pay out dividends to the PE firms from any cash that the company has on hand. And they will often have the company issue new debt to pay dividends to the PE firm.

The asset stripping and dividends paid from new debt often is sufficient to fully pay back the PE firm for their initial investment. At that point, the PE firm is in a no-lose situation. If the company is still viable, the PE firm can take it public and make a healthy profit. If it’s not viable after the asset stripping and new debt, the PE firm just puts the company into bankruptcy and walks away. Its debts are not the problem of the PE firm.

There is nothing natural about this arrangement. We could make PE firms that control other companies liable for their debts. (Massachusetts Democratic Sen. Elizabeth Warren proposed doing this in a bill a couple of years back.) This is not a government intervention in the market; it is simply changing the rules on how the government structures the market. The current bankruptcy law is no more natural than a law that makes PE firms liable for the debts the companies it controls accrue. It’s just more friendly PE firms.

We can change the bankruptcy laws for corporations just like we did for individuals a couple of decades back. At that time, the law was made harsher for debtors. Not only did this hurt many struggling families, but there was so little concern for the “natural workings of the market,” that Congress had no problem applying the new rules retroactively. People who borrowed under the less punitive bankruptcy regime were required to repay their loans subject to the more stringent rules Congress put in place in 2005.

Bankruptcy law is not the only place where Congress has structured the law to be friendly to PE. Most of the pay of PE partners is taxed at the 20% capital gains rate, instead of being taxed at the 37% rate for normal income for high-income earners. This is because the partners classify their earnings as “carried interest.” This is essentially commission pay, sort of like what realtors and shoe salespeople get, except those workers have their commission pay taxed at the same rate as ordinary wages.

People concerned about inequality should be paying attention to the way we structure the market to redistribute money to PE partners. Many of the richest people in the country got their money from PE. Steven Schwarzman, the CEO of Blackstone, is estimated to have a fortune of around $40 billion. George Roberts, the co-founder of KKR, is estimated to have $15 billion, as is Leon Black, the co-founder of Apollo Global Management.

There are efforts in the United States and elsewhere to impose wealth taxes to get back some of this money. Perhaps they will be successful, but these people are pretty good at using legal loopholes and hiding their money. In any case, it seems a much better route to not structure the market to give the rich enormous fortunes in the first place. That can be done, if anyone cares.

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.

Fun Times Ahead! What Kevin Warsh Can Expect At His First Fed Meeting

Fun Times Ahead! What Kevin Warsh Can Expect At His First Fed Meeting

Newly appointed Federal Reserve chair Kevin Warsh will lead his first Fed meeting in less than a month. Ordinarily, I would feel sorry for a person in his situation. But since the guy is a rich, power-hungry jerk, I am looking forward to some great entertainment.

To set the table here, in his vast ignorance, Donald Trump has decided that interest rates should be much lower than they are now. He has muttered something along the lines of the Fed having a 1.0 percent interest rate instead of the current 3.5 percent rate.

Trump repeatedly threatened the outgoing Fed chair, Jerome Powell, who he had initially appointed. Trump started with insults on his Truth Social platform, moved on to threats of firing, and then told his Justice Department to cook up a criminal investigation.

While they at least temporarily suspended any prosecution, to get the votes needed in the Senate for Warsh, Trump has explicitly left the option on the table. And Acting Attorney General Todd Blanche has made it clear that he will indict people for getting Trump angry. Powell may still end up facing criminal charges for not going along with Trump’s demands to lower rates.

Trump also has said that he expects Warsh to lower rates or he wouldn’t have appointed him. For this reason, we might expect that Warsh will be looking to lower rates next month.

The problem for Warsh is that he can’t lower rates by himself. He would have to convince a majority of the 12-person Federal Open Market Committee (FOMC) to go along with lower rates. He is not likely to get much help here.

At the last meeting, there was only one person arguing for lower rates, Stephan Miran, another Trump appointee. Warsh replaced Miran in his seat on the FOMC when he became Fed chair. This means that Warsh will step into the meeting with 11 other FOMC members who wanted to keep rates unchanged at the last meeting. Several of them actually leaned toward raising rates.

The new data since that meeting all point to higher inflation and also a somewhat improved labor market. That is not a mix that makes a good case for lowering interest rates.

The overall Consumer Price Index increased 0.6 percent in April, after rising 0.9 percent in March. This brought the year-over-year rate to 3.8 percent, the highest since early 2023. The core wasn’t too much better, rising 0.4 percent in April, bringing the year-over-year rate to 2.7 percent.

The Producer Price Indexes (PPI) and the Import Price Indexes were arguably even worse. The final demand index in the PPI rose 1.4 percent in April, bringing the year-over-year increase to 6.0 percent. The core index rose 0.6 percent, bringing its year-over-year increase to 4.4 percent..

The non-fuel import price index rose 0.8 percent in April, bringing the increase over the last year to 2.9 percent. These prices, on items like imported clothes and cars, had been falling in 2024. (The import price index does not include tariffs.)

These data all indicate a rate of inflation that is well above the Fed’s 2.0 percent target, and considerable pressure from input prices pushing inflation still higher in the future. It is hard to see how Warsh would be able to convince the other 11 FOMC members that the new data since the last meeting justify a rate cut.

This puts Warsh in the interesting spot where he either votes to keep rates constant (there will likely be members pushing for a rate hike) and incurs Trump’s wrath, or he casts a pointless vote for a cut. If Warsh does the latter, it will be the first time ever that a Fed chair has been in the minority on a vote on monetary policy.

If Warsh ends up being the only vote for a cut, like his predecessor, Stephan Miran, it would be truly unprecedented for a Fed chair to be completely out of line with the rest of the FOMC. Most often, the FOMC has no dissents, as the committee works to reach a consensus. The Fed chair being the lone dissenter would be extraordinary.

This dissent may make Trump happy, but it likely takes Warsh further from the goal of lower rates. Unless Trump tries to jail the rest of the FOMC, it will be necessary to convince the other members that there is a good argument for lower rates. A vote for a cut with the data we have recently seen does not look serious. It is not going to carry weight with the people Warsh needs to convince.

As I said, if he weren’t a pathetic, power-hungry jerk, I would feel sorry for him. However, given the situation, I look forward to the entertainment.

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.


Stupid Rich: Elon Musk Spews Idiocy On Universal Income And Social Security

Stupid Rich: Elon Musk Spews Idiocy On Universal Income And Social Security

I have no idea how smart or stupid Elon Musk actually is. Unlike Donald Trump, I don’t do IQ testing. But like everyone else in the world, I can evaluate the logic of the things he says. And there ain’t much there.

Apparently, Musk is now babbling something about how we need the government to provide a universal high income because AI will take all the jobs. The idea of universal high income is a contrast with the universal basic income plan that many have put forward, which would ostensibly provide enough money for people to afford basic necessities. Musk is saying that the income provided by a government payment should be enough to support a comfortable standard of living.

If it’s not obvious to everyone already, these views are 180 degrees at odds with each other. If we have enough money sitting around to pay people a universal high-income, then we surely have enough money to pay people the Social Security and Medicare benefits they are expecting and paid for. It’s probably also worth mentioning that if we really thought that we need to reduce the deficit, we could tax people like Musk more and/or reduce the size of the government contracts we are giving him.

Anyhow, we have Elon Musk simultaneously saying that we are richer than we can possibly imagine and that we are so poor we can’t pay the basic benefits that tens of millions depend upon to support them in retirement or due to disability. This isn’t the first time Musk has spewed utter nonsense.

Last year, when he was playing DOGE master, he insisted that 20 million dead people were getting Social Security benefits. While one dead person was uncovered, the other 19,999,999 are still free. The claim is utterly absurd on its face.

There surely are a small number of cases where a few checks get sent out after someone dies. These would barely make a dent in the cost of the program. Furthermore, much of the money is later recovered.

Musk also has repeated lunatic claims about millions of non-citizens voting. This claim, which Donald Trump also likes to make, defies common sense at both ends. The overwhelming majority of non-citizens in the country want, first and foremost, to be able to stay here to work and ultimately to gain legal citizenship.

How many of these people would risk everything to cast a vote in an election? In every election, there are tens of millions of citizens who have every right to vote, who decide it’s not worth their time. Elon believes that there are millions of non-citizens who would risk everything to cast an illegal vote?

On the other side, we have had Republicans yelling about non-citizens voting for more than a quarter-century. In all that time, maybe they have found a few dozen non-citizen voters. (There is a larger number, although still very small, who seem to have mistakenly registered. The overwhelming majority of these people never cast a vote.) We know that Trump and his crew are not very sharp, but if there were really millions of non-citizens voting in every election, even they would be competent enough to find ten or twenty thousand.

But getting back to the basic economics, what does Musk think he’s saying when he says the government will go bankrupt? The government prints the currency it spends. There is a story where we could be spending and printing so much money that we get runaway inflation, but we are obviously very far from that now, even with the burst of inflation from Trump’s tariffs and war. And even runaway inflation is not bankruptcy. Does our DOGE master really know that little about government finance?

Musk obviously runs off his mouth to advance whatever goal suits him at the time. Whatever he may think about the world, his comments often make no sense and are frequently contradictory. They do not deserve to be taken seriously.

The famous line, “if you’re so rich, how come you’re not smart,” could have been written for Elon Musk.

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.


No Contest: Under Trump, China's Growth Hugely Outpaced The United States

No Contest: Under Trump, China's Growth Hugely Outpaced The United States

I will be the first to admit that comparing GDP growth across countries is generally a silly exercise. We care about how people are living: can they afford the necessities of life, do they have time to be with family and friends, are they healthy? These are the issues that matter, and they are only loosely related to GDP.

But hey, that’s the game for the big boys and girls in Washington, so let’s play ball! Here’s what real GDP growth looks like in the United States and China since Donald Trump came into the White House.


To briefly explain what these numbers are, this is GDP measured in purchasing power parity terms by the I.M.F. This compares GDP in different countries using the same set of prices for all goods and services. This means that cars, television sets, heart surgery, and haircuts are all priced the same across countries. Naturally, this process is not perfect (the items are not identical), but it does give us a ballpark number.

I then adjusted the numbers for inflation. (The International Monetary Fund gives the data in nominal terms.) I couldn’t find a proper deflator for international dollars, so I just assumed a 3.0 percentinflation rate. The true number is likely somewhat higher, but this should be close enough.

I then took three-quarters of the growth reported for the period from 2024 to the projected number for 2026. This is because Trump only came into office in January of 2025. That might overstate the growth under Trump slightly, since the economy was growing more rapidly in the second half of 2024 than it has been in the quarters since then.

It also gives both countries credit for the full second quarter, even though we are only halfway through the quarter. Also, these are projections, not actual growth data, but they likely should be close.

The basic story of China’s economy growing by $2.8 trillion, with the U.S. economy growing by a bit less than $1 trillion, should not be surprising. China’s economy is roughly one-third larger than the U.S. economy, and it’s growing 4-5 percent a year, compared with roughly 2.0 percent annually for the U.S. This means both that China is #1 and its margin over the U.S. is increasing.

There’s nothing wrong with being the world’s second-largest economy. Our political leaders should be focused on ensuring that people in the United States have good living standards. But if they are looking for something to boast about, they should find something other than being the world’s largest 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.

Trump Accounts Are A Sick Joke, Not A Replacement For Social Security

Trump Accounts Are A Sick Joke, Not A Replacement For Social Security

Many of the Trump crew seem to be delusional about Trump accounts. They claim to believe that they will replace Social Security. It shouldn’t be a surprise to us that many supporters of Trump are out of touch with reality, but that is not a reason for the rest of us to take their nonsense seriously.

Let’s keep our eyes on the ball. This is not three-dimensional chess; it is an account for newborn kids in which the government deposits $1,000. Parents or other relatives can add to it each year, like they can add to an education savings accounts in most states. The amount people contribute to the account is deducted from their taxable income. Also, the money accumulated in the account is not taxed until it is withdrawn.

Some people take advantage of these accounts; most don’t. The reason is that most people don’t have an extra $1,000 or $5,000 or whatever to contribute to a Trumo account. Furthermore, the tax benefit is not a very big deal to most moderate and even middle-income people.

The overwhelming majority of households are in the 12 percent bracket or below. More than a fifth are in the zero bracket, meaning they pay no income tax and would get no benefit from tax-advantaged accounts.

Furthermore, even if they wanted to put money in a tax-advantaged account, why would they choose a Trump account rather than an education savings account or an IRA? Money in existing tax-advantaged accounts can be withdrawn, albeit with a penalty. Money in a Trump account can only be accessed by the kid when they turn 18.

This brings us to the sick joke part of the Trump account story. Trump and Congressional Republicans have been gleefully cutting Food Stamps, housing assistance, Medicaid, and the subsidies in the Obamacare exchanges. As a result, tens of millions of people will be denied benefits that they previously depended upon.

Many of these people will end up hungry, homeless, and/or unable to obtain needed medical care. This means two or three years from now, there are likely to be tens, or even hundreds, of thousands of kids with $1,000 in their Trump accounts who are living on the streets, going hungry, or unable to get necessary medical care because Trump has cut the programs their families depend upon.

This will make for great photo ops. Maybe Trump can have some homeless kids over to the White House, or even Mar-a-Lago, and they can talk about living in the streets of Chicago in winter, or the needed surgery that they can’t afford, but they still have $1,000 in their Trump account. Then Trump and his entourage can all say how great that is!

The other part of the story is the nutty illusion about how rapidly these accounts will grow. The Trump gang likes to say they will grow 10% a year. Amazingly, many who are not on Team Trump are prepared to accept this nonsense.

The 10% rate of return is based on looking at the past, where stocks have yielded somewhere close to a 10% rate of return over the last eight decades. But this is a case of incredibly bad induction, sort of like the person who falls off an 80- story building and says as they pass the 60th floor, the 59th floor, and the 58th floor, “so far so good.”

The simple and obvious point that people who make this inference miss is that the stock market was valued far lower relative to corporate earnings in prior decades than is the case today. Through most of the decades of the 40s, 50s, 60s, and 70s, the price-to-earnings ratio (PE) was generally in the low teens and often considerably lower. When the PE is low, and the economy is growing relatively rapidly, it’s possible for the stock market to generate 10 percent nominal returns, or seven percent real (inflation-adjusted). That’s somewhat oversimplifying the inflation story, but it doesn’t affect the argument.

Today, the PE is over 30, and the economy is projected to grow roughly 2.0 percent a year going forward. In that world, the only way to generate the historic seven percent real rate of return is with an ever-rising price-to-earnings ratio.[1]

The Trumper’s story gives us a PE of almost 92 when today’s newborns turn 18 in 2044.[2] If we want to ask what happens if they hold their money until they hit the Social Security normal retirement age of 67, the PE will be over 2000. A Trump administration economist may be able to make this sort of projection with a straight face, but not many other people could.

Is there a way around this story? Well, the after-tax profit share of GDP could rise further, as it has been doing for the last quarter century. This would be a bleak story for the rest of us, since it would likely mean wages are shrinking. It would also have to almost triple in the next 18 years to keep the PE constant. This is close to unimaginable and a truly horrible story, even if it were. For what it’s worth, the Congressional Budget Office projects the profit share will fall in the next decade.

People could invest their Trump accounts overseas. China is having far more rapid growth than the United States, so perhaps people can get closer to 7.0 percent real returns there. Maybe this is what the Trump gang has in mind.

If we look at the actual returns that people can expect in their Trump account, it will be close to 3.0 percent a year in real terms, assuming that they are not ripped off badly on fees by one of Trump’s Wall Street friends. That will give today’s newborn $1,700, adjusted for inflation, when they turn 18.

Somehow, I don’t think this will lead people to discard Social Security. But I could be mistaken.

[1] I wrote about this issue in a paper with Brad DeLong and Paul Krugman 20 years ago in the context of the Bush Social Security privatization drive.

[2] The data for after-tax corporate profits Bureau of Economic Analysis, National Income and Product Accounts, Table 1.12, Line 15. The data for the valuation of the stock market comes from the Federal Reserve Board’s Financial Accounts of the United States Financial Accounts, Table L.2, Line 38, plus Table l.108, Line 20. The 2.0% GDP growth projection is from the Congressional Budget Office’s Long-term Budget Projections. The projection assumes that companies pay out 60 percent of their profits as either dividends or share buybacks, and the rest of the seven percent real return is made up through capital gains.


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.


Will Chinese AI Save Us From The Unaccountable Power Of Tech Trillionaires?

Will Chinese AI Save Us From The Unaccountable Power Of Tech Trillionaires?

The world is leaning on China a lot these days as a counterweight to the lunacy of Donald Trump. No one has illusions that China and its leader, Xi Jinping, are champions of democracy, but at a time when the U.S. president is gleefully bombing boats and countries, and debating which regime to change next, China is an island of sanity.

I’ve made the analogy to Stalin in World War II, which continues to be appropriate. Roosevelt and Churchill had no illusions about Stalin’s USSR as a beacon of democracy, but they understood the essential role it played in defeating Hitler. China can play a similar role in protecting the world from the craziness emanating from the White House.

AI is one area where its role may prove to be extremely important. There have been many hugely overblown stories about how AI is going to take all the jobs and leave the rest of us unemployed and destitute.

This is an old theme about technology. Those of us who lived through the tech boom in the 1990s recall similar stories back then. There was even a boom in stories of technology-driven mass unemployment in the 1950s and 1960s. A famous novel of the time envisioned such a world in the not distant future. The fear that a new technology, in this case AI, will take all the jobs is not a new one.

Even if the prospect of mass unemployment is unlikely, there is a real concern that it will lead to even greater levels of inequality. Just to be clear, it is not the technology that creates inequality; it is the laws that govern its use. It’s unlikely that people would be making big fortunes on AI if the government didn’t grant patent and copyright monopolies to its developers.

But let’s leave that issue aside for a moment. The story of mass inequality is one where the AI makers are selling a product of enormous value that displaces millions of workers, including relatively highly paid workers. As a result, they can command huge profits from their AI.

Clearly, there is some validity to this story in that AI can displace labor in many areas, some of it highly paid. For example, AI can do much of the work in preparing legal briefs that is now done by lawyers. It’s not clear that AI will, on net, reduce the demand for lawyers, but it can substantially increase the productivity of lawyers.

But the fact that AI can lead to large gains in productivity doesn’t necessarily make the AI companies rich. That depends on the extent to which competition brings the price down.

To take an earlier technology, Dell is the largest manufacturer of computers in the United States. It is a successful and profitable company. Its market capitalization is less than $140 billion. That’s a good chunk of money, but less than 1/30th of Nvidia’s $4.8 trillion market capitalization.

The fact that the PC is an incredibly useful product that has hugely increased productivity has not meant that PC makers would get immensely rich and dominate the economy. The reason is that competition, even with weak antitrust enforcement, has forced down the price so that most of the benefits have largely gone to consumers.

This is where the Chinese AI makers come in. While the leading U.S. makers may still be somewhat ahead by many measures, the Chinese companies are able to make AI products available to users, which likely meet most of their needs, at prices that are a fifth, a tenth, or even less than the price charged by the leading U.S. companies.

For this reason, Chinese AI is beating out U.S. in adoption through much of the world. Apparently, Chinese AI is even gaining many customers in Silicon Valley, both because of its lower price, but also because it is open source, which mean companies can alter it to fit their needs. This also means that a company can run the Chinese AI on their own systems and they don’t have to turn over control of sensitive company data.

This Chinese competition is a huge deal not only for bringing AI prices down, but also for preventing fascist clowns like Elon Musk from getting endless money. While Musk may always be insanely rich, if investors ever learn arithmetic and value his companies based on their profits, he will have far less money. (Tesla has a price-to-earnings ratio of 360. If it had a more normal, but still high PE of 20, Musk’s stake would be worth a bit more than 1/20th its current value.)

We should have that conversation about intellectual property rules that make the Musks of the world ridiculously rich. We should also be changing rules on things like bankruptcy that private equity barons use to get rich by buying companies and putting them into bankruptcy.

Unfortunately, we have not yet advanced to the point where we can have a serious discussion on the ways we structure capitalism to generate inequality. Perhaps one day we will, but until then, we should be thankful for Chinese competition.

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.


There's A Profound Lesson In Purdue Pharma's Implosion, But Will We Learn?

There's A Profound Lesson In Purdue Pharma's Implosion, But Will We Learn?

Suppose there was an explosion at an oil refinery that killed hundreds of people. Presumably, there would be a major investigation to determine what went wrong and how to prevent a similar accident in the future.

But it’s different with the pharmaceutical industry. Purdue Pharma, one of the drug companies at the center of the opioid crisis, was finally put to death as the result of lawsuits over its pushing of OxyContin. The allegation is that the company misrepresented the addictiveness of the drug in order to have it promoted more widely.

The money paid to the families of victims cannot compensate for the deaths of loved ones, but the other part of the story is that no one is asking how to make sure this sort of disaster does not happen again. And unlike the example I gave of an exploding oil refinery, we are talking about the death of hundreds of thousands, not hundreds.

The key issue is the incentives the government gave to Purdue Pharma and the other opioid manufacturers. It gave them patent monopolies that allowed them to markup the price of their drugs by several thousand percent, selling them at prices that were twenty or thirty times what they would sell for in a free market.

This sort of extraordinary profit gives drug companies an incentive to lie about the safety and effectiveness of their drugs, which they do routinely. The consequences generally are not as disastrous as with the opioid crisis, but patients often end up taking drugs that are not best for them because drug companies misrepresented their products to researchers, doctors, and the public at large.

To be clear, companies always have incentive to sell their products widely. That’s the point of advertising. But they won’t go to the same length to sell a plastic cup or shovel, where they expect a profit of a dollar or two, as they will in selling a prescription on a patent-protected drug, where the profits can be hundreds or even thousands of dollars.

Patent monopolies are also the reason for high drug prices. Drugs are almost always cheap to manufacture and distribute; the reason they are expensive is the monopolies the government gives the drug companies.

This is the whole story of people struggling to raise the thousands or tens of thousands needed to pay for drugs to treat cancer or other serious illnesses. If these drugs were sold in a free market, paying twenty or thirty dollars for a prescription would not be a big deal, except for low-income people. And the government could afford to pick up the tab for them.

And patent monopolies are a big part of the story in redistributing income upward. While this is true in many areas, it is very striking in the case of pharmaceuticals. We will pay around $750 billion this year for drugs that would cost in the range of $150 billion in a free market. The savings of $600 billion comes to almost $5,000 per household.

That $600 billion is money that goes to drug companies and their shareholders. It has created many billionaires. In the case of the Covid vaccine alone, we created 5 Moderna billionaires.

Patent monopolies do provide an incentive for developing new drugs, but there are other ways to provide this incentive, most obviously paying people. If that sounds bizarre, the government already spends around $50 billion a year supporting biomedical research through the National Institutes of Health and other government agencies. We would have to triple or quadruple this sum to replace the patent-supported research, but we would still come out way ahead and wouldn’t have to worry about drug companies lying to us to push their drugs.

It is more than a bit bizarre that we have a large contingent of progressives focused on ways to tax back the wealth of the very rich, but who have no interest in restructuring the system in ways that don’t make them so rich in the first place. Just as a refinery explosion would be expected to lead to a renewed focus on industry safety, we might have expected the opioid crisis to lead to new thinking on the way we finance the development of drugs. But that has not been the case.

There is a bill put forward by Michigan Democratic Rep. Rashida Tlaib that would be a big step in this direction, but unfortunately it has gotten little attention to date. It would be great if something positive could come out of the opioid crisis, but that can’t happen until people at least can see the issue clearly. For whatever reason, that has not yet happened.

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.

Fresh Warnings In The Government's First-Quarter Economic Report

Fresh Warnings In The Government's First-Quarter Economic Report

There was a lot of news in the GDP report yesterday, in addition to the data from the day’s other releases. It took a little while to percolate, but here are my five major items:

1) GDP growth is worse than it looks;

2) Consumption is unbalanced and weak;

3) Inflation is worse than it looks;

4) The factory construction boom is going into reverse; and

5) There is no evidence of an AI productivity boom. (Our jobs are safe!)

I’ll deal with these in turn.

GDP Growth Was Driven by a Jump in Federal Government Spending

Spending by the federal government fell at a 16.6 percent annual rate in the fourth quarter of 2025. This was partly driven by the DOGE layoffs, most of which first took effect in the fourth quarter. However, it was also partly driven by the government shutdown at the start of the quarter, which continued until the middle of November. The contraction from the DOGE cuts is not being reversed, but the contraction from the shutdown was reversed. This explains the 9.3 percent growth in federal spending, which added 0.56 percentage points (PP) to growth for the quarter.

Pulling out federal spending, GDP growth was around 1.5 percent. That’s not disastrous, but not something to write home about.

It is common for economists to look at the growth in final sales to domestic producers as a sort of “core” GDP. This strips out the growth (or shrinkage) from inventories and net exports.

This is an especially bad approach to the first quarter data. The big jump in federal spending gets counted in the core even though absolutely no one expects it to continue. (Actually, the Iran War may sustain growth in spending, but that is a bit out of the ordinary.) In the fourth quarter, the reduction in federal government spending reduced the growth rate by 1.16 PP, which was the main reason for the weak 0.5 percent growth rate reported for the quarter. The move to a core measure would not have changed that picture.

The other problem with the core measure is that the imports it strips out directly contribute to the investment growth it counts. Computer investment rose at a 64.7 percent annual rate, while investment in software increased at a 22.6 percent rate, contributing 0.58 PP and 0.51 PP, respectively, to the quarter’s growth. This is the data center boom.

However, many of the items being picked up by this growth are imported. If there is a comparable rise in investment in the second quarter, there will be a comparable increase in the trade deficit. It doesn’t make sense to count the positive but not the negative. The direct effect of imports is to grow other countries’ economies, not ours. (Yes, the indirect effect is positive, but that’s not the question here.)

Consumption Growth Was Driven by Healthcare Spending

Consumption grew at a 1.6 percent annual rate in the quarter, which is fine, even if on the slow side. But the troubling part is the composition. Healthcare spending accounted for 47 percent of the increase in consumption, while financial services accounted for another 24 percent, leaving less than 30 percent for everything else.

Durable goods consumption was barely positive. It was only kept above zero by a surge in March car purchases, possibly by people trying to get ahead of price increases. Non-durable goods consumption actually fell slightly.

The pattern here is that most areas where consumption might be seen as discretionary, like recreational vehicles, hotels, and restaurants, had declines in real spending. That is not a good story.

The Jump in Inflation was Not Just Driven by the War

We all know that the shutting of the Strait of Hormuz sent oil and gas prices soaring. This is a big factor in first quarter inflation, but far from the whole story.

Inflation was picking up even before the start of the war. The PCE deflator rose 0.3 percent in January and 0.4 percent in February. The core deflator rose 0.4 percent in both months. This pace is far above the Fed’s 2.0 percenttarget. March was considerably worse, with the overall rate rising 0.7 percent for the month. The annual rate for the quarter as a whole was 4.5 percent, the highest since the third quarter of 2022.

If the war ends quickly and the Strait is reopened, oil and gas prices will head back down, but according to the analyses I have seen, it will take much longer going down than going up. And many of the negative effects from the closing, like the shortage of fertilizer for planting, won’t be seen for months down the road.

It is also important to note that the data center boom is causing considerable inflation in other areas. The annual rate of inflation in computers and related equipment was 18.5 percent in the first quarter. This is likely to increase if the AI bubble continues to grow.

Factory Construction is Going Down Fast

There was an unprecedented boom in factory construction in the recovery from the pandemic. At its peak in 2024, real construction was going on at more than twice the pre-pandemic pace.

This has gone in reverse, and the decline is accelerating. Factory construction fell at a 22.7 percent rate in the quarter and is now down 21.7 percent from its peak in the third quarter of 2024. At the first quarter pace, we will be back to the pre-pandemic rate of factory construction in a year and a half.

No Evidence of an AI-Driven Productivity Boom

While the media are filled with stories about AI taking all the jobs, the data apparently have not gotten the message yet. Value-added in the non-farm business sector, where productivity is best measured, grew at a 1.5 percent annual rate. It looks as though hours will be close to flat for the quarter, although data revisions could change this story.

That would imply a 1.5 percent rate of productivity growth. That’s not a bad rate, but it’s down some from last year’s 2.5 percent. Everyone should know that the quarterly productivity data are highly erratic and subject to large revisions, but it’s safe to say that AI does not seem to be taking all the jobs just yet. Maybe we will have a different story next quarter.

War Is the Big Uncertainty

The economy was not looking great going into the war. To be clear, we were not looking at a recession or runaway inflation, but we were seeing weak growth, modest real wage growth, and at least moderately accelerating inflation. The war is making the inflation picture worse, and the longer it goes on, the worse the picture gets.

The additional military spending will provide a boost to growth, but it is not the sort of boost that anyone would want, other than military contractors. A quick peace deal will lessen the damage but will not make it all go away.

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.

Donald Trump

Bad Economic Vibes Are Still Emanating From Trump's Betrayal Of His Own Voters

Sometimes, something that seems too absurd to be taken seriously really should be taken seriously. As Paul Krugman argued a couple of days ago, Trump backers’ sense of betrayal by Trump may actually explain much of the negative attitude being reported by surveys of consumer sentiment.

There has been an ongoing debate among economists as to why households are so negative on the economy. The problem is that the economy seems reasonably good by most measures. The unemployment rate, at 4.3 percent, is relatively low by historical standards. Real wages are at least modestly outpacing inflation. People are buying big-ticket items like cars at a healthy pace and still going out to restaurants.

Many of us have argued that much of the apparent prosperity can be explained by the top quintile spending based on their stock gains. There surely is some truth to this. I have noted that spending at fast-food restaurants, which is presumably driven primarily by the behavior of more moderate-income households, has been stagnating since last summer and has been weak since 2023. Other measures, like delinquency rates for mortgages held by moderate-income households and student loans, suggest serious financial stress. Still, it doesn’t add up to record low rates of consumer sentiment.

My friend, Jared Bernstein, has argued that people are unhappy even if inflation has slowed from pandemic peaks, because prices are still high. The argument is that people expect prices to fall back to where they were before the pandemic or at least be lower than they are now.

As much as I respect my friend and former colleague, I can’t buy this one because I remember the 1980s. We had very high inflation in the 70s and early 80s, which then fell to more manageable levels (three to four percent) by the middle of the decade. People were generally happy that inflation had fallen to a moderate pace. I don’t recall anyone complaining that prices were still high. I’m sure such people existed, but their voices were not being amplified by major media outlets, so no one took this complaint seriously. I find it hard to accept that consumer psychology has changed so vastly in the last four decades.

This brings me back to Paul Krugman’s argument that the main reason sentiment is low is that people feel Trump betrayed them. This requires a small step back. Measures of consumer sentiment have a strong partisan slant. Democrats say the economy is terrible when a Republican is in the White House and vice versa. This has always been the case, but the tendency has gotten more extreme in the last two decades, and it’s stronger for Republicans than Democrats.

Anyhow, sentiment was already low at the time of the 2024 election, and then we got the expected switch with Republicans saying things were good and Democrats saying things were terrible. But a big part of the reason that Republicans said things were good is they actually believed Donald Trump’s promise to bring prices down. They expected there would be zero inflation in the year after Donald Trump took office. That is literally what they answered in surveys.

This is where polarization explains a lot. I’m sorry, but all my friends and acquaintances and I know Donald Trump lies all the time. As an economist, I also know that it is not possible to have a general decline in the price level without a serious recession.

Therefore, I knew Trump’s promise to lower prices on day one was absurd. What I could not imagine was that millions of Trump’s supporters took his promise seriously. I confess to being sufficiently out of touch with tens of millions of my fellow citizens that I really had no idea what they thought about the world.

I don’t mean to mock their lack of knowledge. Most people are not economists and don’t follow economics closely. They also distrust Democrats and the media, sometimes for good reasons. Therefore, they thought it was plausible that Trump would send prices downward shortly after he took office.

Now these Trump backers feel betrayed. They expected lower prices and instead got higher inflation due to tariffs, mass deportations, and now Trump’s war. If we have a story where the Democrats feel the economy is terrible because a Republican is in the White House, and pursuing some genuinely terrible policies, and Republicans saying the economy is terrible because they feel their president has betrayed them, we get a situation where most people say the economy is terrible.

That seems a plausible explanation for the seeming disconnect between an at least moderately healthy economy and record-low levels of consumer sentiment. I’m open to other stories, but at the moment, this one seems the most compelling.

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.

Kevin Warsh

Warsh's Answer About The 2020 Election Disqualified Him As Fed Chairman

I’ve been on the road, so I didn’t have time to post yesterday. But I did want to quickly comment on a news item I saw. On Tuesday, Democrats on the Senate Banking Committee asked Kevin Warsh, Trump’s nominee for Fed chair: “Who won the 2020 presidential election?”

Several commentators referred to this as a political question. Sorry, but there is nothing political about this question. It is a simple factual question, like adding together 2+2.

There is no ambiguity about who won the 2020 election. Biden won by more than seven million votes, a landslide in Trumpian terminology. (Trump routinely calls his 2024 victory a “landslide.” Biden’s margin was more than three times as large.)

Trump may be unable to acknowledge his loss, but his whining does not change reality. The simple fact is that Biden won in 2020, by a lot, and everyone knows this. There is no set of facts about the vote totals in dispute.

Trump’s yelling about some unidentifiable “fraud” changes nothing. He has had more than five years to produce evidence in court to prove that the numbers were not counted accurately or that there were millions of fraudulent votes. He has produced nothing. No serious person can question the 2020 results based on the Trump complaints.

The question for Warsh was simply whether he could say something that he knows to be true, when it will cause Trump to get angry. That is a perfect test of his ability to be an independent Fed chair.

Warsh gave a clear answer. He will do what Trump wants him to do, even when that means making a fool of himself in front of the whole country. This is not someone who should be Fed chair.

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

Reprinted with permission from Dean Baker.

Are The Republicans Actually Killing You? Probably, If You Live In A Red State

Are The Republicans Actually Killing You? Probably, If You Live In A Red State

When we look at data on life expectancy, that seems like a reasonable question to ask. We can argue over the causes and mechanisms, but it is an undeniable fact that people in states that are controlled by Republicans have much shorter life expectancies than people who live in states controlled by Democrats.

To make the story more interesting, I included some international comparisons.

The first thing I should point out is that the international data are not entirely comparable to the data on life expectancies in U.S. states. The international data are taken from the Worldometer, which in turn comes from the United Nations. The state data are from the Centers for Disease Control (CDC). The U.S. average is about two years higher in the Worldometer data than in the average in the CDC data, so it would be appropriate to add around two years to the state data to make an apples-to-apples comparison.

Nonetheless, the international data are still striking. Even adding two years to the state data, life expectancy in Hawaii, our best performing state, would still be well below life expectancy in Japan, South Korea, Australia, Italy, France, Spain, and even Canada.

The story gets worse as we go down the list. Adding two years to life expectancy in Florida still leaves it below Albania and Cost Rica. Texas is neck and neck with China. Even adding two years to the CDC estimate, Indiana and South Carolina are slightly below Hungary. Kentucky is tied with Mexico and only slightly above Bangladesh. The bottom two, Mississippi and West Virginia, can still boast about being somewhat ahead of Russia and India.

The domestic comparisons are also striking. The top five states are all solidly Democratic. Utah is the only Republican state to break the top 10 at number eight. Two others, Idaho and Nebraska, crack the top 15. The Republican giants, Florida and Texas, rank 19 and 27, respectively.

Just as Democratic states dominate the top 10, Republican states own nine of the bottom 10 positions. Only Democratic New Mexico, at number 43, makes it into the bottom 10.

But beyond the rankings, these numbers are a really big deal in terms of people’s health and lives. A person living in Hawaii can expect to live almost eight years longer than a person living in West Virginia. Even moving away a few notches from the extremes, a person living in California can expect to live 5.5 years longer than a person living in Tennessee.

These are enormous differences that really matter in people’s lives, literally. There is a long list of explanations for these gaps, which I am certainly not sufficiently knowledgeable about to get into. But I can look at outcomes, and those are not good.

Can we blame Republican policies? When you have states in the deep South that have been controlled by Republicans for decades, and before that, Democrats who had the same political views as today’s Republicans, it seems fair. If the story was reversed, Fox News would be screaming endlessly about the short life expectancies in Democratic states.

The relevant factors clearly are a result of long historical processes, but these gaps have been there a long time. I first noticed this picture when I was in college almost fifty years ago. The story I was willing to believe was that the South had still not recovered from the Civil War, even though that was more than one hundred years in the distance at that point.

It is now 50 years later. China went from being a poor developing country to the world’s largest economy in that time. South Korea went from having one of the lowest standards of living in the world to European standards of living in 50 years. At this point, it’s pretty hard to blame a war that ended 160 years ago. It looks like the bad policies pursued by Republican states is costing their people years of life.

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.