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Trump's China Visit Displayed His Weakness, Narcissism And Insecurity

Trump's China Visit Displayed His Weakness, Narcissism And Insecurity

More often than not, the geopolitical impact of high-level summitry takes times to reveal itself, so perhaps history will record this differently than I do here. But virtually all the reporting from the Trump-Xi summit in Beijing last week suggests the US came out looking like the weaker partner.

Anyone whose been paying attention could see this coming. Donald Trump has two modes in foreign policy: bully those who he believes he has sway over, and be the supplicant to those who have something he admires. Strategic assessment and pursuit of goals that would help the US and its citizens are beyond his reach.

Moreover, Trump went into the summit with a sharp disadvantage: it’s no secret to anyone, most notably his Chinese counterparties, that he has dragged the US into a costly war with no clear rationale. Even worse, we’re stuck in the conflict as a tiny opposition army continues to hold us to a stalemate. Such weakness is toxic in this context, emboldening Beijing in its designs on Taiwan, a situation made significantly worse by Trump’s suggesting that “a potential multibillion-dollar weapons sale to Taiwan" is a “negotiating chip” with China, "raising new doubts about the pace and scale of American military support for the island democracy.”

The problem is that Trump’s approach to foreign policy is extremely simplistic, and is all about, to cite his favorite phrase, “who holds the cards?” Like all insecure narcissists1, he’s a bully who aspires to intimidate other leaders over whom we have an advantage, as in we buy more from them than they do from us. But Xi recognized early on that even while we have a large goods trade deficit with China, we require access to their rare earths, of which they refine 90 percent of global capacity. In those cases, Trump’s foreign policy reduces to making sure the opposing leader is his “friend,” a word he used frequently, if unrequitedly, to describe Xi in this visit.

End of the day, it looks like the two main results of this summit are 1) China might buy more soybeans and Boeing aircraft from us, though this remains unconfirmed, and if past is precedent, the likelihood that such an “agreement” will hold is low, and 2) Xi has further confirmation that the US is weakened by a feckless yet unchecked president who has alienated his international allies, is more focused on his ballroom than expanding American influence, and is bogged down in what is surely the most unpopular war in recent history.

None of this is at all surprising or even that interesting. The more compelling question is what, if anything, does all the above mean for the average American, or for that matter, to the average Chinese citizen, who, for the record, is one of 1.4 billion? This essay by Yi-Ling Liu tries to get at that:

Moving between the two countries, I’ve been struck by how they have come to mirror and resemble each other. There is a shared sense of precarity that lies beneath the envy and distrust: The technological future is taking shape at vertiginous speed, yet its promise is not shared by all.

I’m sure that’s true, and while it’s worse now given the AI-driven angst and uncertainty, along with the exacerbated wealth concentration—in both countries—that I see as another symptom of this technology’s proliferation, such precarity is nothing new.

In fact, it’s inherent to economies both capitalistic and communistic. What matters then is what guardrails the political system puts in place to protect innocent bystanders from everything from job displacements to higher utility costs driven by data centers. It’s what pathways to opportunity we clear for those whose economic starting point blocks their access. It’s the affordability policies we put in place to help people meet their basic needs for healthcare, housing, childcare, and food.

Our federal government is making life more precarious, and, while I’m no expert, I don’t think China’s doing much better. To be clear, I’m not saying international diplomacy is a sideshow. But I am saying that most Americans can be forgiven for being a lot less interested in whether Xi is Trump’s “friend” than what’s left in their paycheck after they filled their gas tank.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack, from which this is reprinted with permission.


Why Do Americans Fear The Advent Of AI More Than People In Other Countries?

Why Do Americans Fear The Advent Of AI More Than People In Other Countries?

You can’t turn around without bumping into an opinion about AI and its risk to jobs. The tech magnates assure is it will replace unprecedentedly huge numbers of white-collar workers, predicting double-digit unemployment. The economists, myself included, point out that, at least thus far, there are only weak correlations at best between AI workplace penetration and weak hiring or higher-than-average unemployment.

For a summary of the lay of this land, you won’t do better than Ezra Klein’s latest oped summarizing the debate. Though I’ll summarize the argument, one I’ve made often up here, the point of this post is not to rehearse this part of the debate. It’s to noodle over why U.S. citizens are so much more negative about AI than those in other advanced economies.

AI and Jobs: Will This Time Be Different?

First, we should be clear that AI is the thing we say most about and know least about. With that caveat out of the way, allow me to add to the noise.

The underlying fact that should always guide one is this discussion is that productivity—output per hour, ergo a metric of technological progress in economic production1—trends up over time and so do jobs and hours worked. For all our technological gains, the unemployment rate, outside of recessions, tends to stay pretty low. (Yes, I’ve argued there’s often too much slack in the labor market, but I’m talking about unemployment at 5.5 percent instead of 3.5 percent, while the AI doomers are talking about massive joblessness.)

Thus, there must an intervening variable, which is demand. Technology replaces some functions in the workplace and introduces new ones.

Then there’s the complementary aspect of technology, i.e., the fact that AI makes incumbent workers more productive. Ezra and others are discussing this under the rubric of “Jevon’s Paradox,” the idea that when a resource becomes cheaper, we use more of it. Jevon, a British economist in the mid-1800’s, noted the paradox regarding the invention of the steam engine, which used half as much coal to generate the same amount of power as existing engines. Instead of demand for coal tanking, it soared, as did the UKs industrial production.

In the AI context, rather than being replaced, software engineers, e.g., can do a lot more with AI’s help. As Ezra points out, “Claude Code is a marvel, yet demand for software engineers is booming.”

I don’t want to get too far over these skis. This time might be different, and surely many workers will be displaced. More on that in a moment. But the point here is that I’d listen more closely to the economists on this one, at least so far.

AI Less Popular Than ICE!?

So why then, in a recent poll, is AI less popular than those masked ICE bandits?

For one, we mere humans are risk averse, and if someone tells us that there’s a technology coming that can replace us, of course we’re going to be fearful. That’s universal.

But I maintain that there’s a unique U.S. version of these worries. Part of this may stem from adoption differences:


But a bigger part, I stipulate, is trust in the gov’t to implement the necessary guardrails to give the workforce a better chance to exploit the Jevon-style workplace complementarities versus getting replaced.

In their tacking of international sentiment re AI, a Stanford University study reports:

The United States reported the lowest trust in its own government to regulate AI responsibly of any country surveyed, at 3i percent. The global average was 54 percent, with Southeast Asian countries leadding (Singapore 81 percent, Indonesia 76 percent).

Globally, the EU is trusted more than the United States or China to regulate AI effectively. Across 25 countries in Pew's 2025 survey, a median of 53 percent said they trust the EU, compared to 37 percent for the United States and 27 percent for China.

At least two factors combine to generate this result.

First, there’s more of a “what’s bad for Main Street is good for Wall Street” vibe over here. When CEOs on U.S. earnings calls talk about layoffs, their share prices go up. Though we’re probably getting closer to each other, there’s still less social solidarity here than in most other advanced economies.

Second, there’s much greater discomfort here with regulatory guardrails and safety nets. Research has shown that if people are confident that social policy will catch their fall if an entrepreneurial risk goes south, they’re more likely to take such risks. If you believe your gov’t is likely to shield you from most of the downsides from a new technology, you’re prone to be less worried about it. Relative to most other advanced economies, workers here operate without a net.

Third, AI firms have very deep pockets and have long been purchasing political protection against regulation or candidates who are tapping into the American public’s deep concerns about AI’s downside risks. No other advanced economy comes close to us in terms of buying political influence, which in this context, reasonably puts fear in the hearts of working Americans.

Fourth, as I’ve endlessly underscored up here, people are already deeply stressed about affordability. The fact that in too many cases, their paycheck isn’t covering their needs makes them a bit touchy re the prospect of losing that paycheck to an LLM.

Fifth, nobody can trust the grift operation known as the Trump administration to have their back on this. Even putting that freakshow Musk aside, Trump has literally had the tech bros in his office giving him gold. That does not bode well for any protections from their excesses.

Yet Another Opening for Democrats

You know my methods, Watson. Hope for the best, prepare for the worst. Ezra and the rest of us suggesting this time might not be so different might be wrong. Which means there’s a huge opening here for Democrats to present a robust AI insurance program that’s responsive to points 1-5 above. Yes, it should bolster existing safety net programs, like unemployment insurance, but while that’s essential for an interim job displacement, over the long term people want the dignity of a job, and even more so, they want their kids to have the opportunities to build successful careers.

This requires education and training programs that boost complementarity and dampen displacement probabilities. It means looking at wage insurance ideas and perhaps even job guarantees—public jobs programs—should extensive, lasting displacement actually occur. Keynes knows there’s a ton of work to do in this economy—I’m thinking health care, human services, child care, personal-touch stuff, not to mention music, literature, and other jobs—that no AI agent can realistically perform (don’t tell me AI writes great books—I’ve seen such work and it sucks).

This shouldn’t be hard, Democrats. Even if the historical odds suggest we should be okay, as greater demand will more than soak up the extra supply, Americans are justly concerned about the risks of AI to their and their children's livelihoods, risks which loom a lot larger here than in other economies.

The time is thus nigh to craft this policy agenda and to tell the people about it. Happy to help, but let’s get to it!1

(1. I’m thinking of total factor productivity, meaning output net of hours, capital investment, and other inputs, so what’s left is considered a proxy for tech gains in production.)

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.


Now It's The Fed Chair's Choice: Should He Stay Or Should He Go?

Now It's The Fed Chair's Choice: Should He Stay Or Should He Go?

Just to be clear, I’m not saying that the Clash had those numbers right re the trouble ratio if he stays or if he goes. But it did seem to be the relevant hook.

Now that the pathway for replacing Federal Reserve Chair Jerome Powell with Trump’s nominee, Kevin Warsh, was cleared yesterday, I expect Warsh’s nomination to quickly get out of committee and over to the Senate floor, where he should have no problem getting a majority (he may not get any D votes, but he doesn’t need them). He could then take over the chair in mid-May, when Powell’s term as chair ends.

Why the bold above? Because even though Powell’s term as chair ends, his term on the Fed board doesn’t end until January ‘28. The norm, however, is for Chairs to leave the building once their Chair term ends, with, as far as I can tell, one exception: when Marriner Eccles stepped down from the Chair in 1948, he rolled over to the Fed board for another few years.

In this case, if Powell stayed on, Miran would have to resign to make room for the newly minted Chair Warsh to take over.

A number of folks, including commenters here, have argued to me that, in the interest of protecting this critically important institution and the economy itself from Trump’s destructive influence, Powell should emulate Eccles. I certainly understand their argument, but I’m not wholly there. I’ll explain my thinking, but only briefly, because this is Powell’s call and there’s nothing anyone can tell him about this that he doesn’t know. (Read Nick Timiraos in the Wall Street Journal this morning for a comprehensive treatment of the stay/go question, with strong stay-vibes from former Fed economist David Wilcox, who knows more about the inner workings and history of the institution than most).

The motivation for stay, Jay, stay! is understandable nervousness about Warsh’s independence from Trump, a concern I share and have written about in recent days. Powell has been a fierce defender of such independence and thus his presence, especially absent Miran, who has consistently voted, often alone, for the rate cuts Trump wants, would be reassuring in that regard.

There’s no doubt in my mind that Powell’s staying on the board would yield better, more balanced, and more independent-from-Trump monetary policy, which would in turn be better for the U.S. and even the global economy. But there are two countervailing factors.

First, Powell has earned the right to do whatever he sees fit. He’s delivered consistently thoughtful, carefully explained, effective monetary policy in 14 years of service, eight of which he was chair. And many of those years were under Trump (who, for the record, reappointed him), wherein he got more presidential harassment than any Fed chair in history, from daily badgering and name-calling, to a phony criminal inquiry.

To be clear, our hearts should not over-bleed for him. He also had one of the coolest jobs in the world, backed by a deeply talented staff and some very smart colleagues on the board. You take the bad with the good. But the point is he served admirably, and has not only pulled rabbits out of monetary-policy hats—the post-pandemic soft landing, which many tony economists said couldn’t happen—but stood up to Trump and preserved the Fed’s independence. He’s earned the right to make whatever next move he desires.

But second, and I know not everyone will share this take, Warsh deserves the chance to establish himself as the new chair without the old chair hanging around. Readers know that I fear where he’s going with his new gig, but under the assumption that he’s legitimately confirmed in coming days, he has the right to takeover and begin to put his imprimatur on the joint.

If Powell should decide otherwise, i.e., that, as Wilcox argued in the Timiraos Wall Street Journal piece, the institution should at least initially be protected from Warsh’s unencumbered leadership, or, for that matter, that he (Powell) is still at risk of prosecution from the bullshit inquiry that Trump cooked up, I’ll of course support his decision.

But the norm of the Chair stepping down is a norm for a good reason: clearing the path for the new Chair is good for the institution. Of course, independent monetary policy is also very good for the institution, so there are good arguments on both sides.

Luckily, there’s only one person who has to make that call. And his call will be the right one.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.


Fed Chair Confirmation Hearing Raises Grave Concerns About Nominee Kevin Warsh

Fed Chair Confirmation Hearing Raises Grave Concerns About Nominee Kevin Warsh

Kevin Warsh had his confirmation hearing yesterday to chair the Federal Reserve once current chair Jerome Powell’s term ends in mid-May. I’ve got a few choice words for these confirmation hearings in general, as they’ve become a big waste of time and should either be scrapped or somehow reformed. They’ve devolved into a signaling exercise that has almost nothing to do with the substance of the nominee’s work. And I speak from experience, as I had to go through a Senate confirmation (wherein I prevailed by 50-49 baby, i.e., with room to spare!).

In that light, I couldn’t watch much of this one. Too painful. But I closely followed it and can report on what I think we might be getting, once the Tillis hold is resolved (you can read about that here) and Warsh takes the chair (once he’s out of committee, he’ll get a majority in the Senate).

Between his opening statement and back-and-forth with the senators on the Banking Committee, I listened carefully to try to discern two things. First, and most important, Warsh’s independence from Trump, and second, what sort of monetary policy he might favor. In both cases, the signals were highly jammed by the posturing and shape-shifting that has made these confirmations largely futile exercises.

For one, Warsh really wants this job—he’s not alone in that—and he knows Trump is listening to him. He therefore has three choices: speak truth to power, Trump’s wrath be damned; mush it up so no one knows what he’s saying; just tell Trump what he wants to hear.

He largely chose the third path. This was no profile in courage. He wouldn’t say that Trump lost the 2020 election. He would not support either Lisa Cook or Powell against Trump’s attacks. More tellingly and substantively, Sen. Chris Van Hollen (D-MD) challenged Warsh on the case for Fed rate cuts, given the fact that inflation has been above the Fed’s target for five years, and that was before war-induced price pressures. His line of questioning asked if a Federal funds rate of one percent would be too low right now, which should be an easy softball as even Trump’s appointee Fed Gov. Stephen Miran is not suggesting such an aggressive cut. But Warsh refused to admit that given current inflationary pressures, one percent would be too low a rate.

This is all concerning in terms of independence from Trump, and in normal circumstances would disqualify him. But anyone in that seat is in a vise, and it doesn’t make sense for them to accept the nomination and antagonize Trump. By showing up, Warsh is basically saying “I’m going to say pleasing things to Trump in order to get the job. They may or may not be true.” In fact, I think they’re mostly not true—my call from a while back that he’s a monetary hawk imitating a dove is looking good after this hearing, but we’ll get to that.

Bottom line, based on this performance, we must be nervous about Fed independence under Warsh, as would be the case with any Trump nominee. He’s shown himself to be a politically motivated shape-shifter, which makes it hard to know how he’d actually handle the independence question. It’s analogous to those Supreme Court justice confirmations wherein they invariably say, “don’t worry—I’m just there to call balls and strikes” and then, in many cases, implement a strike zone that’s more ideological than balanced.

Turning to how he’d govern, even as he sold himself as a rate-cutting dove, I saw numerous signs to the contrary. Before I get to them however, read this Atlantic take from Roge Karma back in January. Here’s how I weighed in:

…Warsh is seen as an inflation hawk who will err on the side of higher, not lower, interest rates. During the 2010s, he became known within Wall Street and Washington circles as one of the fiercest critics of the Fed’s zero-interest-rate policy, to the point of warning about inflation when unemployment was still at 10 percent. “He’s a pretty stone-cold hard-money guy,” Jared Bernstein, who served as the chair of Joe Biden’s Council of Economic Advisers, told me. “It’s a peculiar choice for Trump, because the Fed that Warsh wants is very different from the one Trump wants.”

If you listen carefully to both what Warsh said and, more tellingly, didn’t say, you can see what I mean. His opening statement mentions the full employment side of the Fed’s mandate once in passing, focusing far more intensely on the inflation side:

…Congress tasked the Fed with the mission to ensure price stability, without excuse or equivocation, argument or anguish. Inflation is a choice, and the Fed must take responsibility for it. Low inflation is the Fed’s plot armor, its vital protection again slings and arrows. So, when inflation surges—as it has done in recent years—grievous harm is done to our citizens, especially to the least well-off. They lose purchasing power. Their standard of living falls. They may also lose faith in our system of economic governance, raising doubts whether monetary policy independence is all it’s cracked up to be.

Such passion! Such concern for the poor! And he’s not wrong about the damage from high inflation (though the “inflation is a choice” part is off—exogenous supply shocks happen). But, replace the word “inflation” with “unemployment” and “purchasing power” with income. You can and should listen for yourself—here’s the full video—but I saw and heard a hawk in dove’s clothing.

If so, his internal weighting of the two sides of the mandate would be different from that of Powell, Yellen, Bernanke, who all seemed pretty balanced to me, though of course, pre-pandemic, inflation tended to run below target so the low correlation between unemployment and inflation (flat Phillips Curve) gave them more leeway to pursue lower unemployment.

Two caveats re this hawkish contention of mine. First, there is an equally defensible view that Warsh is a dove when Republicans are in power and a hawk when there’s a Democrat in the White House. Back to Karma’s article:

The case against Warsh is this: What he wants seems to change depending on which party controls the White House. Warsh was a staunch inflation hawk during the Obama administration. Then Trump was elected, and he seemed to soften. In a 2018 Wall Street Journal op-ed titled “Fed Tightening? Not Now,” Warsh and his co-author, Stanley Druckenmiller, argued that, “given recent economic and market developments, the Fed should cease—for now—its double-barreled blitz of higher interest rates and tighter liquidity.”
“He’s someone who has repeatedly shown a willingness to change his positions on a dime when it’s politically convenient,” Skanda Amarnath, the executive director of Employ America, a Fed-focused think tank, told me.

Caveat two is that whatever his true views are, he’s very likely to come out of the box sending rate cut signals to the White House. Yes, that’s the antithesis of Fed independence and the polar opposite of what we’ve seen from Powell, someone who consistently speaks truth to power with clarity and strength. But my point here is that it will take some time to see where Warsh really stands.

There was another part of his testimony that I found highly concerning. He made a weird and troubling distinction between monetary policy, which he correctly argued should be independent from politics, and the Fed’s regulatory oversight role in banking and financial markets, which he incorrectly argued should be open to political pressures. This is a terrible idea, one that raises the risk of the White House pushing to let markets rip—what president doesn’t want a booming stock market?—and thereby underpricing the systemic risk that excessive financial deregulation never fails to deliver.

In a similar vein, Warsh, who made his $100+ million in markets, was also far too sympathetic to the idea of integrating cryptocurrencies into the banking system, a view that placates the powerful crypto lobby at the expense of ordinary Americans and the stability of the broader economy, given the riskiness and volatility of this asset class.

There were other ideas both bad—something about having the Fed work with the statistical agencies to derive a new inflation measure; that raises all sorts of potential conflicts, especially with Trump looming in the wings— or irrelevant—focusing on median or trimmed inflation measures, which of course the Fed staff already does—or good—dialing back excessive Fed communications, press conferences when there’s nothing much to say, and “dot plots” that get over-interpreted by obsessive Fed watchers.

All his stuff about how AI was going to raise the economy’s potential growth rate and thereby allow for lower rates was also misguided (and again, given my framework argued above, was just a tactic designed to please Trump and give his dovishness a penumbra of substance). First, all the capital equipment expenditures associated with AI investment will put upward pressure on rates (to be fair, I think he may have conceded that point) but more importantly, when it comes to productivity gains, you have to see them to believe them, and it takes at least five years to see them.

All told, as you see, I’m nervous about this guy as Fed chair, but he’s better than some of the alternatives, and I’m definitely going to give him a chance. I believe he’s capable of rising to the occasion and filling the shoes of some of the great chairs who came before him, but I’ll be watching closely. Most of what I heard yesterday was not inspiring in that regard.

Which brings me to my final point. These confirmation hearings are awful. They reveal nothing about the nominee except how good he or she is in bending themselves into a pretzel to avoid saying anything of substance (to be fair, there are exceptions; the Van Hollen example above was a smart, substantive question that Warsh flubbed). The members spend their time mostly signaling to their constituents that they’re either harassing or supporting the president’s picks, and then the votes proceed along partisan lines. There’s got to be a better way.

It would be better to have a hearing wherein D and R witnesses, excluding the nominee, discuss the nominees work and his/her positions. At least that way, the public could learn more about what the nominee really believes.

Anyway, much more to come on this, though only if Trump can get out of his own way and let Warsh move ahead.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.
Cyclical Or Structural? Figuring Whether The World Is Stuck With Higher Inflation

Cyclical Or Structural? Figuring Whether The World Is Stuck With Higher Inflation

While everyone’s fishing with clickbait these days—it’s an e-jungle out there—the highly experienced economic journalist Neil Irwin doesn’t make bold claims without some backup. So, when I read this Axios headline from him on Monday, I said “hmmmmm.” I stroked the chin. I furrowed the brow. I asked myself, “is that right?” I answered, “it could be!”

I mean, the economic problem of the decade is surely what Trump is in the process of doing to global economics, but where I go with Neil’s assertion, as you’ll read below, is more about whether something structural (vs. cyclical, as in the business cycle) has changed in how inflation is generated in the U.S. and other advanced economies. In fact, there’s an interesting new Fed Note on the topic which I’ll also highlight below. Like I said, my read of the evidence is maybe (re upward, structural change) but the fact that inflation’s been buffeted by a series of identifiable shocks means that it still may settle back into something closer to its pre-pandemic pattern.

Lurking behind this is the observation that the Fed’s preferred inflation gauge, the PCE, has been above its 2% target since April of 2021, as in five years ago. I show the core PCE in the figure below, taking out energy/food spikes that the central bank can’t do much about. That persistent miss has gotta mean something, right?

A simple but not-too-far-off read of the figure above is that policymakers lost control of inflation in the 70s, Volcker lowered the boom, other inflationary forces, like oil shocks and wage-escalation clauses, became less common, and the central bank went in on “anchoring inflationary expectations,” i.e., convincing price setters it would do what it takes with its monetary policy tools to keep inflation around its 2% target.

But what then explains the not-the-70s-but-still-highly-noticeable rise at the end of the above series?

While it’s true that we’re less exposed to oil shocks, we’re clearly not immune, and we’ve had two in recent years, one of which is a big own-goal-kick by the Trump admin, in which we’re still ensconced. The other was Putin’s doing. (If you want to pause here and think about the causal linkages between authoritarian leaders and higher inflation, be my guest.) The figure shows the retail gas and oil prices (both indexed to 2019) on the left axis, and CPI yearly inflation on the right (the last data point there is the 3.3% March rate we learned of last week).

This is Neil’s piling-on point re supply shocks. Of course, the pandemic is on that list, which was a supply shock in many dimensions. Locked in by COVID, consumer preferences shifted sharply away from services and towards manufactured goods (see figure below), right at the time supply-chains were snarled, sending goods prices through the roof (I’m giving a talk this week on all this stuff, which is why I’m shoving all these slides down your throat).1

Next, enter the Orange Menace with a spate of supply shocks of his own. His and Stephen Miller’s anti-immigration actions have combined with aging boomers to take the growth of labor supply down to a drip. And again, his war is the latest supply shock, one that I do not believe will disappear anytime soon, regardless of the resolution of the ongoing negotiations.

On the demand side, I’d add Trump and Republicans' deficit-financed budget. The fact that historically large deficits stimulate the economy in both bad times (as they should) and good times (as they shouldn’t) doesn’t help in this regard.

Pushing the other way is the fact that productivity has accelerated over these very same five years, from about 1.5 percent to 2 percent—a big deal if it sticks—with potential further productivity juice to come from AI. This is a positive supply shock, typically associated with lower inflationary pressures. But that just means that half-mountain (or maybe just a foothill for now) at the end of the cumulative figure above would be steeper without this force pushing the other way.

I mentioned this Fed Note that asks: “Is the Inflation Process in Advanced Economies Different After the Pandemic?” It’s a quite clear and intuitive exposition; if all this interests you, give it a read. But here’s one of its key findings:

Each bar represents the share of components within the inflation indices of the different countries that are rising >3 percent (pretty fast), 0-3 percent (pretty normal), <0 percent (deflation). As you see, more market-basket components are growing faster, and especially in the US and UK, there’s less deflation (third panel).

Case closed, right? Nope. Tariff-induced goods inflation is in play in the U.S. and housing prices, which are heavily weighted in our data, were also on a tear but have recently eased. It’s an excellent note, but it doesn’t allow us to yet conclude that we’re in a new world re higher, stickier inflation versus we’re slowly getting back to something resembling pre-pandemic inflation dynamics.

Okay, that’s a lot of data points. What does it all mean? Here’s my take:

—Inflation has been elevated since the pandemic and is currently stuck well above the Fed’s target.

—But there are bespoke reasons for that: the spate of shocks and ongoing political-economy malpractice.

—That fact means we cannot conclude that something has changed in the economy’s inflation-generation function. For what it's worth, market-based expectations of where inflation is headed are only a bit elevated.

—But we should all be worried about this. It wouldn’t be terrible if inflation settled in at ~3% instead of ~2%, assuming real wages kept up. But if, instead, the businesses, investors, and employers that set the prices of goods, services, labor, and assets think inflation is on a roll, there’s a risk of de-anchoring expectations.

In that case, the little (half-)mountain/foothill above at the end of the cumulative slide could start to look uncomfortably like the bigger 70’s mountain.

Finally, as far as American humans are concerned, as I’ve argued ad nauseum, it’s not so much inflation—the rate of price changes—that’s gotten deeply under their skin. It’s the elevated price levels, which only grow higher whether inflation is at its two percent target or elevated due to shocks or structural shifts. That said, let’s not over-torque on this blazingly insightful insight of mine (that’s self-directed snark, to be clear; “people don’t like high prices” ain’t exactly the stuff of Nobel prizes). Faster inflation pushes the price level up faster, and, as we can observe in real time, that’s pushing our econ vibes from bad to worse.

[1There’s a different interpretation of this that is compelling: it’s not that supply chains broke; it’s that this demand shift required an almost immediate widening of the pipe through which goods flow, and that didn’t happen.]

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.




Trump's War Delivers A Spike In The Consumer Price Index

Trump's War Delivers A Spike In The Consumer Price Index

The Consumer Price Index rose 0.9 percent in March, pushed up by a war-induced, energy-price increase of 10.9 percent. On a yearly basis, inflation rose 3.3 percent, almost a full point above February’s prewar rate of 2.4 percent. The gas price rose 21.2 percent over the month and 18.9 percent over the year.

The energy-price-driven monthly spike is the sharpest since June 2022, when Russia’s invasion of Ukraine also shocked global energy prices.

Other war-impacted prices include airfares, up 2.7 percent for the month and 14.9 percent year/year. That’s a cost felt by the subgroup of consumers who are flying, but a much more pervasive “price” in the economy is wages. Combining the impact of the March spike in prices with the recent slowing of nominal wages, we see that real hourly earnings were down 0.6 percent in March for all private-sector workers and down 0.7 percent for mid/lower-wage workers. On a yearly basis, the comparable growth rates were 0.2 percent and 0.1 percent, compared to 1.3 percent and 1.2 percent last month.¹


This is a sharp and damaging decline in the buying power of the hourly wage, something already cost-stressed consumers will feel. But because we’re dealing with noisy, monthly data, the question is: how long will these pressures last?

As I wrote yesterday, that’s a function of how the turmoil in the Persian Gulf plays out in coming weeks and months, the extent to which Iran maintains controls the chokepoint of Hormuz—a control that this benighted war delivered to them—and how long it will take damaged energy infrastructure to come back online.

This is, as I said, not the flipping off an off-on switch, and while a ceasefire is certainly welcomed, what we’re seeing in real time suggests the March price spike will not reverse right away, but, assuming the ceasefire holds, will hopefully fade over the next few months.

That said, the idea that President Trump has turned the the buying power of the American workers’ paycheck over to the Iranian regime is perhaps one of his most destructive and shocking actions, and that’s a high bar indeed.

Under the hood:

—Grocery prices fell slightly last month, a welcome change, down 0.2 percent, and up 1.9 percent over the year, down from 2.4 percent in February. My expectation is that the war’s impact on trucking costs—diesel fuel is up over 50 percent since the war started and 80 percent of our food is delivered by trucks—and other inputs (fertilizer, much of which flows through the Strait of Hormuz), will add pressure to this component in coming months.

—Housing inflation continues to ease, back to its pre-pandemic levels, which, given its heavy weight in the index, is helping to keep overall inflation—aside from the war shock—in check.

Readers know I’ve been worrying about core services (ex-housing) inflation as it has been a) pretty high and sticky, and b) not obviously connected to tariffs, so a sign of underlying price pressures. Here’s that series on a six-month annualized basis. It’s jumpy and I’m not convinced it’s out of the woods, but it’s tracking pretty close to pre-pandemic levels, which is a good sign.

Putting that pretty-good-under-the-hood news next to the very bad war effects raises, once again, the own-goal kick proclivities of the Trump administraton's economic agenda. In case after case—tariffs, deportations, budget cuts to key services, war—their decisions make life more expensive and wage-buying-power less strong. The highly resilient U.S. economy can fight back for only so long.

[1. BLS uses CPI-W to deflate the production, non-manager wage; I use the CPI-U.]

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.

Ceasefire! What Might This Mean for the Strait, the Markets, and You

Ceasefire! What Might This Mean for the Strait, the Markets, and You

As I suspect you’ve heard, a two-week ceasefire appears to be in place in the war with Iran. That is unequivocally good news, though no one paying attention can breath anything like a sigh of relief, despite the relief rally going on this morning in equity markets, with West Texas Intermediate oil down ~$20 as I write this (which will have moved by the time you read this).

There are more questions than answers and for the (scant) details as we know them, go to any news source you trust. But here are my quick impressions. Hovering over all of them are “What was that for? What did thousands of people have to lose their lives for?”

Let me be unequivocal about this. I’ll be very happy if the parties in this conflict can find the offramp they appear to be seeking. But I fear this will be no occasion for celebration. Iran’s hardline theocracy remains in place, and worse, appears ready to continue their operation of turning the Strait of Hormuz into a tollbooth, which would be a massive cash cow for them. If you’re thinking “the U.S. would never let that stand!” you might be right, but that could well mean the ceasefire ends and the conflict restarts.

My top priority is that nobody else gets killed because of Donald Trump and Benjamin Netanyahu’s aggressions. But I don’t celebrate the arsonist who puts out the fire he started.

With that, a few impressions of where we are. They talk about the fog of war, but what I’m about to try to see through is the fog of this ceasefire, with an econ-more-than-a-geopolitical angle.

—Feeling the Blues in the Strait of Hormuz: A key Iranian condition for the ceasefire is that "safe passage through the Strait of Hormuz will be possible via coordination with Iran’s Armed Forces and with due consideration of technical limitations."

This is bad. To me, and to some press reports, it reads like they’ll ramp up their control of who transits (relative to pre-war), possibly with a cap on traffic, and with a toll (the number $2 million per vessel has circulated for a while).

We don’t know how private shippers will respond, but what choice do they have? At least in the medium term, there's nowhere near enough supply-chain alternatives to move product out into the globe. If this is broadly correct, and if this condition stands, it suggests that a new, post-war SoH transit premium will be added to the price of oil and other goods coming through the Strait, one that will continue to be passed forward to consumers.

—The Way We Were: Will Markets/Oil Just Revert to Prewar Levels/Trends? Unknowable, but, at least re oil, not if the aforementioned premium kicks in. Equity markets, though they trended down toward correction territory, broadly expected Trump to back down, so the relief rally is solidly underway as I write this AM: Here’s the S&P pre-opening futures:

Gas is up this morning ($4.16/gal), and if the oil decline sticks, we’ll have a real-time test of the old rockets/feathers dynamic, where the gas price takes the elevator up and the stairs down.

I’m not in the biz of predicting where markets will go but if the result of this war, as some are predicting, is to crimp the existing supply chain of fossil fuels, it would raise prices and dampen global growth at some margin. But it could also stimulate new activity to find workarounds to this obviously dysfunction choke point, and put more wind power in the sails of renewable energy development. (You know my views on this: as I said to Shalanda Young yesterday, if I were in charge, I’d do the Canadian Shuffle and allow a nice bunch of Chinese EVs into the US, conditional on some degree of tech-transfer and joint production.)

—Will It Stick? I find the fact that the Trump administration is apparently allowing Iran’s 10-point plan to be a starting place for ceasefire negotiations to be very surprising and a symbol of how desperate Trump is for an offramp. He’s gone from promising to end their civilization at 8pm ET to “sure, we’re cool with sitting down to chat about you keeping your nukes and controlling the Strait.” You’ll see what I mean if you look their list.

I’ve been following Tobin Marcus from Wolfe Research on these matters, who writes this morning (with Chutong Zhu):

If the US were outright accepting Iran's 10 points as they're now being reported, this would be a huge surprise and a massive concession, with the US accepting various Iranian red lines and giving up on our own, including on the nuclear file. On the other hand, if defining the 10 points as a "basis for negotiations" does not imply acceptance of those points, then it's unclear how close the two sides really are in the ongoing negotiations. It's a little hard to believe that Trump is accepting anything like Iran's 10 points, and the WH seems to be telling Israel we're doing nothing of the sort, so we lean toward interpreting this as intentional wiggle-room to facilitate an offramp, which raises questions about the likelihood that the next two weeks of negotiations will actually culminate in a permanent deal.

In other words, there’s a tension between Trump’s usual play—break something, declare victory, move on to breaking something else—and accepting what should be unacceptable. And it is impossible to know at this point how that balances out. If you pushed me to take a side, I’d guess he’s more likely to mush up some version of pushing back on the most egregious Iranian conditions and turn tail outta there.

—What Does All This Mean For Regular Folks Just Trying to Go About Their Lives? As you know, this is always my touchstone up in here. Assuming the ceasefire sticks, Strait of Hormuz traffic picks up, and the oil price falls at least part of the way back to its prewar level, the gas price should slowly come down, much as we predicted here. That still cuts meaningfully into real disposable incomes, and, as I’ve been worrying about, lower real wage gains. I’m watching carefully to see how the March headline CPI, out Friday, compares to the most recent pace of mid/low wage growth of 3.4 percent.

But more broadly, for folks just trying to make ends meet, this misadventure in the Middle East is yet another Trumpian own goal kick in their faces. The Trump tariffs, the Trump budget, the Trump war—they’re all making life more expensive for people, which is especially ironic given that those people will tell you that their main economic concern is affordability.

And never forget the opportunity costs: if you’re spending all your time making things worse, you’ve squandered the time you could have spent making things better. Imagine that instead of negotiating a 10-point plan that gives the Iranian regime what they want, we were negotiating a 10-point plan for affordable housing, childcare, and healthcare.

I’ve said it before, including yesterday, so sorry—not sorry—for being repetitious. But any Democrat who seeks to retain and win office that isn’t working to operationalize that contrast needs to immediately get out of the way and make room for someone who will fight their a— off on behalf of these priorities.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.


As Trump Fumbles War, The Human And Economic Costs Keep Rising

As Trump Fumbles War, The Human And Economic Costs Keep Rising

Any commentary on the costs of this or any other war must begin by recognizing that paying more at the pump means nothing compared to the loss of thousands of lives, including civilian lives, that have occurred thus far. That is the true cost of war. And, in the case of this war, a war of choice we entered due to the terrible judgement of an unchecked president whose self-confidence is matched only by his ignorance of the history of the region, we can all be forgiven, once this is over, for asking the question, “for what?” Why did all those people have to die? What goal was served, beyond assuaging Trump’s whims?

The Human Rights Activists News Agency said at least 1,598 civilians had been killed, including 244 children, in Iran since the war began. Lebanon’s health ministry said that more than 1,260 Lebanese had been killed as of Tuesday, with more than 3,750 others wounded, since the latest fighting between Israel and Hezbollah began. In Iran’s attacks across the Middle East, at least 50 people have been killed in Gulf nations. In Israel, at least 17 had been killed as of Friday. The American death toll stands at 13 service members, with hundreds of others wounded.

It’s a big jump from these existential concerns to gas et al prices, but those matter too. They matter because people were already, pre-war, struggling with affordability issues, but they also matter for political reasons. Even if you have different answers to the questions I pose above, as I know some readers will, the information about the economic costs of the war must be promulgated, especially as the White House’s misinformation machine is always running at full tilt. With this administration, affordability voters—a decisive bloc—should be aware that Trump is here again pushing hard in the wrong direction.

I should note before I jump into the data that markets have been optimistic on Trump pulling out of the war. The thinking was that he would declare victory and spout off on how this is now Europe’s problem.

“You’ll have to learn how to fight for yourself, the U.S.A. won’t be there to help you anymore, just like you weren’t there for us,” Mr. Trump said. “Iran has been, essentially, decimated. The hard part is done. Go get your own oil!”

Whatever. Actions matter more than these addled words, and the sooner we’re out, the better. I’ll offer more thoughts on the next chapter at the end of this post.

The figure below, from GasBuddy shows the well-known spike in oil and gas. The AAA national average gas price on Wednesday was $4.06, up from <$3 prewar.

Here’s another way to look at this, one I think is instructive re how folks experience such spikes. It’s the hourly wage for mid- and low-wage workers divided by the price of a gallon of gas (I estimated the March wage so as to capture war gas-price effects—we’ll know the actual wage rate on Friday). It thus shows how many gallons you can buy for an hour of work. It’s back down to around where it was a few years ago, as energy (and food) supplies were recovering from the Ukraine shock.

Negative spikes like that are tough on budgets, though this metric remains in a familiar range. The question then becomes should we expect the decline in after-tax, including this war tax, income to ding consumer spending going forward.

In fact, real consumer spending was already getting a bit weaker, up at a sub-two percent rate on a six-month annualized basis. And this gas tax won’t help. Neither will the fact that the job market continues to soften, as yesterday’s JOLTs data featured yet another dip in the hiring rate.

My forecast has the nominal wage of mid-wage workers growing at 3.6 percent, year over yaear, right now, down from four percent a few months ago. With the gas price spike, headline inflation could come close to the wage rate, meaning less paycheck buying power. The GS Research team is thus marking down their forecast: “Spending headwinds from higher inflation due to the recent energy price surge are likely to weigh on spending growth for the rest of the year, however, and we now forecast below-consensus real PCE spending growth of 1.3 percent in 2026 on a Q4/Q4 basis (vs. 2.1 percent in 2025).”

Same for real incomes, especially among less well-off households (my bold): “…higher headline inflation due to the recent rise in energy prices is set to erode household spending power, particularly among lower-income households that spend a larger share of their budget on energy goods. As a result, we now forecast only 1.7% real income growth in 2026 on a Q4/Q4 basis, with growth of just 0.4 percent among households in the bottom income quintile.”

Keep in mind that many of those same families are getting hit with Medicaid and SNAP (food stamp) cuts, so this is a perfect storm for them. Won’t they get higher tax refunds from last year’s budget bill? Nope. Families in the bottom fifth tend not to have federal tax liabilities so refunds won’t help them.

But as my Stanford Institute for Economic Policy Research colleagues and I have shown, for higher income households that do get a higher refund, the gas tax is likely to eat it:

While oil/gas get a lot of attention, spillover costs are equally important.

Based on the sharpest jet fuel spike in recent history…

…airfares are climbing and the Wall Street Journal reports forthcoming surcharges, some of which will add over $100 to tickets.

I’ve talked before about food costs spillovers, noting the about a third of fertilizer transits the SoH, along with nat gas that’s used to make it. Our food supply chain is already getting hit, though we’re more insulated than some less developed countries that could experience serious shortages.

The problem for American consumers is that they were already facing higher grocery inflation, partly due to tariffs. Grocery inflation can be seen drifting up, pre-war; 2.5 percent, the most recent print, is historically high for this component. This is a key e.g. of what I mean when I say Trump’s pushing hard in the wrong direction on affordability.

Then there’s interest rates and the Fed. The rate on 30-year mortgages has eased a bit, and will probably ease further if we de-escalate, but that’s a tough spike you see at the end of the figure below, and not just for homebuyers but for the many more who were contemplating refinancing when the rate dipped below six percent prewar.

All of this has led to the Fed being a lot less likely to lower the interest rate they control any time soon. Prewar, markets assigned a 75 percent chance that the interest-rate gang would hold at the current range of 3.5 percent -3.75 percent and a 23 percent chance of a 25 basis-point cut. The current probabilities for the April 29 meeting are 99.5 percent for hold and zero for cut.

That’s a lot to digest but in sum, it’s a helluva a lot of damage over a very short time. The justifiably much-vaunted U.S. macroeconomy has been incredibly resilient to bad policy, but it’s not impenetrable.

What happens next? We’ll see what Trump says tonight but I strongly fear and strongly predict that chaos ensues. After detailing our great victory—11,000 targets hit! (the fact that these people can’t distinguish target-hits from regional strategy is mind-blowing)—I suspect he'll rattle off some mushy, incoherent plans about de-escalation and gradually reducing our presence in the region.

I doubt that changes much in terms of the near-term economics documented herein. Iran knows it holds a very powerful card in shutting down the SoH and could decide to continue to play it, or the regime could ramp up their $2 million/vessel toll fee, which maybe isn’t quite the regime-change outcome we had in mind.

Trumpian policy mush, as with tariffs, is never great. But in this case, it’s especially harmful. There’s just no escaping the fact that he inherited a strong economy and he’s been abusing it even since. The resulting costs are making life considerably less affordable and that’s before you consider the opportunity costs of prosecuting this terrible war, running a violent deportation program, etc…instead of, you know, figuring out how to deliver more affordable housing, healthcare, and child care.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.







Surprisingly, Even (Some) Republicans Understand Trump Deficit Peril

Surprisingly, Even (Some) Republicans Understand Trump Deficit Peril


I testified last week in the House Budget Committee on the majority’s proposal to set a -3% of GDP cap on the budget deficit. Here’s my testimony that I’ll summarize below, but first, a few notes about the hearing, which was less fractious and a lot more substantive than these things typically are these days. It’s not so much that punches were pulled, but there was considerably more agreement on the basic facts of the case, both between the four witnesses and the many of the members. There was also, however, a strange cognitive dissonance pervading the room.

I’m not saying my testimony is any good, but I am saying that it’s the culmination decades of my thinking about and participation in American fiscal policy, and I hope there is some wisdom in there. So, please give it a read—it’s short(ish)! (The other witnesses’ testimonies are also worth reading—good points were made by all, which again, isn’t always the case.)

Here are the basic facts of the case, on which some members on both sides agreed (not all, but the front-benchers mostly did so):

—The current budget path is unsustainable. Our deficit and debt is growing in good times and bad.

—The budget math—growth, interest rates, primary deficits (these are the three horsemen of the apocalypse sustainability variables; ”primary” means non-interest spending)—has turned in ways that make the path less sustainable. Most in the room, including some members and my fellow witnesses, agreed that the interest rate was likely to climb relative to the growth rate and primary deficits are far more likely to grow than ease.

—This one will surprise you but it’s true: many members on both sides agreed that the politics of deficit reduction will require both spending cuts and tax increases. The latter, I know, is especially surprising, and was framed by the Republicans as roughly, “our side will have to swallow some tax increases and your side will have to do the same on spending cuts.”

I’m sure many readers are thinking two things at this point: “Yeah, right…” and, even more so, “Aren’t these the same Republicans that added >$4 trillion to the debt over 10 years with the budget bill they signed last year?”

That’s the dissonant part. Let us entertain the possibilities of what’s going on here.

  1. It’s all posturing: Republicans don’t mean any of this. It’s all optics and they couldn’t care less about the fiscal path.
  2. They supported the budget bill—the worst such bill I’ve seen in a long career in this biz—which cut taxes mostly at the top of the income scale, partially offsetting its cost by cutting health and nutritional supports for economically vulnerable families, on behalf of their president and their donors. They realize—again, I’m talking about the ones who understand budget math—that they sh*t the bed and are appropriately concerned about the implications of that for the future: debt service crowding out other spending, pressure on interest rates leading to a spiral of higher debt service feeding into higher deficits, etc…
  3. In their quest to shrink the federal government, they significantly worsened the fiscal path and now are crying wolf that we must reduce the size of government to accommodate the rising debt. They won’t touch defense or raise taxes on the wealthy, so they’re gunning for Social Security, Medicare, anti-poverty programs.
  4. They know they’re likely to soon be the minority and now that they’ve burned down the House, they want to place a cap on the availability of matches.

You’d have to be a better psychotherapist than I to know how to weight these options, all of which are in play. But do not wholly discount option 2. Both in the hearing and in private discussions afterwards, I believe that sentiment is at least partially in play. I’d also put heavy weight on option 4.

Where do we go from here? To me, that path is clear. If leadership on both sides seriously wants to do something about this—which, to be clear, will not be possible until Trump leaves the building, as he will block anything useful in this space—then the next series of hearings, hopefully under Democratic House leadership (ranking member Rep. Brendan Boyle of Pennsylvania is very solid on these issues) needs to focus on the path to get to three percent.

It’s easy to stay abstract about the need for budget sustainability. You can rant about “waste, fraud, and abuse,” which, for the record, is a tell that you’re not serious (if you were, you’d fully fund IRS enforcement to reduce tax evasion, “raising $12 for every $1 it spends on auditing the richest 10 percent of households”); you can argue supply-side nonsense about how upper-end tax cuts will boost growth such that tax cuts pay for themselves, another tell. But if Republican leadership is anywhere in option 2 space, that will quickly become clear once we start hammering out actual policy compromises.

I know I blew by the dispositive condition that Trump needs to be gone for any of this to get anywhere. This implies a multiyear project, one I’d start sooner than later so that we have a compromise agenda ready should the political degrees of freedom open up.

Here’s my testimony introduction and summary points, but again, please read the link above:

Mr. Chairman, Ranking Member, and Members of the Committee, I thank you for the opportunity to testify today.

For as long as we’ve debated fiscal policy in this country, the opposing sides in that debate have been called fiscal doves and fiscal hawks. The former, wherein I used to reside, argued that so long as the economy’s growth rate surpassed the interest rate of the government’s debt and the primary deficit stayed roughly in check, deficit spending was not particularly worrisome. The hawks took the other side of that argument.

Of course, even we doves were concerned about the fiscal trajectory post the temporary 1998-2001budget surpluses. And we always emphasized that it mattered what purpose the debt accumulation was serving. Investment in people and projects with expected future returns, including anti-poverty programs, made more sense than unnecessary tax cuts or wasteful spending.

There are surely some fiscal doves left but many of us have flown the coop. The reasons are that the budget math has become more threatening, primary deficits have been growing quickly, and almost every tax and spending measure enacted by Congress in recent years has worsened the fiscal outlook.

I therefore welcome this hearing which I take to be in the interest of finding a bipartisan path toward a more sustainable budget outlook. That task has been made more urgent, and considerably more difficult, by the deficit financing of the recently enacted budget bill, which is actively worsening the very fiscal path we seek to improve in the context of this hearing today.

My one other overarching framing point is that while deficit reduction is necessary and desirable, it is easy to do so in a way that does far more harm than good. Examples include deficit reduction that increases post-transfer poverty, that is a function of failing to offset negative economic shocks, that cuts productivity-enhancing investment in public goods, and that imposes indiscriminate, automatic cuts.

1: Fighting over whether the problem is too much spending or too little revenue is a dead end.

2: There is nothing wrong with aspiring to a deficit that’s capped at 3% of GDP, but it matters how you get there.

3. If setting a deficit target helps focus Congress on our unsustainable fiscal path, then sure, go ahead.

4. The flipside of deficits expanding in downturns is that they should contract in strong economies.

5. In considering how to get on a more sustainable path it is essential to recognize that spending is below where CBO thought it would be while revenues are much lower.

6. The tariffs reveal that we can raise new revenues.

7. The timing of a budget crunch is unknowable, but the shift in the budget math means it is closer than it used to be.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.

Here's How Gas Prices Will Spike This Year (And Eat Your Tax Refund)

Here's How Gas Prices Will Spike This Year (And Eat Your Tax Refund)

The Stanford Institute for Economic Policy Research team of Caleb Brobst, Ryan Cummings, Neale Mahoney and yours truly has updated our estimate of how much more people will pay, on average, to fill their tanks due to the impact of war on the oil cost. Our model runs off of Goldman Sachs’ predictions of the war’s impact on the oil price and since they just updated that estimate, we can run the new numbers through the model. (Axios featured our original estimate.)

The key figure is below. On the left, you see that GS now expects the price of Brent crude oil to peak at $115 up from $110, and stay higher from there through ‘26. You’ll also see the same “rockets and feathers” problem as in our original forecast, as the oil price falls a good bit faster than the gas price (the reason has to do with retail market power and consumer search costs; see here and related links).

We then multiply the increase in the gas price per gallon times miles driven, finding that the average driver (of a non-EV, of course), will spend about $860 more on gas this year, up from $740 in our original estimate. For reference, note that this swallows the expected larger tax refunds this year from the Republicans' big budget bill.


Based on rumors of talks to dial back the conflict and reopen the Strait, the oil price is down over the past few days, or, more accurately, it’s bouncing around. It’s $102 (Brent) as I write, up from about $70 pre-war; the average gas price is $3.98, up more than a dollar from a month ago. But given the uncertainty about where the war is heading, amplified by the utter non-credibility of Trump and his administration re any public statements about this, there are inevitably wide confidence intervals around our model-based estimates.

But we’re right about the direction of travel, which has, as you know if you’ve filled up lately, gotten a lot more expensive. This represents a hit to disposable income and therefore is likely to ding consumer spending and growth in the months to come. The degree of the hit is proportional to the duration of the war, which runs us headlong into the unfortunate combination of uncertainty and non-credibility.

The problem is we’ve got the usual fog of war amped up on steroids by the fog machine which is team Trump’s communications operation.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.

Affordability Agenda: Would New Tax Cuts Proposed By Democratic Senators Help?

Affordability Agenda: Would New Tax Cuts Proposed By Democratic Senators Help?

Three Democratic Senators have recently proposed big new tax plans.

—Sen. Bernie Sanders (I-VT) (along with California Rep. Ro Khanna) proposed the Make Billionaires Pay Their Fair Share Act, which would set a five percent tax on the wealth of the “938 billionaires in America — who are now collectively worth $8.2 trillion.” They score the tax to raise $4.4 trillion over 10 years (this score has been critiqued as optimistic), some of which would be redistributed to people in households with incomes below $150,000.

—Sen. Chris Van Hollen (D-MD) and Sen. Cory Booker (D-NJ) have each proposed different tax cuts. The core of both proposals is a significant increase in the standard deduction, though important differences exist between the two.

It is these two on which I’d like to focus today (I’ll get back to Sanders/Khanna; I’m sympathetic to the need to tax wealth, which largely goes untaxed; the Constitution, however, is a bit of a hurdle in this regard).

Bottom Line Up Front: I get their motivation, but, with one big exception (tariffs), I don’t think Democrats should engage in big federal tax cuts. For one, because of the way they’re structured, these cuts tend to go pretty far up the income scale, spending scarce resources on folks who arguably don’t need yet another tax cut. For another, we need more, not less revenues if we’re going to implement affordability, anti-poverty, and upward mobility agendas that are more likely to lastingly help struggling families.

The great Chuck Marr posted helpful Twitter threads on each of the two tax cut proposals (Van Hollen, Booker) and the Yale Budget Lab has their typically infomative scores of each (Van Hollen, Booker). The broad strategy in both proposals is to increase the standard deduction enough so that more families would face zero or lower federal tax liabilities (the current standard deduction is ~$16K and ~$32K for individuals and married couples, respectively). Van Hollen sets the no-tax line at $46,000 for individuals and $92,000 for couples, leading to something like half of households paying no federal income tax, vs. around 40 percent now (of course, earners would still pay federal payroll taxes).

Booker more than doubles the current standard deduction and boosts refundable credits for lower-income families, including the child tax credit and the earned-income tax credit. Importantly, Van Hollen phases out his tax break; Booker does not, making his a lot more expensive. The Budget Lab scores Booker’s plan at $5.3 trillion, including his high-end tax increases. They score Van Hollen's cuts as costing $1.6 trillion, but that amount is fully offset by a surcharge on millionaires, ranging from 5 to 12 percent.

Chuck makes a few other points:

Van Hollen:

—Ppl w/ larger affordability challenges will likely get less (or nothing): For example, a low paid worker making well below the $46,000 affordability threshold will get far less than the person w/ income at the threshold (who faces less challenging affordability issues). [JB: Budget Lab has change in after-tax inc flat for bottom fifth (up 0.2%).]
—The tax cut is paid for w/ an excellent revenue-raiser: a surtax on millionaires, who got huge Bush/Trump tax cuts, that raises $1.5T over 10 yrs. A key issue here is opportunity cost - is this the best use of revenue from this offset? [I'll come back to that.]

Booker:

—Despite its high cost, the standard deduction expansion would provide little or nothing to many low-income people and much more to higher-income people who face far fewer challenges affording basic needs and don’t need another tax cut.
—A few examples – assume all married couples with no kids:
- Household w/30k in earnings does not benefit.
- Household w/$50k in earnings gains $1,780.
- Household w/$300k in income gains $10,272.

That last number is really something. The Budget Lab has after-tax income for the fourth income quintile going up a robust five percent and the top fifth gets (yet another) cut of one percent, though that’s all for the 80-90th percentile (the Lab’s 90th percentile is ~$217,000); the top 10 percent gets hit by Booker’s progressive pay-fors. Still, at that point in the income scale, you’re really just adding more after-tax income to those who just got a boost from the Trump tax cuts.

Booker’s plan significantly lifts the after-tax incomes of the bottom fifth through the refundable credit expansions noted above. The Lab has their income up percent, the most of any quintile, on the back of child tax credit/earned income tax credit expansions.

It’s early in the electoral season, and good for them and their staffs for putting out new ideas. I know beyond a doubt that both of these senators are acting in good faith to try to help reconnect economic growth and the living standards of a lot of folks who’ve been left behind.

In fact, whenever I talk about affordability, which is often, I try to remind listeners that yes, affordability is a price issue, but it’s also very much an income issue, and these senators are of course correct that more after-tax income means a greater ability to make ends meet.

And sure, if the only way to help people was to cut their taxes, I’d think differently about this. I’d still worry about deficit financing a tax cut—I like both Senators’ pay-fors—but history is clear that Congress is way more comfortable cutting than raising taxes, so there’s a non-zero chance we get the cuts and not the offsets. As long-term readers know, I used to be a lot more fiscally dovish about such spending but with both sides giving up on anything resembling fiscal rectitude, debt at 100 percent of GDP and climbing quickly, and most concerning of all, interest rates tracking higher, I’m considerably less chill.

But—and this is my key concern about these proposals—I don’t believe that tax cuts are the only way to help people. This is Chuck’s “opportunity cost” point. A dollar spent on a tax cut is not available for what I view as one of the Ds most important contributions to economic policy: identifying and taking action against market flaws and failures.

The affordability agenda is the latest e.g., and it is a good one. It’s also costly, but it’s worth it. A national program that makes childcare affordable, that helps to build affordable housing, that subsidizes health coverage and restores the Rs recent Medicaid cuts, that reduces poverty through refundable tax credits that go to people whose income is too low to incur a federal liability (folks who aren’t helped by raising the standard deduction, though, as noted, Booker's plan extends such credits), that boosts upward mobility through educational support—all of those are policies that good, hardworking Democrats (including Van Hollen and Booker) have long fought for, even if such progress has been stymied in the age of Trump.

To spend trillions on tax cuts, even if they’re better targeted than the Republicans' version, risks hugely underfunding this agenda. I worry that to lead with tax cuts of this magnitude is to implicitly give up on trying to lastingly improve the structure of our economy from the perspective of working families for whom macroeconomic growth has too often been a spectator sport. And if you fail to alter the foundational unfairness in the structure of the economy, you’ll have no other option than to come back to the tax-cut well every few years.

And after reading all that, if you still want to cut a tax, absolutely be my guest: cut the damn tariffs and call it a day, and a very good day at that.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.

Wildly Expensive And Unpopular: Scales Of Trump's War Are Far Out Of Balance

Wildly Expensive And Unpopular: Scales Of Trump's War Are Far Out Of Balance

President Trump unilaterally decided to take the nation into war. Congressional Republicans not only failed to undertake what is arguably their most critical role in making this decision. They voted down a war powers resolution to “curb President Donald Trump’s powers in the Iran war…”

It’s the second vote in as many days, after the Senate defeated a similar measure. Lawmakers are confronting the sudden reality of representing wary Americans in wartime and all that entails — with lives lost, dollars spent and alliances tested by a president’s unilateral decision to go to war with Iran.

There has never been a war this unpopular with the American people at this early stage. “About half of registered voters — 53% — oppose U.S. military action against Iran, according to a new Quinnipiac Poll conducted over the weekend. Only 4 in 10 support it, and about 1 in 10 are uncertain.”

It’s of course not the case that Americans are sympathetic to the oppressive Iranian theocracy. Far from it. It’s that the case for war was never made to them. If it’s “regime change” then this appears to have demonstrably failed, as the new leader is as hardline as the last one. If it’s “protecting the Iranian people” who disdain the regime, then that surely requires “boots on the ground” versus an air campaign that’s killed hundreds of innocents.

With no rationale, Americans are faced with two economic challenges: the impact of the war on energy costs, which speaks directly to their affordability concerns, and the cost of the war, both in human and fiscal terms. That is, other than MAGAs who can comfort themselves with “if Trump’s doing it, I’m for it,” the rest of the country is weighing the action on a scale with costs on one side and rationale on the other. But there’s zero on that side of scale.

On the costs side of the scale, however, the evidence is stark. The figure below shows how fast the oil price has gone up relative to past conflicts. Go to the doc and you can click on the same figure for natural gas, which is also shut in due to the war and its impact on shipping through the Strait of Hormuz.

Here's the gas price:


And here’s a new GS Research take on inflation and growth impacts given different duration/adversity scenarios (because core inflation excludes energy and food costs, we see less impact there; as long as you don’t need to eat or go anywhere, you’re good!):


Take a beat and eyeball that figure on the left. Then consider the main, economic stressor facing American families right now, i.e., affordability. Then imagine undertaking a war, with no clear rationale (I know I keep saying that, but it’s crucial—Americans will rally if we understand the need to go there), that is likely to send headline inflation a point higher (their “new forecast”) and could, under the most adverse scenario, send it to five percent.

Their real GDP forecast tracks how higher prices ding growth, though note that none of these forecasts, including the most severe, are recessionary.

We’re just a lot less exposed, in a macro sense, than we use to be to oil shocks. Our trade exposure to the Strait is <5% (percent of our trade flows) and our oil intensity (how much oil we use to generate a dollar of real output) is way down.


That’s good news, of course, but for years now we’ve seen the disconnect between macro and micro, between solid GDP growth and low unemployment and people’s economic experience. And we know that has a lot to do with how far their paychecks are going. I’ve touted real wage growth as recently as yesterday in my write-up of the CPI report, but higher war-induced inflation will cut into that buying power.

Then there’s the fiscal and human costs, both that of our servicemen and women and the victims caught in the crossfire of the air campaign. I urge you to read this powerful memo to Congress from Bobby Kogan and Damian Murphy from the Center for American Progress. Regarding the likely forthcoming request to Congress for more money (I’m hearing $50 billion) to prosecute the war, they write:

While the Trump administration has not yet presented its supplemental request, the White House will likely request funds to replenish stockpiles for which it already has sufficient funding through a mixture OBBBA (an enormous amount of which still remains unobligated) and through its general transfer authority inside the annual defense budget. In other words, the White House seems poised to request more money for weapons for which they already have tens of billions of unused dollars.


Kogan and Murphy also remind us that the Defense Department’s budget “keeps growing without increased accountability (in December, the Pentagon failed its eighth financial audit in a row).” The very least Congress can do is not authorize even more resources for this benighted, unilateral adventurism that’s already hitting Americans in their wallets.

There are just wars, cases where our nation has intervened in ways that have been far more costly to life and treasure than that in any of the figures shown above, but which the majority of Americans have supported because we understood and agreed with what was at stake.

This is not that, and it never will be that. This is the action of a one unhinged man with unlimited power granted to him by the most irresponsible Congressional bloc in our lifetimes. Our founders attempted to build a decision structure that precluded exactly the situation in which we currently find ourselves, but Trump has hacked that system, and the costs in lives and dollars of that hack are building each day.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.








'One-Hit Wonder': Trump's Military Adventurism Is Sinking In Strait Of Hormuz

'One-Hit Wonder': Trump's Military Adventurism Is Sinking In Strait Of Hormuz

I’ve only time for a quick note, trying to put together some coherent thoughts on what’s going on with the war/econ nexus on which I’ve been focusing in recent days.

The right place to start is the oil price, which has been on a crazy ride and as I write, is well off its peak.

The gas price, however, hasn’t gotten the memo and is up to $3.54 today, up from $3.48 yesterday and $2.92 a month ago.

So, where do we go from here? Here’s the bottom line, as I see it. Warning: this requires understanding Trumpian psychology; do not try this at home.

Trump viewed the Maduro operation as pretty much perfection from his perspective. A literal one-night intervention of shock-and-awe to take out a bad guy, impeccably implemented by our armed forces. No spillover into markets, and, if anything, a play for more oil supply. Never mind that the original Venezuelan regime remains intact.

Iran isn’t that. Yes, there was the same decapitation of an enemy leader—and the same intact regime problem—but there’s this problem called the Strait of Hormuz (SoH). By shutting that down, leavened with attacks on other Gulf energy-providing states, Iran was able to hit us, and even more so Europe, in the wallets. All totally predictable, of course, but these folks don’t do that sort of planning.

When confronted with costs, Trump often backs off. That’s the root of the whole TACO [Trump Always Chickens Out] thing, but also the source of his gentle treatment of China, who used their almost absolute control of the refining of “rare earths”—key inputs into much of our tech and defense production—to back him down.

In this case, Iran is flexing its Strait of Hormuz control, and this raises the economic costs for the rest of the world and the political costs for the Trump admin and their Congressional allies. We can’t know which way this will bounce, but markets seem convinced that the admin is truly about done with this adventure.

If so, what a mess! Iran will have learned that, yes, the US/Israel coalition can hit hard (which they already knew), but at least the senior partner will back off if you shock the oil supply. They need not worry about regime change or even about dialing back of their nuke pursuits.

The provisional punchline is this: give a world-class army to an authoritarian leader who a) faces no constraints from Congress and is served by a bunch of yes-man lackeys and b) fully discounts the future, meaning doesn’t do the geopolitical chess exercise of weighing the many possible implications of his interventions, and he will deploy that army to do one-hit wonders. Take out a global bad guy, claim credit, move on to the next bad guy.

That “worked,” from his perspective, in Venezuela. It did not work in Iran.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.

Fortunes Of War: How Will Trump Deal With Spiking Gasoline Prices?

Fortunes Of War: How Will Trump Deal With Spiking Gasoline Prices?

$3.20 a gallon—today’s national gas price—is not that high a price in historical terms. But it’s 40 cents higher than $2.80, where the pump price was a few months ago. A jump of the magnitude you see above is rare, and only happens when there’s some sort of supply shock. Fill up a 15-gallon tank twice a month and that's an extra $12, which isn’t game changing for anyone, but is noticeable.

When I left the Obama administration, the president was kind enough to have my family come in for a quick goodbye in the Oval. The gas price was up at the time, and I have a great memory of my nine-year old daughter asking the POTUS why he gets blamed for high gas prices. He gave her that big, broad Obama smile and said “I know, right?!” I’m pretty sure he high-fived her.

Fact is, the president gets credit and blame for the gas price, which makes about zero economic sense. If ever there was a global price set in global markets—with cartel influence, of course—it’s the oil price. That price per barrel is up about $17 since January, and given that a $10 increase corresponds to $0.25 more at the pump, the $0.40 increase is what you’d expect.

In this case, however, the Trump administration's choice to go to war is behind the spike. The West Texas Intermediate crude (WTI) oil price is up about $10 since the war started, and if you’ve followed the developments, you know that there are ongoing disruptions to shipping, production, and refining, and not just for oil but for natural gas too.

Source: Energy Information Administration/Haver Analytics

I guarantee you this isn’t going unnoticed at the White House and I also guarantee you they’re talking about the Strategic Petroleum Reserve (SPR), the “world’s largest stockpile of emergency crude oil.” The SPR, which is a bit over half-full right now (415 million barrels of ~700mb capacity), was last tapped by the Biden administration when, post-Russia’s invasion of Ukraine, oil topped $100 per barrel. That release, which occurred in sync with that of other countries’ reserves, pretty quickly lowered prices by about $0.35, according to estimates at the time (one wonders if the Trump administration, given their antipathy towards foreign governments, could organize any such multi-country intervention).

The Trump White House says they have no plans to tap the SPR, but I’m skeptical of their claim. As I’ve stressed here many times, Trump is justly getting clobbered on affordability, as he wavers between saying it’s a hoax and he’s solved it. But the one thing he’s had to tout in this space, and it’s a big one, is the low gas price. Again, even with this recent bump, that price is still low, but if we’ve learned anything about affordability dynamics, it’s that sudden price shocks of key household-market-basket components are a source of economic stress.

As I’ve stressed in discussions of the economics of this new conflict, its impact is a function of its duration. If it ends quickly, I’d expect blocked supply chains to reopen and oil/natural gas production/refinement to recommence pretty quickly.

But when it comes to the gas price, there’s rockets and there’s feathers.

When oil prices shoot upward, gas prices rise with them. And when oil prices fall, gasoline prices also fall; but they can fall at a slower rate. Economists refer to this market dynamic as “asymmetric pass-through.” A more colorful description of the phenomenon is “rockets and feathers.”

The explanation has to do with market power and consumer search patterns. Re the latter, apparently, when the gas price goes up, we tend to exert a bit more effort to search for cheaper options. But when it starts to fall, we’re just happy to see it come down and we don’t search as much, dampening price-reducing competitive forces.

None of this gas-price analysis speaks to the geopolitics of the war. There are, of course, just wars worth fighting regardless of their impacts on prices at home. With 80-90 percent of Iranians anxious to see the toppling of the oppressive theocracy under which they suffered, a few more cents at the pump is arguably worth it. But I don’t see how that’s the case when there’s no plan for a true regime change and an uncomfortably high chance that the power vacuum we and Israel have created is filled by an equally, or even more, repressive regime.

Meanwhile, we’ll see how this plays out in coming days in terms of oil, gas, and public opinion. My sense is that a lot of people are thinking this isn’t what they voted for.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.



Trump crypto

Trump Gave Crypto Bros Everything They Wanted -- And Their Assets Tanked Anyway

Ryan Cummings and I had an oped in yesterday’s NYT, wherein we ask and answer this question re crypto’s loss of trillions in value in recent months:

What took so long? Outside of crimes and scams, the technology is useless, and its economics are even worse.
The answer is that crypto was held aloft for months by a period of euphoria that followed the extraordinary support the industry gained in the Trump administration. The crypto bros who spent millions getting Donald Trump elected seemed to get virtually everything they might want: a longtime industry investor elevated to White House adviser; one type of crypto given the imprimatur of the federal government; the near annihilation of effective regulatory scrutiny; invitations to White House dinners hosted by Mr. Trump.
But instead of cementing crypto’s legitimacy, the administration has only pulled back the curtain on the fundamental worthlessness of its assets. At a time when investors have growing skittish about riskier assets, the value of Bitcoin has fallen nearly 50 percent since October, dropping to below $70,000, proving it was only a matter of time before crypto faced the critical lens it always needed but never truly received.

Back in the day, for at least four reasons, a team of us at CEA were inherently skeptical about non-sovereign digital currencies, like Bitcoin and even more so, stablecoins, which are allegedly pegged to the dollar (one stablecoin=one dollar; in fact, there’s already been a few cases of stablecoins “breaking the buck”). First, especially given that Jeff Zhang (look up his work on this with Gary Gorton) was at CEA at the time, we knew the sordid history of private currencies meting out pain and sorrow. Second, we have a dollar—it’s the global reserve currency—so why do we need a mysterious coin tied to the dollar?

Third, the graybeards among us, i.e., me, had lived through numerous financial crashes and were well schooled in Minskian finance. The great economist/banker understood that as the business cycle progress and the last bust fades in the rearview mirror, investors get their risk back on and are prone to shiny new objects, be they synthetic derivatives and Bitcoin. The investors get ahead of, or, in the case of crypto, purchase, the regulators, and systemic risk proliferates.

Fourth, as we note in the NYT piece, our tech advisers understood and were unimpressed by blockchain technology, which they viewed as a clunky, slow, expensive database.

The whole project lacked compelling, real economy use cases, outside of illegal scams and transfers. (In the piece, we do recognize that digital currencies are used for a small fraction of legal cross-border transfers.)

For all these reasons, it seemed to us that crypto was an accident going out to happen, a volatile, unreliable store of value that it needed to be regulated like the risky asset it was.

…we aired our concerns in the 2023 Economic Report of the President. Crypto is at best a form of private money, which has a long history of ending up in financial ruin. At worst, it is a speculative and highly volatile asset with almost no practical use, whose backers were (and still are) constantly trying to embed it into the financial system, both to increase its adoption and, should the market nosedive, stick taxpayers with the bill.

Sharp regulators, like Gary Gensler at the SEC, were on the same page as us and acted accordingly.

Then the Orange Menace, who in the interim had a highly profitable conversion to crypto advocacy, took over, and the industry got everything they wanted. The problem with that is: be careful what you wish for.

The lack of legal use cases and the cumbersome nature of the currencies meant that what was propping up their value was pure speculation, leavened by a boatload of bros whining that the jack-booted-regulator thugs of the Biden admin were blocking the world from seeing their utility. Take that away, and much as the low tide reveals naked swimmers, the industry and its assets got the scrutiny it sorely needed. Once the curtain got pulled back, investors didn’t much like what they saw.

Neither we nor anyone else can say with certainty what crypto will be worth in the future. But with the most crypto-friendly administration and Congress money could buy, “its boosters have run out of excuses. They may now also be running out of time.”

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.

January Jobs Rise Amid Negative Annual Revisions And Manufacturing Losses

January Jobs Rise Amid Negative Annual Revisions And Manufacturing Losses

Payrolls popped by a strong 130,000 last month, a welcome boost that came in at about twice what was expected and a stark contrast to new, historical revisions in today’s report that significantly reduced last year’s gains. The jobless rate ticked down to 4.3 percent, as more workers entered a workforce that was more welcoming in January than it was last year.

Speaking of last year, there’s a different side to this report showing that the American job machine stalled in 2025. I’ll go deep into the new revisions out today that tell this story, but topline: unrevised job gains for last year were an already historically low 584,000, the weakest year since 2009 (excluding the 2020 pandemic year), but the revised data show just 181,000 jobs created last year, about 15k/month. For manufacturing, the ‘25 count fell even further into the red, from -68,000 to -108,000.

For 2024, the revised gains fell to 1.5 million from 2 million.

So, what in Keynes' name should we make of this good news, bad news story?

Well, it’s a good month to remember that one-month’s data, especially if it’s against the trend, shouldn’t change your broader take. But neither should it be wholly discounted. In fact, the payroll survey has been quite hard to parse lately, and the fact that the unemployment rate (which is from the other survey) has ticked down two months in a row, from 4.54 percent in Nov to 4.28 percent in December suggests the job market is still ticking.

Let’s start with the good news. The January jobs report had a lot of solid data points, though federal gov’t employment is relentlessly tanking.

--As noted, the jobless rate ticked down to 4.28 percent,

--The labor force participation rate for prime-age workers (25-54), a good proxy for labor demand, went up three-tenths to 84.1 percent and the prime-age rate for women rose to an all time high of 78.4 percent, from a data series that starts in the late 1940s!

--A number of indicators suggest stronger labor demand in January: Involuntary part-timers fell by 450,000 (noisy, monthly data, but still…); Black unemployment was 8.2 percent in Novembrer; it’s 7.2 percent in January (though that’s still a point above January 2024).

--Weekly hours worked ticked up, and nominal hourly wage growth held steady at 3.7 percent year-over-year. That’s a solid point above inflation.

--Manufacturing, which, as you see above, took a real hit in the revisions, going from bad to worse, added 5,000 jobs in January, its first monthly gain since November 2024. Good news for the month, but the trend here is firmly negative, and anyone who says “this shows the tariffs are working!” is full of it.

--55 percent of private industries added jobs last month, still below the pre-pandemic share of around 60 percent but up from recent lows.

--Health care continues to outperform; construction and social assistance also contributed to the January job gains.

--Federal governmentt jobs continue to hemorrhage, down 34,000 last month. As the Bureau of Labor Statistics reported: “Since reaching a peak in October 2024, federal government employment is down by 327,000, or 10.9 percent.”

The Revisions

Today’s jobs report contains numerous revisions, one of which—the annual benchmark revision—is particularly consequential in terms of understanding the trajectory of recent payroll employment.

Every year, the level of employment in the payroll survey gets adjusted up or down based on more complete data from the (very-close-to-a) census of jobs the BLS collects for the UI system. This year, the revision was an historically large -898,000, meaning that’s how much lower the level of employment was in March of last year. To avoid a big negative spike in the series, they wedge the -898K in by subtracting 1/12 of that number from the unrevised payroll levels starting in April of 2024.

Even with the January upside surprise, this obviously isn’t good. I’ll explain why in a moment, but there’s a contextual point that must be kept top-of-mind when using these payroll numbers to assess the health of the labor market. Because the growth of the labor force has slowed considerably—deportations, aging workforce—there are fewer job seekers. It thus takes fewer jobs to keep the unemployment rate from rising.

Whenever you go from payrolls to unemployment, you’re crossing surveys. They’re cousins, not siblings. But the fact that the jobless rate hasn’t gone up more, given how flat payrolls were last year, tells us that we need fewer jobs than we did a few years ago to keep the job market on track. Yes, labor demand is down (see payrolls), but so is labor supply (see unemployment rate).

Still, any economic market without churn, whether its jobs or housing, is stagnant. Sure, it’s bad feng shui, but it has concrete, negative impacts, even if layoffs remain as low as they’ve been. It takes longer for new entrants to find work, and a career trajectory delayed is a tougher career trajectory. It contributes to our lower quit rates, which are associated with diminished occupational mobility. It creates less wage pressures, especially for middle/lower paid workers.

Consider, for example, the figure below from GS Research. It shows that if you take the five states with the biggest decline in turnover (hires, fires, quits), you find a steep increase in jobless durations, especially for younger workers. Other data shows this effect to be particular tough for young college grads. (AI? It may be in the mix—I’d be surprised if it wasn’t—but still hard to tell.)

Other revisions including adjusting seasonal factors, which evolve over time and tend not to be a big deal for how we understand history, and the birth-death model, which is a bit more consequential to the jobs count. The Establishment Survey gets its payroll info from over 600,000 individual worksites, picking up 1/4 of actual employment. The BLS then uses sampling methods to weight up the sample to represent the population.

The problem is that there’s “an unavoidable lag between an establishment opening for business and its appearance on the sample frame making it available for sampling. Because new firm births generate a portion of employment growth each month, non-sampling methods must be used to estimate this growth.” So, they must model firm births and deaths, and data from their revised model are plugged into the payroll data starting in April of last year. In the past two months, the revised birth-death model reduced (not seasonally adjusted) payroll gains by about 160,000.

So, bottom line: a strong January jobs report shows that the US labor market is clearly showing signs of life. Demand, even if it’s K-shaped, is still pretty strong, and, at least in January, that helped to boost jobs and lower unemployment. But one month does not a new trend make, and especially given the historically large and negative revisions, we should definitely still consider ourselves stuck in a low-hire, low-fire labor market, with all the dynamic downsides therein.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.

Mainstream Media Still Doesn't Know What To Do With Trump's Big Lies

Mainstream Media Still Doesn't Know What To Do With Trump's Big Lies

A few days ago the Wall Street Journal published an oped by President Trump wherein he argued how great the US economy is on his watch and why tariffs are the main reason for that greatness. It’s a steaming mess of an argument, a firehose of falsehoods, though the one upside is that I haven’t seen it referenced anywhere. It sunk like a stone under the weight of its lies.

I won’t go through them here (though I’m about to link to a strong rebuttal), as it would be a waste of both of our times. Also, as you’d expect, it’s a greatest hits album with all the golden oldies he constantly blathers on about: inflation is zero (vs. 2.7 percent in the last CPI reading), prices are down, foreigners have invested “$18 trillion!” in America (that would be 60 percent of GDP; biz investment is currently 14 percent of GDP). The irony is that, as I’ve often stressed in these pages, the macro economy is, in fact, quite solid, even if the job market has worrisomely softened.

By far, the most potentially consequential macro development over the past few years is faster productivity growth. If that sticks—if we’re really, lastingly generating more output per hour of work—it means the US economy can grow faster without worrying about inflation picking up. Of course, there’s no guarantee that faster growth reaches working-class people in the form of higher wages, income, wealth; often, it has not. But those are all other discussions.

At any rate, I saw no reference to this hot mess until this morning, when a prominent newspaper ran a fulsome rebuttal to Trump’s claims. This new piece points out that solid research shows that, of course, tariffs have not been absorbed by exporters but passed through to American businesses and consumers, generating higher prices on those imports, hurting investment, and making production more, not less, expensive for our own manufactures, who have been aggressively shedding jobs (half of our imports are inputs into domestic production).

That prominent newspaper is the same Wall Street Journal that published Trump’s oped.

What should one make of this? How is one supposed to process the fact that the media publishes, without criticism or an accompanying fact check, a cascade of outright lies, only to rebut it a few days later? What does that say about our collective understanding of reality? And what should the WSJ have done in this case?

If you’re a newspaper with an oped page, and the President gives you an oped, you can argue that such a piece is de facto newsworthy. As the Journal editors themselves said in their rebuttal, “We thought we owed him the opportunity after our criticism of his tariffs.”

But unless his argument is fact-based and substantive, that’s ridiculous. The WSJ’s criticism of Trump’s tariffs has been wholly fact-driven—they’re consistently done great work on this, and I say that as someone whose ideology differs sharply from that of this ed board. If they say 2+2=4, nobody, not even the president, gets to pushback with 2+2=5.

I give them some credit for coming back with “no, it’s 4.” But that doesn’t fix what’s broken here.

I had a similar complaint about the New York Times' recent big-deal interview with Trump in the Oval. You can listen to the recording. They ask a question. He lies. They move on to the next question.

The only way to understand this is as performance art. It’s not a discussion about reality, facts, how policies play out in the real world. It’s a game, wherein Trump describes his alt reality and the media prints it because he’s the president and his reality matters. Which is true. It matters a lot and it’s one of the main reasons we’re in the mess we’re in. Never before has a president and his whole operation been so detached from reality, to the point wherein we see horrific things with our own eyes and they immediately say “no, that’s not what happened.”

But this is not benign, cute, or harmless. It’s not “oh, there he goes again! Whaddya gonna do? He’s the POTUS! You’ve got to run it.” It’s not just another flavor of our intense partisanship. It’s corrosive at best and fatal to democracy at worst. Allowing this false reality to fester has now been shown to be literally fatal to our fellow citizens.

I’m not a media expert, and I’m well aware that they’re in the business of selling news, and that clickbait = $ (though again, no one seemed to pick up on Trump’s op-ed). But there is no question in my mind that publishing falsehoods, even from the president—especially from the president—is not worth the money.

You may be thinking, “hey, it’s the op-ed page, not a column.” Well, I’ve written lots of op-eds and in every case, the editors insist that facts be verified. I’m not the president, but there’s absolutely no reason that the same rules shouldn’t apply.

Yes, of course, they have to cover him. But not like this.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.