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Bad Policy, Bad Jobs Data -- So Trump Wants To Erase The Numbers

Bad Policy, Bad Jobs Data -- So Trump Wants To Erase The Numbers

We learned two important, though entirely unsurprising, things last week. One, bad policy matters. It will eventually show up in the data. Two, when it does, the authoritarian responsible for the bad policy won’t like that data, and he will move to block it.

We now have a greater sense that the expected negative impact of Trump’s misguided economic agenda is becoming apparent through the fog.

Prior to last week, I’d often written that while I was seeing cracks in the US economy, they were much more in the soft data—confidence surveys, business plans—than in the hard data. But after last week’s dataflow, there’s more of a hard-data case that if you relentlessly throw terribly misguided policies at the economy, it will eventually cry uncle.

Last year, real GDP grew at 2.5%. So far this year, it’s growing at 1.2 percent. Last year, real consumer spending was up 3%; so far this year, it’s at 0%. This week’s core PCE inflation rate for June came in at 2.8 percemt over the past year, far above the Fed’s 2% target. A few months ago, core (non-energy) goods inflation was around zero; now it’s tracking 3 percent.

The pace of job growth over the past three months was 35,000. That’s far too slow—should it stick—to keep the jobless rate from rising, and in fact unemployment did tick up in July, from 4.1 to 4.2 percent. That’s still a pretty low rate, but we should all be worried about the direction of travel.

On that job-growth deceleration, I know some folks are trying to figure out what to make of the large negative revisions in the payroll data, about which I’ll say more in a soon-to-come future post, but the revisions, while large, made sense to me. I agree with Goldman Sachs researchers on this point:

In our view, the payrolls data had been a bit more puzzling before today’s downward revisions. Payroll growth had sharply outperformed the signal from big data indicators of job growth over the past couple of months, and now has decelerated to a pace that is closer to what other indicators show.

I take zero pleasure from the incoming evidence that President Trump is squandering his inheritance of a strong economy with his trade war, the big, ugly bill, deportations, Fed harassment, and so on. But as the researchers say above, it was more puzzling when these actions weren’t showing up in the data.

Tariff-Induced Inflation is Likely to Worsen

In a piece for msnbc.com, I recently explained why I think we’re seeing the tip-of-the-spear in tariff-induced inflation:

First, Trump is escalating the fight. There was a moment after the first “Liberation Day” on April 2 when tanking markets forced him and his team to temporarily return to reality, pausing the tariffs for 90 days and generally looking for off-ramps. But those days are behind us, in part because markets appear to have, at least for now, adjusted to the trade war, while the hit to consumers is much more of slow burn than a market crash.

Second, this Post article points out that big companies such as Procter & Gamble and Walmart are explicitly raising prices because of tariffs. Other companies, including Ford and GM, and also talking about big, tariff-induced hits to their bottom lines (Ford estimates a $2 billion hit this year). These companies know the Trump administration doesn’t take kindly to such pronouncements. Yet they’re telling it like it is, in part because more consumer pass-through — and thus more price pressures — will be forthcoming.

Third, there were two buffers that heretofore sheltered consumers, both of which are eroding. One was the inventory buildup that started when Trump returned to the Oval Office, as importing firms aggressively stocked up ahead of the tariffs. The other was squeezing profit margins built up during the pandemic to avoid immediately antagonizing inflation-weary consumers. Both buffers worked for a while, but both data and anecdote reveal that they’re winding down.

To be clear, I don’t think inflation is or will be spiraling up. This trade war will continue to cause a lot of pain both here and abroad, but we shouldn’t forget that goods imports, which were under three percent of GDP in the 1950s, are still only around 11 percent But neither would I count on trade-war inflation being any sort of one-and-done phenomenon.

The problem is the August 1, or August 7, or whatever-it-is deadline is no deadline at all. Trump will continue to war with other countries around trade issues, especially when his minions have to confess that the side deals—all those billions other countries said they’d buy from and invest in the U.S.—are all flimsy, unenforceable nonsense. My strong prior is that Trump doesn’t stop negotiating trade “deals” until he leaves the building.

Authoritarian Statistics Are Different from Real Statistics

Along with 221,000 unemployed in July, there was another consequential job loss this week: that of Erika McEntarfer, the former Commissioner of the Bureau of Labor Statistics. Ms. McEntarfer worked for me at the CEA, so I have up-close experience with her work, which is top-notch. She’s extremely knowledgeable, especially about labor-market data, and, like most people who really understand their work, can plainly explain it. And she’s all about the integrity of the numbers. Her thumbs will never be seen anywhere near the scales.

But when someone who resides in an alternative reality is hit with evidence that contradicts that reality, he can reject either his false edifice or the evidence of its falsehood. Trump, predictably, chose the latter.

Does this mean we can we now no longer trust the numbers from BLS or the other government agencies? I’ve long been asked this question a lot by people worrying that the Trump administration would have no compunction against cooking the books. I’ve always shared that worry but I know these agencies, all of which are staffed by public servants with high integrity and a strong culture of delivering the most accurate data possible. They would not play along with book-cooking.

But I’m now more worried about this than I’ve ever been. I still believe that, for now, we can trust the numbers. The staffs are still in place. If—I’d say “when”—Trump puts in a lackey as BLS commissioner with orders to serve up better jobs numbers, regardless of what the actual data say, the staff would resist and we’d likely hear about the pressure on them to lie.

But there are other ways he can go, including cutting budgets (thereby lowering survey sizes and response rates, leading to less accurate statistics), firing other key personnel, delaying publications, or whatever such chicanery they’re cooking up in their cabal of a White House.

What he showed by firing McEntarfer is that he wants to control and manipulate the facts. That’s neither new nor surprising but it is a step further than he’s gone heretofore. Before this, Trump could say the unemployment rate “is 28, 29, as high as 35. In fact, I even heard recently 42 percent,” as he did when he was running for office and lying to make things look worse, but we could pull up the data and show that he’s wrong.

We are now a firm step closer to not having, at least from an official source, that actual data. And that same firm step takes us down the path to a failed state, a banana republic, an Orwellian, authoritarian regime where the facts are what the leaders say they are.

What a Week

All that in one week.

To which I say, stay strong, my readers. This is far, far from over. The data are still intact and they’re showing with increasing clarity that Trump’s awful economic policy is hurting people. And with the tariffs, they’re hurting people in an especially economically sensitive place: by making life less affordable, which in poll-after-poll is the number one problem with which people say they’re struggling.

Trump can fire all the messengers he wants, but that’s not going to repair the damage he’s causing. It is thus up to the rest of us, with an even greater urgency than existed before, to relentlessly make sure everyone knows, in whatever outlets we can access, with whatever accurate data and anecdotes we can muster, what he’s doing and what impact it is having.

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 column for free at Jared's Substack.

Reprinted with permission from Substack.

trump administration

Not Too Soon To Ask How We Can Repair Trump's Wreckage

One of the more interesting, and more hopeful, questions I like to think about is: how long will it take to repair the damage done by the Trump administration? As a member of the Biden admin, I have personal experience fixing some of what got broken in Trump 1. (EG, they did a good job supporting the creation of the COVID vax but blew the distribution; also, international relations).

The trade war is an obvious candidate, but we now need to think about their newly passed budget bill in this context.

The more one learns about the bill, the more it resembles a computer virus embedded in our economy and society, infecting policy in dozens of areas, and such viruses are hard to extract. The big ticket items—the upwardly skewed tax cuts and downwardly skewed spending cuts—have gotten ample attention. The cuts to renewable energy production, a bit less so; same with reductions in debt relief for college loans. And then there are a slew of “earmarks”—tax breaks for special interests—that have gotten very little attention. Politico does an excellent job collecting e.g.’s, some of which I relegate to an appendix.

Extracting such a virus will require the same type of focus and drive that Trump and the Republicans brought to the task. In a recent post, I argued that Ds need to both emulate this focused energy while reverse engineering the tariffs and budget on behalf of actually helping people who need it, versus pretending to do so while screwing them.

What will that look like?

Unwinding the sweeping (versus narrowly targeted) tariffs, given that they’re non-legislative, should be a slam-dunk, though it will require Ds not to fold when some interest group, be they industry or union, objects.

We’re also going to have to be willing to both unwind some tax cuts and seek new revenues. We already did some of the analytic work re the latter task in the Biden administration: our proposed budgets—which never got anywhere in the divided gov’t we mostly faced—proposed significant, highly progressive revenue-raising tax hikes, but only on a narrow slice at the top of the income scale. That’s not enough to get back on a more sustainable fiscal path, which is where we need to be if we’re going to not only reverse the new cuts in the safety net but also address affordability shortfalls in housing, child care, health care, and higher ed. But it’s the right place to start, as shown in this chart from Brendan Duke (see third bar).

That shouldn’t be a heavy lift for Ds, at least not for those who aren’t in the same donors’ pockets as the Rs who passed this beast. In fact, our proposed tax hikes above $400K had a lot of support from Ds, many of whom pushed us to go further.

They were right, and this means that Democrats are going need some spine to reverse tax cuts in the bill that have some constituent support but are terribly designed. The no-tax-on-tips leaves out a big group of tipped workers with no federal tax liability from which to deduct the tax break (they’d get actual, and much needed, help from an increase in the federal minimum wage, still stuck at $7.25!). And while the tip deduction may help some of the waitress, it does nothing for the cooks. The $6,000 seniors’ deduction, along with the lifting of the SALT cap, mostly give more money to people who are doing fine without the extra help.

Next, we’ll need to restore the cuts to the safety net. Again, this should not be a heavy lift for Ds, especially given the vast unpopularity of these cuts. The questions at that point will be more about expansion. Health coverage and groceries are at the heart of the affordability crisis, points that should lead attacks on the bill (the cuts mostly kick in after the midterms, so this argument must be made in bomb-defusing terms I discuss below). Thus, expanding coverage further up the income scale is worthy of consideration, as is lowering the age for Medicare eligibility. Again, this takes revenue, which circles back to reversing tax cuts and adding new revenue increases.

Then we’ll need to get back to the industrial policy that was generating important, significant investment in renewable energy production. This too shouldn’t be a heavy lift as the production tax credits that the bill ends had very broad support, which is one reason for the deep unpopularity of the Trump budget. Even traditional Rs like the Chamber of Commerce and energy companies that recognize renewable energy production is part of their and our futures don’t understand the motivation for these cuts which seem to be driven wholly by Trump’s nostalgia for coal and distaste for wind turbines blocking his view.

Reversing the harsh deportation measures, along with funding for the wall and ICE, must also be part of this effort, but this one is complex and deserves its own later post. Any Democratic action in this area must be forthright about the need to maintain secure borders. But fair-minded people should all take solace from the fact that the Trump admin’s cruelty in this place is recognized by majorities of Americans, who are both unhappy and shocked by the ongoing extremism of masked, unidentified people grabbing people off the streets and throwing them into vans and airplanes, not to mention the local realities of losing a significant chunk of their workforces.

The only way we’ll be able to do any of this is through the same budget reconciliation process that the Rs used to pass this bill (it avoids a Senate filibuster). Which is another way of saying that the ability to right the wrongs being perpetrated is conditional on Trumps’ opponents gaining power. This, in turn, requires us to deal with the timing of the bill wherein many—not all—of the goodies (tax cuts) come first and the pain (health coverage and SNAP cuts) come later. But campaigning on defusing a time bomb seems like a perfectly reasonable strategy to me, especially if we keep the pressure on by constantly pointing out the falsehoods used to sell the package.

For example, the admin claims deficit reduction from the bill starting this year, followed by quite large reductions next year. That’s unlikely, and requires tracking. Ending credits for the production of renewable energy occurs this year and next, and this too should be scrutinized for job losses and energy-cost impacts.

I hate to say it but this is only day 167 of this administration. There will be a lot more damage to reveal and elevate along with damage-reversal planning to do as the months roll on. But, especially in the days around July 4th, I like to think about this as a labor of love for this country, which needs a whole lot of that right about now.

Appendix: Earmarked tax breaks in the new bill that you might have missed.

From Politico:

Senate Republicans not only kept a House-approved provision exempting gun silencers from a long-standing $200 tax on firearms — they dumped the tax on all guns it applied to, except machine guns and what the legislation terms “a destructive device.” That cost: $1.7 billion.

There’s a new supersized deduction for business meals — though only for employees at certain Alaskan fishing boats and processing plants, with the measure stipulating the facilities must be “located in the United States north of 50 degrees north latitude” though not in a “metropolitan statistical area.”

There’s a $2 billion break important to the rum industry and, tangentially, Louisiana, said Sen. Bill Cassidy (R-La.), a tax writer…“We have the highest per capita intake of alcohol in the nation,” he said.

…an expansion of a little-known break that Silicon Valley investors have used to nix tax bills on tens and even hundreds of millions of dollars in earnings from Internet startups. Another spends $26 billion to create a new $1,700 credit for people who give to groups providing scholarships for children to attend private school.

Sen. Mitch McConnell (R-KY) secured a $7 billion tax cut for farmers that allows them to postpone paying some of the capital gains taxes they owe when selling off farmland.

…a $1 billion provision allowing “spaceports” — which the legislation defines as “any facility located at or in close proximity to a launch site or reentry site” — to sell tax-exempt bonds…Sen. Ron Wyden, the chamber’s top Democratic tax writer, said in an X post that “Trump’s wedding gift to [Jeff] Bezos and birthday gift to [Elon] Musk were tucked in the new budget bill.

Reprinted with permission from Substack.

We Can See Trump's Economic Agenda Now -- And It Won't Work

We Can See Trump's Economic Agenda Now -- And It Won't Work

At this point, it’s clear to see that the Trump administration, along with their Congressional allies, who sit on their hands when told (tariffs) and raise them when told (the budget bill), are aggressively and successfully implementing a big, new economic agenda. As I’ll describe, it won’t work. It’s wrongheaded, ill-founded, and will hurt the people they said they want to help.

But before we get into that, I will give them this: they’ve been remarkably successful at moving policy through a clunky, incalcitrant political system, in part because they’ve legislated none of it so far (should it pass, the budget bill will be their first big piece of economic legislation; their crypto/stablecoin bill is stuck in the House, though this too is part of the plan, as I note below).

When I say “remarkably successful,” I mean the rest of us should learn from them. I’ve spent many years in gov’t, including in the Obama and Biden admins, and we self-imposed infinitely more barriers on what we wanted to do then the Trumpies (the same could be said for any admin since FDR, though he, of course, went the legislative route, one the Trumpies avoid). Basically, when a lawyer said “can’t do that,” or a political adviser said, “can’t go there because X won’t like it,” we listened.

Not these folks. They just do what Trump wants, and if the courts or some constituent group doesn’t like it, too bad. Their relentless energy to jam through their agenda, evil as it is, is a site to behold. I keep thinking, what if we did this with higher minimum wages, or abortion rights, or gun control, housing and child care, etc.?

I don’t want to overstate this case. Of course, exec orders can be and are flipped on day one by a new admin. And, as a naturally cautious, risk-averse dude, I’m sympathetic to measure thrice, cut once, vs. the Trumpies, “don’t measure! Cut!” But Ds need to learn some boldness from these folks about implementing your agenda.

Okay, with that off my chest, let’s look at their economic agenda, which is now in plain sight.

—Reduce global trade in order to reduce the trade deficit and reindustrialize U.S. industry. This one will fail for many reasons. First, they mistakenly view any trade imbalance as evidence of someone ripping us off, which is no more valid than arguing your grocery ripped you off when you willingly shopped there. Second, it’s too late to unscramble the globalization omelet: almost half of our imports are inputs into our own domestic manufacturing, which is why trade wars hurt, not help, domestic production. Third, there will be no reindustrializing. Even countries with persistent trade surpluses have their manufacturing job shares in decline.

What will happen instead is higher prices for imports, some new revenue from the tariffs, some protected industries, like steel, doing better than they would have otherwise, though at the expense of other industries that buy tariff-induced, now-more-expensive outputs. Growth will, on net, be a bit slower for a time (assuming they eventually set the tariff rate and stick with it, a strong assumption), and inflation and interest rates higher for a time as well.

—Deport undocumented immigrants for the crime of being undocumented. I’ve had the misfortune of hearing Stephen Miller talk about the economics of this plan, which suggests he stuck with econ 101 for a few weeks and bailed too soon. His idea is that if we reduce the supply of labor by kicking out undocumented workers, employers will have to pay more to domestic workers.

This won’t work either. That is, as the figure shows (from Axios this AM), it will work in reducing net immigration, and, as I’ll discuss below, border control is a highly legit goal (of course, this goes way beyond that). But it will hurt the economy. For one, reducing labor supply is a negative for growth, one which will especially pinch in sectors like construction, health care, restaurants, meatpacking, hospitality services. For another, and this is a flaw in Miller and many others’ understanding of these dynamics, immigrants don’t just bring supply. They also bring demand.

With the push against immigration, "the economy will find itself slightly diminished in the long run and inflation will run a touch higher," economist Bernard Yaros writes in a report for Oxford Economics…

“The arrests cast a shadow over the local economy. Restaurant tables emptied. Kitchen workers stayed home. Fruit vendors disappeared from the streets. The number of shoppers at stores shrank, and those who still went didn't linger for long…"

"That means crops are not being picked and fruit and vegetables are rotting at peak harvest time," farmers and farmworkers told Reuters.

—Gut the safety net to very partially offset large tax cuts for the wealthy. This one is quite different from the first two because it explicitly and demonstrably hurts working class people (the above two do so as well, but as second-order effects; this one is first order). Here we have Trump in traditional R mode, passing a deficit-financed budget with which Reagan and the Bushes would be very familiar. But even they would be, like, “Wait up, Donnie. We always gave a few crumbs to the bottom end so we could say we we were helping everyone. We gave a little to the poor and a lot to the rich; we didn’t take from the bottom to give to the top.”

Like everything else here, it won’t work in terms of helping working class people because trickle-down never works. It will “work” in terms of enriching their traditional donor class. It it is also likely to eventually raise interest rates, potentially making debt service a much heavier lift than we’ve seen before (as we argue in a new paper, out soon).

—Block the production of renewable energy. This couldn’t be clearer in the big, stupid bill, and it’s so ridiculous that even traditional Rs like the Chamber of Commerce and energy companies that recognize renewable energy production is part of their and our futures don’t get it. It seems to be driven wholly by Trump’s nostalgia for coal and distaste for wind turbines blocking his view.

It won’t work in the sense that it will cost jobs, make energy more expensive, and slow us down in the global AI race.

There are other cats and dogs I won’t go into. A big one is compromising Federal Reserve independence. Kings don’t like independent Fed chairs, but this one will also backfire bigtime. History is clear that loss of central-bank independence is inflationary. (Jason Furman and I had a good talk yesterday about this and much of the rest of the above, here.) They’re also trying to normalize crypto and integrate it into the larger financial system. To say “that won’t work” is an understatement. Depending how far this highly volatile asset with zero use cases integrates into the system, it’s a future financial crisis in the making.

Also, as noted, controlling the border is, by definition, integral to having a country. And unfair trading partners exist. IOW, there are germs of truth in those parts of the agenda, but, and this is an aspect of their approach we should decidedly not emulate, they always go to the sledgehammer when the scalpel is what’s needed.

To say, as I do here, that an agenda that is in place won’t work is to make a empirical bet. I’m predicting worse growth, price, job, and interest rate outcomes than would otherwise occur. And this being economics, with millions of other variables endlessly zipping around, I could be wrong. If so—and it will take some time to know—I’ll be the first to say so. But I think and fear that I’m right.

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 column for free at Jared's Substack.

Reprinted with permission from Substack.