The stories you want. The opinions that matter.
No, thanks
{{ site.specific_data.Twitter }}
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.

Can The Damage Trump Is Doing Be Stopped? Can It Ever Be Repaired?

Can The Damage Trump Is Doing Be Stopped? Can It Ever Be Repaired?

This year, real GDP is expected to come in at around 2.5 percent, a perfectly healthy growth rate. Last seen, unemployment was 4.4 percent, higher than I’d like but still relatively low, and real wages were beating prices by about one percent, a respectable increase in paycheck buying power. Investment in American businesses are pretty robust, especially in tech (where bubble worries persist) and the S&P 500 is up 17 percent, year-over-year.

Oh, and the President of the world’s premiere superpower is aggressively and persistently threatening to take over the territory of Greenland, an entity controlled by our NATO ally Denmark. His latest rationale is that he was snubbed out of the Nobel Peace Price.

That would be laughable—the plot of a satirical comedy for which you’d have to suspend disbelief to enjoy—had we not learned by now that he’s not kidding. He may back down; he often does. But he may not. And much else that’s transpiring due to Trump and his regime’s reckless, illegal, hateful actions are as far from laughable as you can get. Innocent people are dying with no sign of accountability.

The problem is that these two phenomenon are inversely correlated. As long as the economy trundles along okay, Trump gets degrees of freedom to ply his crazy that he’d likely lack if the economy’s wheels came off. Remember, he lost in 2020 not because of his lousy governance over most of his term, but because he blew it on COVID.

Which raises the question of how both dynamics—Trump’s increasing untethered actions and a solid overall economy—can coexist.

Here’s how Ben Casselman gets into the conundrum outlined above:

For all the chaos along the way, President Trump’s first year back in the White House is ending with an economy that looks, by most conventional measures, much like the one he inherited. Unemployment is low, consumer spending is strong and inflation is stubbornly high but gradually improving.
Tariffs, Mr. Trump’s signature economic policy, haven’t set off the manufacturing renaissance he promised, but nor have they caused the surge in inflation that many forecasters feared. The stock market bobbed and weaved its way to a solid if not spectacular 16 percent gain. Analysts who began 2025 warning of the perils of uncertainty ended it by remarking on the U.S. economy’s surprising resilience.

There are sound economic reasons for this paradox of relative economic peace amidst presidential madness.

—As I recently discussed, outside of shocks to system, like a 100-year pandemic, presidents don’t have that much to do with near-term, macroeconomic outcomes. They can make a consequential difference to who benefits and loses—cutting health care and nutritional support to help offset the cost of tax cuts tilted toward the wealthy is a germane example. They can influence near-term distributional outcomes, but less so near-term growth outcomes.

—The U.S. economy is relatively insulated from the rest of the world. Our imports as a share of GDP are 11%; for Germany, that number is 30%. Our limited exposure doesn’t fully block the corrosive effects of Trump’s tariffs, which are clearly implicated in the difficulty our manufacturers are facing—they’re basically in a recession, with employment down 68,000 last year alone. But it’s one reason why the tariffs’ inflationary impact has been limited to around half a percentage point so far.

—Near-term boost, longer-term drags. The word “corrosive” above is operative. The deficit-financed tax cuts from big, dumb budget bill are expected to juice growth this year, but even long-term budget doves like myself worry that they’re already putting upward pressure on interest rates. And when you're carrying $30 trillion in debt (100 percent of GDP), each new point on the rate is $300bn in debt service.

—Another source of longer-term corrosion is, of course, the deterioration in America’s relationship with the rest of the world. As you probably know, Trump is threatening more tariffs on those EU countries who have stood up to him on Greenland, giving rise to talk of EU retaliation. In fact, the European bloc is our largest trading partner, the destination for most of our foreign investment as we are the same for them. They purchased almost $300bn in US services exports in ‘24, making them the largest contributor to the US service-trade surplus. These are just the economic costs of Trumpian isolationism, but the point is that while these cross-border investments and trade flows don’t shift on a dime, they can and do shift.

Source: US Commerce DepartmentChart by Andrew Barnett/WSJ

—It is still too soon to tell if Trump will be able to undermine the independence of the central bank, which has continued to perform important technical work in the background, helping to support the economic expansion (I’ll be paying close attention to the Lisa Cook case argued in SCOTUS tomorrow). Should he get the power to implicitly takeover the Fed (by loading it up with those who will do his bidding), longer-term growth will suffer.

For what it’s worth, which ain’t nothing, global financial markets appear to be waking up this AM to the fact that Trump may be serious about trade-war escalation. Bond selloffs in Japan are now hitting here as well; the 10-year yield is back up to 4.3 percent, its highest since last September. Equity markets are poised for a big negative open. Trump himself is on his way to the Davos Economic Summit, where global elites meet to schmooze in the Alps. Awkward, right??!!

There are at least two big questions posed by these current events. First, can the damage this presidency is creating be stopped before the broader negative outcomes kick in, and two, is the damage repairable?

I have more faith in question two than one. There are simply no grownups in Trump’s immediate orbit, in no small part because they’re not allowed in the room. Republicans are useless; they not only fail to constrain his actions, but they happily turn over the keys. I don’t see how they face their constituents, at least the non-MAGA ones, or for that matter, how they can accept their paychecks with a straight face. They’re not doing anything other than violating their oaths of office.

But history tells us repair is possible. Our nation has come back from worse than this. That said, such history is only valid if the center holds, meaning democracy remains intact enough to have elections that banish the barbarians from the castle. As I see it, that’s our only way out of this mess, and there is a lot that can happen to threaten that existentially important outcome between now and then.

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.

Assault On Federal Reserve Is Not Only Unlawful -- It's Economically Insane

Assault On Federal Reserve Is Not Only Unlawful -- It's Economically Insane

News broke last night that at Trump’s behest, the Federal Reserve received grand jury subpoenas from the Justice Department, threatening a criminal indictment against Chair Jay Powell. The charges are nonsense—nothing about monetary policy; just ginned up, phony accusations that Powell lied to Congress regarding the renovations of Fed buildings—and markets are reacting negatively this morning to this threat to the central bank’s independence, as they should, with equity futures down, gold and interest rates up.

Trump’s attack on Powell and the Fed for not lowering interest rates more aggressively than they’ve been doing has been ongoing since he got back in office. And until now, Powell’s response has been to keep his head down, even when that head was covered with a hardhat, not engaging with Trump and calmly doing data-driven monetary policy.

No mas. It takes a lot to get our embattled Fed chair to take the gloves off but that’s what he did, releasing this powerful statement and video last night (my bold).

This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress’s oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.
This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation.
I have served at the Federal Reserve under four administrations, Republicans and Democrats alike. In every case, I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment. Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people.

There are many reasons why Trump’s latest attack is just plain dumb.

First, the renovation pretext is phony baloney. Powell’s statement re this is correct. He did not lie to Congress, and I wouldn’t be surprised if Trump and co. fail to even get the grand jury to indict. As you likely know, there’s precedent for such failures lately as high-level cases (Letitia James, Comey) brought on flimsy evidence and flawed procedure have collapsed.

Second, Powell’s term ends in a few months. True, he could move from the chair to the committee, wherein his term would last two more years. But to the extent that Chair Powell is a problem for Trump, May is not far off. Why create all this market-moving angst? (I have an answer to that below.)

Third, while Trump can and will replace Powell with a someone to do his bidding on rates, the chair is but one member of the committee that votes on Fed interest rates, so for Trump to prevail he’d have to replace more members with his puppets. True, he’s working on that too, and perhaps this latest move is intended to intimidate the others.

Fourth, market investors are, as noted, not happy with this new action. Many of these participants are aware of the fact that history is littered with economies that have been severely damaged, typically through runaway inflation, when the political independence of the central bank is compromised. There’s a plausible scenario wherein even as a Trump-driven Fed is lowering rates, markets could push hard in the other direction.

Fifth, the Fed is already lowering interest rates! They have to do so step-by-step, versus Trump’s demands for bigger cuts, but there’s no credible, responsible Fed that would cut at the rate he demands.

Finally, this Fed under Chair Powell’s direction is doing precisely what we need him to do and what he said in his statement: “set[ting] interest rates based on evidence and economic conditions.” Not on political considerations, but on economic and financial ones. And, while close Fed-watchers will always have some legitimate beefs with the central bank’s implementation of monetary policy, they’ve got a very solid record, most recently helping to pull off a rare “soft-landing,” helping to bring down inflation without causing an economic downturn.

Source: Federal Reserve Board/Haver Analytics

I am fortunate to be friends with David Wilcox, a former high-ranking Fed staffer (director of research) who is one of the most respected voices these days on all issues regarding the institution. Here’s his highly efficient summary of this moment.

President Trump is clearly frustrated that he hasn’t been able to force the Fed to set rates based on his wishes rather than the cold analytics of the situation. This is his latest effort to escalate the battle. Unfortunately for the President, he has chosen to do battle with someone not prone to being intimidated — because that’s not Jay Powell’s personal character and because Powell has some pretty robust institutional protections coded in the Federal Reserve Act.

Exactly.

Like I said, this case may not even have the legs Trump seems to think it does. What I think he’s doing here is just desperately flooding the zone on a daily basis, weekends included. Whether it’s illegally invading a sovereign nation, shamefully avoiding accountability for ICE killings, throwing out one bad “affordability” idea after another, harassing private businesses to do his bidding (most recently, oil companies who are wisely cautious about investing in a highly unstable country), or trying to undermine the independence of the Fed, he’s flailing like a madman. The only king he reminds one of at this point is King Lear.

The goals are to push the Epstein files out of the news, to “stick it to the libs,” to manifest his xenophobia, enrich himself, distract the media, etc. And don’t get me wrong: I’m not dismissively saying none of this matters. Of course, it does. But at this point, it’s just a constant firehose of destructive, and even murderous, chaos.

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.

A Decent Slice: The Affordability Crisis Isn't Only About Prices

A Decent Slice: The Affordability Crisis Isn't Only About Prices

As readers know, I yield to none when it comes to elevating the affordability crisis, along with the policy and politics therein. But in most of my work in this space, I at least tip my hat to the fact that it’s not just about P (prices). It’s about Y/P (where “Y” is income, so Y/P is inflation-adjusted, or real, incomes). By which I mean, affordability is not just about prices. It’s also about how far your paycheck goes, given how much things cost.

As Neale Mahoney and I wrote a bit ago:

Another way in which economists historically think about affordability is in terms of the real purchasing power of paychecks and incomes. That is, we are more prone to think about incomes relative to prices (Y/P) than prices in isolation. This makes good economic sense as an equal percentage increase in prices and incomes has no impact on affordability in real terms.

We go on to point out, however, that this…

…is not how most people tend to internalize the problem. As recent research by Stefanie Stantcheva has shown, people tend to credit themselves for wage or income gains but believe price increases are imposed on them by outside forces. This means that even when a price increase is matched by a wage gain, people end up feeling worse off.

I’m acutely aware of how much price levels—what things cost—have been a core source of economic angst for a good while now, which is why I’ve been devoting most of my policy time working with folks to craft affordability policies.

But that said, I’ve lately been seeing affordability takes that go too far for my comfort in leaving off the income part of the equation. A typical example shows a price of a good or service on the affordability docket, like groceries, going up over time, and declaring that therein lies the problem.

That’s a mistake on numerous levels. Progressives, especially in periods of rising inequality, have long argued that workers’ paychecks should grow closer to the rate of productivity, which is a fancy way of saying that the bakers, not just the bakery owners, ought to get a fair slice of the pie they’re baking. But, of course, as the Economic Policy Institute has long shown, that’s not always been the case (though contrary to claims that inequality only goes up, there are periods, often during full employment labor markets, wherein median compensation growth kept pace with productivity).

The table below provides a useful microcosm of this story by tracking the growth in both hourly wages and groceries over various time periods. Over the long-term, since the mid-1960s, annualized wage growth has outpaced grocery-price growth by a half-a-percent per year. Cumulatively since 2019, grocery prices are up by almost a third, which is a lot for this series, but wage growth is up almost six percent more since then.

Bureau of Labor Statistics data through August 2025, wages for production non-supervisory workers

However, the ‘21-’22 period, when inflation spiked in general and groceries in particular, wage growth lagged well behind. Though affordability issues had loomed large well before this shock, it was this sudden, huge jump in the price level—and again, not just groceries, but gas too, especially post-Russia’s invasion of Ukraine—that unleased the affordability crisis that remains predominant today.

How that crisis eventually dissipates must be some combination of these events: prices fall back to where they used to be, incomes growth outpaces price growth, effective affordability policies take hold, and time passes. Falling prices are very unlikely and, because it would take a huge, negative economic shock—think deep recession—to get there, not desirable (of course, removing the tariffs would definitely help for specific goods). I suspect if you asked the average person would you rather egg prices go back to where they were if it meant losing your job, they wouldn’t take the deal.

Policy work can help too, but a) not until competent policymakers are in power, and b) policymaking and implementation take time. And speaking of time, its passage is a critical piece of the puzzle. You don’t see me walking around enraged that gas is no longer $0.60/gallon, which it was when I started driving. In fact, the combination of low inflation, income growth beating that low inflation, and time passage is a reliable recipe for affordability, though, as noted, structurally unaffordable sectors like child care, health care, and housing must be addressed and ameliorated by policy.

I mentioned income growth above, so before we close, let’s look at that. Because hourly wages are the fundamental building block of working-family incomes, they were the focus of the grocery table above. But affordability at the household level is a function of n*h*w/p, were n is the number of people in the household who are working in the paid labor market, h is their average annual hours of work, and w/p is their average real hourly wage (and that’s just market incomes; non-market incomes, like tax credits, unemployment benefits, etc., also matter).

Here’s real median household income. Because of n and h in the formula above, it’s somewhat cyclical. In this regard, solid research reveals that tight labor markets help boost the bargaining clout of middle and lower-wage workers, boosting n, h, and w/p. But if you eyeball the end of the figure, you see the pandemic and the inflationary spike that followed led to sharply falling household incomes. From 2019-22, nominal income grew eight percent which isn’t bad, but inflation grew 13 percent, with the difference, -five percent, being the rate at which real income fell. That too is a source of the current affordability crisis.

But doesn’t the figure show household income jumping back up, and doing so with a slope that’s as steep as any other in the picture? Yes, it does, and that’s a key ingredient of the recipe above, driven by lower inflation, the strong job market, and solid real wage gains that for awhile there were stronger at the bottom of the pay scale than at the top. But you’ll also note that the recent gains just take the real income level back to where it was pre-pandemic, and that too feeds the affordability crisis.

Bottom line, while prices are understandably a current obsession, and the Stantcheva point above regarding the psychology of these dynamics is also in the mix, we must not ignore or downplay the importance of the earnings, incomes, wealth. They are just as important to affordability as prices, and the gap between real pay and productivity—i.e., wage inequality—is an historical factor that has played a key role not just in how people feel about economic fairness, but in how they vote about it.

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.

\



After The Blue Wave, Affordability Trumps Tariffs At The MAGA White House

After The Blue Wave, Affordability Trumps Tariffs At The MAGA White House

Among the many fallouts from the mini-blue-wave election earlier this month was Trump and the White House finally picking up on the affordability challenges that are besetting so many American families.

True, Trump labeled the issue a “Democratic con,” claimed costs were already way down, and said he didn’t want to hear about it. And yet, the White House just announced that their “reciprocal” tariffs will no longer apply to a set of groceries including coffee (price up 19% percent over the past year), ground beef (up 13 percent), avocados, tropical fruit (oranges, mangoes, bananas, pineapples), and more.

What are the economics and politics in play here?

On the economics, even tariff supporters had a hard time supporting tariffs on goods and sectors that we were never going to develop in America, like coffee and bananas. And Trump never tried to hide his motivation for his 50% Brazilian tariffs: to support fellow authoritarian Jair Bolsonaro. But Brazil is a big exporter of both beef and coffee, so those tariffs have been removed.

Will formerly tariffed grocery prices quickly fall? From the AP:

The Food Industry Association, which represents retailers, producers and a variety of related industry firms and services, applauded Trump’s move to provide “swift tariff relief,” noting that import U.S. taxes “are an important factor” in a “complex mix” of supply chain issues.

Um…"swift relief” for whom? As noted, these tariffs boosted consumer prices, but a) they are not the only factor in play (e.g., beef prices have been impacted by drought), and b) consumer passthrough has not been dollar-for-dollar. Analysts, myself included, have pointed out that tariffs have been partially absorbed by thinner profit margins, so ending the tariffs could show up as higher margins.

But it’s reasonable to assume that the consumer passthrough that has occurred will unwind and these prices will come down some, though be aware of the rockets/feathers story: a positive price shock will quickly lead to a price spike (rockets) while a negative shock will take hold more gradually.

On the politics, will this help the White House? Probably, to some degree. These are staples, consumed regularly. But they’ve got two big problems.

First, this move is just so contrary to their rhetoric about tariffs not having any impact on prices. Everyone already knew this was nonsense, but now that they’re admitting it, what about everything else up and down the retail aisles?

Here’s Rep. Don Beyer (D-VA) in that same AP article:

“President Trump is finally admitting what we always knew: his tariffs are raising prices for the American people. After getting drubbed in recent elections because of voters’ fury that Trump has broken his promises to fix inflation, the White House is trying to cast this tariff retreat as a ‘pivot to affordability.”

It is also not incidental that any price relief offered through tariff reduction only gets us back to where we were, pre-April ‘25. I seriously doubt that an effective affordability policy is “First, we made things more expensive. Now, we’re going back to what they used to cost. You’re welcome, America!”

Second, the affordability challenge has many dimensions, of which groceries are but one. There’s health care, which Trump and Rs made much worse by taking away tax credits, thereby doubling coverage costs for tens of millions of Americans, a fact the the Ds effectively elevated during the shutdown. There’s child care, energy costs, housing, and more.

I recently argued that the foundational problem facing Trump (who’s approval rating just hit new lows) and the Rs is that they have none of the policy-muscle-memory necessary to craft responses to the affordability crisis. They’ve just shown that they can, when pushed by a electoral whupping, reverse some—just some—of the damage they’ve done. But that just underscores my point.

It’s up to the Ds and the rest of us to a) roll up our sleeves and craft that agenda, b) make sure everyone knows who, when it comes to affordability, is fighting for whom.

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.

With Unity And Grace, Democrats Can Build Powerful Midterm Message On Shutdown

With Unity And Grace, Democrats Can Build Powerful Midterm Message On Shutdown

The shutdown is winding down as eight Senate Democrats (7 Democrats and one Independent who caucuses with Democrats) voted with Republicans to get to the 60 votes needed to reopen the government. The ensuing spending plan will not include the health coverage subsidies for which the Democrats were holding out.

There is a lot of legitimate anger at the “defectors.” If you were going to cave, why wait until day 40? With public opinion leaning your way, why let up? Especially when this is the only leverage you’ve got? And how can you shake hands with these thoroughly untrustworthy Reppublicans, who have blatantly and illegally ignored previous spending allocations? All for the promise of a show vote on the health-coverage tax credits next month, a vote that will almost surely fail?!

Also, some of what the moderate Democrats are claiming they “got” in the deal are not at all Republican concessions, specifically rehiring government workers illegally laid off during the shutdown and “fully funding SNAP.” Simply getting the other side to obey the law may look like a win these days, but it is not.

Still, there are a number of arguments that point the other way, ones I’d argue are more compelling, though if and only if the fight we saw in the shutdown regarding who’s fighting for whom continues to rage. If these moderates don’t work with the rest of the Democratic caucus to build on the political and messaging gains made during the shutdown, then they really are part of the problem, not part of the solution.

The main argument for ending the shutdown was that the Ds were not going to get the tax credits and too many people were feeling the brunt of the shutdown. The former is probably true; the latter is definitely true.

The group of people affected by the shutdown grew with each week, beyond the hundreds of thousands of federal workers who have not been paid for weeks. The Trump administration’s legal fight to avoid paying SNAP food assistance benefits put tens of millions of Americans at risk of going hungry. And its decision to ratchet back air traffic capacity ensnared millions of others in air travel disruptions and flight cancellations that began over the weekend.

Given that these two facts—probable loss on tax credits and spreading pain—were highly predictable from the start, why shutdown at all? For one, minority leader Schumer understood that the party was itching for a fight with what is, hands down, the worst, most spineless GOP Senate caucus of any of our lifetimes. On a daily basis, they bow before their corrupt leader and violate their vows to protect the Constitution.

Granted the leverage that shutdown gave them, Senate Democrats had to pitch a fight. And they pitched a uniquely strong one. They made the Republicanss own the highly potent health-care (un)affordability issue, and they’ll get another chance to elevate that issue next month when Republicans continue to stand by while 20-plus million people see their premiums spike.

My sense, backed by some polling evidence, with the most important polls being last Tuesday’s mini-blue-wave, is that a very important sentiment is clarifying among voters: the Trump administration doesn’t care a whit about their economic concerns but the Democrats do.

I grant you, that last bit—”the Democrats do”—is an uphill battle and is just now maybe coming into focus. The shutdown underscored that for Republicans, unaffordability and cruelty are spectator sports. This leaves Democrats as the only party in the game. No question, the party is suffering from years, if not decades, of being perceived as abandoning working-class economics, in many cases, justly so. But during the shutdown, they were clearly the party fighting for affordable health care, for SNAP, for government workers, while the Republicans were weaponizing the moment to push hard in the wrong direction on each of these issues.

This is the fight that Democrats won in the shutdown, even if they lost on tax credits. But if they stop here, they’re toast, and deservedly so. I could be wrong—maybe this time is different—but in a few months, most regular folks won’t remember the shutdown. These events have historically had a very short half-life.

But if they start here, if they learn from this shutdown that they can unify around the message of affordability, of competent governance that follows the rule of law, of elevating the hurt that this administration, backed by a do-nothing, wholly-compliant Congressional majority, is doing to large swaths of Americans on a daily basis, then the shutdown will have been worth it.

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.

Federal Shutdown Drags On As Trump Shows Zero Interest In Ending It

Federal Shutdown Drags On As Trump Shows Zero Interest In Ending It

Come Wednesday, we’ll have a new record to celebrate: the longest government shutdown on record. The graph below, from Goldman Sachs Research, is particularly revealing, because the width of the bars show the length, while the height shows how much of the government was affected. The current episode is about to surpass the previous record—the 35 day shutdown in Trump’s first term, from December 18 -- January 19 — but that one affected a far smaller share of the government’s agencies.

It makes perfect sense that Trump would preside over the longest shutdowns, especially Trump 2, given the administration’s authoritarian aspirations, lack of internal opposition to the President’s instincts (less the case in Trump 1), and the false reality in which they cloak themselves, especially regarding the rule of budget law, as I wrote a few days ago.

The extent to which the administration desires to and believes they can legally ignore Congress when it comes to spending appropriations must not be underappreciated. It is a key building block in the monarchical agenda. Even the most compliant, spineless Congressional majority of our lifetimes is too much for the Trump administration to deal with, making shutdowns a welcome environment for them. It also makes this White House a deeply non-trustworthy counterparty in budget negotiations.

The problem Trump and company are facing is that they poorly understand and fully discount the things the government does, along with the extent to which tens of millions of Americans depend on those government services. That reality is starting to bite and it is likely to herald the beginning of the end of the shutdown.

Recall that the last long shutdown ended the afternoon of the morning when the unpaid air-traffic controllers said “we’re done.” Well, “the government shutdown is straining US air travel, with air traffic controller shortages triggering hundreds of flight delays nationwide.” You can see the damage in the aptly named “misery map.”

Though the courts were unequivocal about the admin’s upside-down claim that they couldn’t use the SNAP contingency fund to pay SNAP benefits, there’s still going to be a disruption to nutritional support received by one in eight Americans, many of whom reside in Republican districts. It’s the same story, in terms of constituents, with the higher health care premiums that folks in the ACA exchanges are now officially learning about, an issue that Democrats have closely tied to the shutdown.

The fact that many hundreds-of-thousands of federal workers and contractors are not getting paid is one reason why GS researchers estimate that the current shutdown looks likely to have the greatest economic impact of any shutdown on record. They and others estimate that it will reduce annualized real GDP growth in the current quarter (Q4) but over one percentage point, to be made up in the next quarter.

If I’m right that these forces lead the shutdown to end, as is now expected in the next week or two, it raises at least two questions.

What will be the political fallout from the shutdown? My read of the polls is that most people blame the Republicans more than the Democrats for the shutdown. This is consistent with the fact that it’s usually the party in charge that takes the brunt of the blame. But there’s ample evidence that folks are unhappy with both sides.

Not a pollster, as I’m always quick to point out, but I believe the evidence shows that these shutdowns fade from the general public’s memory pretty quickly, though they leave a bad taste in your mouth. This one is different, however, in many ways, so perhaps it will have more lasting impact. My guess is its longer-term impact will depend on the fate of the ACA tax credits. If Republicans fail to extend them, it’s possible that a lot of people hurt by the increase will remember who was fighting to help them and who was busy bailing out Argentina instead.

What the heck was that all about? Especially given the economic bounce back noted above, why go through this? It’s like going on a starvation diet for six weeks followed by the same period of massive overeating. What’s the freakin’ point?!

The answer is there is no point. It’s the unavoidable consequence of the deep, partisan divide, which has only grown since Newt Gingrich got the bright idea of weaponizing appropriation expirations as a tool to elevate budget fights back in the mid-1990s.

To be clear, this is not a pox on both houses. The Democrats are and should be hard pressed to negotiate with Republicans who not only allow the Trumpies to break legally-binding spending deals, but applaud them for doing so. And the Democrats are right to use what leverage they have here to elevate the spike in healthcare premiums due to the expiration of the ACA premium credits.

It is also absolutely the case that Trump’s disinterest in any negotiation to end the shutdown has extended it. When I was in the Biden administration, we worked hard to prevent numerous pending shutdowns, and we were successful. That can be done, but it takes presidential commitment.

Of course, if a president views a shutdown as a way to further promote his kingliness, he’s going to be a lot less prone to help. As for the rest of us: “let them eat cake.”...

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.

When Scott Bessent Claims Trump Is Making Life Affordable, Who Believes Him?

When Scott Bessent Claims Trump Is Making Life Affordable, Who Believes Him?

When it comes to the economy, the thing American households care most about by far these days is affordability, aka the cost-of-living, aka what things cost.

Note that while, of course, inflation is related to this concern, it is by no means the same thing. Telling people who want lower prices that they’ve got slower inflation is a slight-of-hand that they interpret as gaslighting. They want lower prices; you’re (falsely, as shown below) claiming that you’re delivering slower-growing prices.

Treasury Secretary Scott Bessent has been on a campaign to convince people that life is a lot more affordable under his boss, despite the fact that this is false and people know it’s false. The fact that his boss and party are refusing to reconsider their policy to make health-coverage premiums rise sharply for tens of millions of Americans just makes their affordability falsehoods that much more transparent.

First, here’s Sec’y Bessent on Face the Nation last Sunday:

MARGARET BRENNAN: [Americans] are seeing prices still high on furniture, energy, gardening, lawn care, apparel. Do you expect these things to cool off and when?
SEC. BESSENT: Well, it is cooling off because the core inflation number that you referenced was 0.2% which is down the- from the previous sequence over the previous months. And you listed the things that are up, but we’re seeing plenty of things that are down, whether it’s energy and rents.

The gas price is down, as I’ll show in a moment, and that’s certainly a price people notice, but electricity prices are way up. CPI rents are up, not down, though the Zillow rent index is down $50 over both the past month and the past year. Rental inflation is, in fact, consistently down as shown in the figure below. It started falling in the spring of 2023, but again, that just means average rents are growing more slowly. Electricity prices are not just up, they’re accelerating (figure), in part due to data-center demand, meaning consumers in states like mine (VA) are getting hit with spillovers from insatiable data-center energy draws. No one’s loving that, either.

Gas is down—the figure shows the per gallon price from AAA—to about where it was in late 2024. You might think that boosted people’s economic vibes back then but it failed to do, much as it’s failing to do so now. Consumer sentiment is at or below recessionary levels.

Bessent went on to correctly point out that the mortgage rate is down, from about seven percent when Trump took office to just above six percent now, which is good news for home buyers and refi-ers. But while housing prices have flattened, they’re not coming down and they’re up by more than 50 percent since the pandemic (Case-Shiller index). When more than a third of Americans are “housing cost burdened,” meaning it takes at least 30 percent of their income to pay rent or mortgage, dismissing housing affordability is not your best play.

But, as is their wont, Bessent doubled down on X:

Inflation is down?? Yearly CPI inflation was ~2% in April and its ~3% now. We’ve got a pocketful of receipts on this one! As noted, some prices are down, but the rise in the average price level, i.e., inflation, is not in question. In every inflation report, you’ll always find some prices down and more prices up, but to claim “inflation is down” when it’s up over the past few months is not credible.

Moreover, tariffs are part of the reason inflation is up. I’ve shown this for goods prices in a recent post, but here’s the latest update from Cavallo et al, who have been tapping their unique dataset of five major retailers (the vertical line is when Trump’s tariffs were introduced):

Closer to home, and I mean your home and my home, where the day does not begin without an excessively large cup of coffee, Trump’s 50 percent tariff on Brazilian coffee is partially responsible for that price rising 19 percent over the past year (it’s not just tariffs; droughts have pushed up both coffee and beef costs). Some commentators responded to Bessent’s tweet above with pictures of what they were paying for groceries.

With all these mostly-up price movements going on in the background, the Trump administration and Congressional Rs voted to make health coverage a lot more expensive for over 20 million people by ending subsidies that were offsetting that cost.

Given those facts on the ground, Mr. Sec’y, here’s some free advice: Stop trying to convince people life is more affordable than they believe to be the case. You’ve got to know that average prices almost always go up, unless there’s a deep depression upon the land. So, BS’ing people that they can have their old prices back is, as noted, just feckless gaslighting.

Instead, you need to explain what you’re doing to make life more affordable, which has two broad policy thrusts: supporting real income growth and helping to offset the high costs of key sources of price pressures, including housing, groceries, health care, child care, utilities (e.g., electricity) costs. Neale Mahoney and I explain the policy framework and give some policy examples here; Chao and Konczal go deep here.

But before you can pursue policies to help with affordability, you’ve got to stop making the problem worse. That means unwinding tariffs and restoring health coverage subsidies.

On the income side, you’ve also got to start worrying about the unusually low-hire job market, which, unlike the booming stock market, is where the people most concerned about affordability get their income. For them, it’s paychecks, not portfolios.

So, when the Wall Street Journal reports the following…:

American employers are increasingly making the calculation that they can keep the size of their teams flat—or shrink them through layoffs—without harming their businesses. Part of that thinking is the belief that artificial intelligence will be used to pick up some of the slack and automate more processes. Companies are also hesitant to make any moves in an economy that many still describe as uncertain.

…you need to get the team thinking about ways to help restart the job-growth engine, which, for the record, isn’t tariffs, deportations, or Fed harassment. It is, in part, restored business and consumer confidence, less chaos and uncertainty, and standing up policies that nudge AI-use to upweight labor complementarity and down-weight labor substitution. I grant you, this is hard policy work, but it’s the only honest way forward.

I know—free advice, worth what you pay for it. But I learned much of the above the hard way. And for all the endless noise your boss generates, all the breaking of norms and laws, at the end of the day, affordability, as prosaic as may sound relative to reshaping everything from trade to immigration to the rule-of-law to the White House itself, is what people really need your help with.

Telling them that’s what you’re doing when in fact you’re doing the opposite won’t cut it.

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.