Support Our Journalism

Smart. Sharp. Funny. Fearless

Politics National News World Economy Lifestyle Store

Paul Krugman

Real Men Burn Stuff! Trump's Stupid War On Renewable Energy

“We wanted flying cars, instead we got 140 characters.” That famous 2011 quip from the venture capitalist Peter Thiel still resonates, even though Thiel himself has become a deeply malignant force in American politics. I’ll write soon about the madness of the Trumpist tech bros, but for today let me focus on Thiel’s original insight — that everyone, venture capitalists included, had come to focus far too much on digital technology, neglecting the possibilities of breakthroughs in technologies that deal with the physical world.

Yet here’s the irony: In the years since Thiel’s lament we have, in fact, seen revolutionary progress in one fundamental physical-world technology, energy production. Yet the people Thiel and his buddies helped put in power are doing all they can to reverse that progress and send America back into the energy Dark Ages.

Most critiques of the One Big Beautiful Bill have focused on the way it explodes the budget deficit while imposing immense hardship on lower-income Americans. Yet energy policy is also an important component of the OBBB, which basically tries to roll back the rise of solar and wind power — sources that have accounted for more than half the worldwide increase in electricity generation since 2015.

To understand how self-destructive that effort is, you need to know three things about the economics of renewable energy.

First, there are powerful environmental reasons to favor renewables over fossil fuels where possible. Reducing greenhouse gas emissions is the most important, because climate change is an existential threat. But even aside from climate concerns, the air pollution created by burning fossil fuels takes a major toll on health and productivity, which solar and wind don’t.

Second, a transition to renewables, which might have seemed like pie-in-the-sky, hippy-dippy stuff a generation ago, is now not just feasible but the only sensible energy strategy. Here’s a chart showing estimates of the levelized cost of electricity generation (LCOE), adjusted for inflation, for a variety of renewable energy technologies, compared with the costs of power from fossil fuels. I’m aware that LCOE is an imperfect measure, but the results are still astonishing:

We’re talking in particular about a 90 percent decline in the real cost of power from solar panels and a 70 percent decline in the cost of wind power. This isn’t just progress, it’s a revolution.

And — my third point — the revolution isn’t over. Some technological leaps involve one big idea, which takes time to implement but is basically a once-and-done deal — which seems to be the case, to take an example I’ve studied, for freight containerization. Progress in renewable energy, however, has involved a continual process of “learning by doing,” in which efficiency keeps rising and costs falling as the industry expands. This is exactly the kind of situation in which government subsidies — like the clean-energy tax credits instituted by the Biden administration — can accelerate progress and boost overall economic growth.

But the OBBB killed those tax credits. And the Trump administration has been taking executive action to stall renewable development, for example, by halting federal approvals for wind farms. In general, MAGA clearly wants to move us back to burning gas, oil and above all coal. Why?

Campaign contributions no doubt play a role. Fossil fuel industries donate almost exclusively to Republicans. But renewables are also big business these days, and especially in red states. Texas, in particular, is by far the nation’s largest producer of wind power and gets a larger share of its electricity from renewables than any other state. Why would the G.O.P. want to demolish a key pillar of economic success in its biggest source of electoral votes?

Honestly, I think this is a case where the usual logic of money-driven policy is trumped (Trumped?) by irrational, psychological — you might even say psychosexual — issues.

We know that Trump himself has a weird thing against wind power, insisting that wind turbines massacre birds and kill whales. This appears to stem from the refusal of the Scottish government to cancel an offshore wind farm he thought ruined the view from one of his golf courses.

But it’s not just Trump. There is, it turns out, a strong link between the manosphere — the online movement promoting “masculinity,” misogyny and opposition to feminism — and anti-environmentalism. For example, in 2023 Jordan Peterson convened a high-profile conference to declare that concerns about climate change are a “conspiracy run by narcissistic poseurs.”

If you think about it, this makes sense — not intellectually but emotionally. Don’t concern about the environment and advocacy of “clean energy” sound kind of, well, feminine? Real men burn stuff and don’t worry if the process is dirty.

And manosphere-type attitudes are clearly widespread in MAGA. One of the main arguments Trump officials and supporters have made for tariffs is that they will bring back “manly” jobs in manufacturing. (They won’t, but that’s another story.) The same notion underlies the doomed attempt to revive the coal industry.

But here’s the thing: MAGA and the manosphere may hate clean energy, but they won’t be able to stop the rise of renewables. All they can do, possibly, is stop the rise of renewables in the United States. Other nations, China in particular, are making huge investments in wind and solar power, because they understand what Trump and his allies refuse to acknowledge — that this is the only way forward.

So while MAGA’s attempt to strangle clean energy will increase the risks of global climate catastrophe, it will also increase the risks of U.S. economic stagnation, forcing our nation to remain wedded to obsolete energy technologies while other countries march into the future.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times.

Reprinted with permission from Substack.

Republicans Beware! Medicaid Is Not A Soft Target

Does anyone remember the 1995 government shutdown and why it happened? Basically Newt Gingrich, fresh off a big Republican victory in the midterm election, was trying to force Bill Clinton to make big cuts in Medicare. He failed, in large part because Medicare was and is an immensely popular program.

A decade later, George W. Bush tried to privatize Social Security. But he, too, failed, because Social Security is also immensely popular.

But the Republican quest to rip up as much of the social safety net as possible never ends. And for the past 15 years or so that has meant steering clear, for now, of Medicare and Social Security, which are middle-class programs, and going after Medicaid instead. If the One Big Beautiful Bill Act — which is, incredibly, the legislation’s actual name — goes into effect, Medicaid will be cut by around a trillion dollars over the next decade. (As of this morning, the fate of that bill remains uncertain.)

What is Medicaid? Like Medicare, it’s government-provided health insurance. But unlike Medicare, it’s “means-tested”: your income has to fall below a certain level before you’re eligible. This makes Medicaid a program for the poor or near-poor — and that, for many on the right, suggests a political opportunity.

Ostensibly, the right attacks Medicaid because it costs too much. I mean, it’s a government program, which means that it must be riddled with waste, fraud, and abuse, right? And surely there must be millions of lazy people getting health care through Medicaid who should be getting up off their couches and going to work.

The reality is that none of this is true.

No doubt there’s waste and fraud in Medicaid, as there is in any system created and run by human beings. But overall Medicaid provides essential health care relatively cheaply. Once you adjust for the generally poor health of the average Medicaid recipient — chronic illness can make you poor! — Medicaid appears to have significantly lower costs than private insurance:

Actually, in some ways Medicaid resembles the health care systems of other advanced countries, which are much cheaper than U.S. health care (while achieving equally good results) largely because they’re more cost-conscious, willing to bargain hard with drug companies, say no to expensive procedures of dubious medical benefit, and so on.

Meanwhile, the vast majority of Medicaid recipients either are working or can’t work — they’re disabled or need to stay home to care for others:

Oh, and one thing we know from repeated experience is that adding work requirements to Medicaid does not, in fact, lead to more people working.

I don’t know how many of the right-wingers clamoring for drastic Medicaid cuts believe the stories they tell about waste and lazy Americans who won’t get a job. My guess, though, is that they don’t care whether these stories are true. They’re going after Medicaid because they see it as a soft target — a program that helps lower-income Americans, and who cares about them? Medicaid’s beneficiaries, they imagine, are the new welfare queens driving Cadillacs.

But a funny thing has happened to public opinion about Medicaid. The share of Americans covered by the program has increased a lot over the past 15 years:

And the fact that so many Americans now receive Medicaid means that many people have either benefited from the program or know people who have. And as a result the program has become remarkably popular:

83 percent favorability — 74 percent among Republicans! — is incredibly high. In fact, Medicaid appears to have slightly higher favorability than apple pie.

What this suggests is that Republicans who consider Medicaid a soft target, a program that only benefits inner-city rats, are going to be shocked by the blowback if they do manage to eviscerate this key piece of American health care.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times.

Reprinted with permission from Substack.

Trump Policies Poised To Devastate His Voters In Rural America

Everyone is talking, understandably, about Iran. But the rest of Donald Trump’s policy agenda continues to goose-step on. Radical changes in social spending, immigration policy, and tariffs — changes that will hurt tens of millions of Americans — are either about to start or are already happening.

And one point I haven’t seen emphasized much is that while the human damage from these policies will be very widespread, it will be especially severe in rural areas and small towns — the very areas that overwhelmingly supported Trump in 2024.

The first thing you need to understand is that while rural Americans like to think of themselves as self-reliant, the fact is that poorer, more rural states are in effect heavily subsidized by richer states like Massachusetts and New Jersey.

This reality makes it inevitable that the standard conservative fiscal agenda — tax cuts for the rich, benefit cuts for the poor and middle class — hurts the heartland more than it hurts major metropolitan areas. But MAGA’s Reverse Robin Hoodism goes far beyond the standard conservative agenda, in ways that will be especially devastating to rural areas and small towns.

First, consider the shape of the One Big Beautiful Bill Act. (I think it’s important to call it by its ludicrous official name, as a reminder of the extent to which Republican members of Congress have become North Korea-style sycophants.) The final details haven’t been settled, and there’s still an outside chance that the whole thing falls apart. But it’s almost certain that there will be savage cuts to Medicaid and food stamps, programs that disproportionately help Trump-supporting rural areas.

Let’s talk about Medicaid first, a program that is far more important than most affluent Americans tend to realize. Almost 40 percent of children are covered by Medicaid, with some of the highest percentages in deep red states like Alabama and Mississippi. Medicaid pays for 42 percent of births in America. And more to my point, Medicaid covers a higher fraction of the population in rural than in urban counties. So deep cuts in the program will hit Trump-supporting regions especially hard.

The same is true for OBBB’s deep cuts to food stamps.

The damage will be magnified by Republican plans to cut Medicaid spending by adding work requirements. We know from repeated experience that such requirements don’t actually lead to significant increases in employment. What they do instead is block access to health care by creating bureaucratic hurdles for beneficiaries — hurdles that rural Americans, often burdened by limited formal education and inadequate internet access, find especially hard to overcome.

Furthermore, rural America has long had a problem of hospital closures: It’s hard for hospitals to stay in business given both low population density and limited ability of patients to pay. The Beautiful Bill will accelerate this trend, so that even rural residents who can afford care may very well find it geographically out of reach.

In addition, federal health spending, both Medicaid and Medicare, is disproportionately important in supporting rural and left-behind local economies. For example, the economy of West Virginia no longer rests on coal mining, which employs very few people these days. It would be more accurate to say that the foundation of West Virginia’s economy is federal spending on Medicare and Medicaid. That is, in deep red West Virginia, Medicare and Medicaid are directly and indirectly a major source of income.

Then there are Trump’s immigration policies. American agriculture relies heavily on hired workers — and around two thirds of these hired workers are immigrants. A majority of these foreign-born workers are undocumented:

Moreover, even if you a legal resident or even a native-born citizen, do you really feel safe if ICE thinks you look like an illegal immigrant? Not surprisingly, there are reports of widespread ICE raids on farms and of workers refusing to work out of fear of arrest and deportation.

Can immigrant workers be replaced with native-born workers, or even with legal immigrants? No. All indications are that few native-born Americans would be willing to do these jobs unless they were paid much higher wages. Under the Biden administration the U.S. introduced a program offering grants to farmers who bring in foreign workers legally — but the Trump administration has frozen funding for that program, including money that had already been promised, leaving farmers on the hook for many thousands of dollars.

So Trump’s anti-immigrant policies are inflicting will be a major blow to U.S. agriculture — to family farms that employ immigrant workers and are being left high and dry, to food processing and local retail. Like Medicaid, immigrant farm labor directly and indirectly supports many rural jobs for the native-born.

Finally, there’s the trade war. In case you haven’t noticed, Trump hasn’t yet delivered a single one of the 90 trade deals he promised to negotiate by July 8. China has already retaliated, and others will follow. And U.S. agriculture is highly dependent on exports:

Nor can you argue that farmers will make up for lost exports by producing goods we currently import, since we mainly import the farm products we can’t produce here. That’s a point that seems to be lost on Trump’s Commerce Secretary. Recently Howard Lutnick clashed with Rep. Madeline Dean over the impact of tariffs on prices of food items including bananas. “If you build in America … there will be no tariff,” Lutnick argued. “We cannot build bananas in America,” she replied, somehow managing to avoid saying “Duh.”

While many are now realizing that Trump’s policies will produce social and economic disaster, relatively few understand that the disaster will fall disproportionately on rural Trump voters. But of course it will. For the purveyor of Trump bibles and Trump meme coins, screwing the little guy has always been his personal style of grift. It remains to be seen if rural Trump supporters will awaken from their naivete.

Reprinted with permission from Substack.

Lies, Damned Lies, And Mass Deportations

Donald Trump returned to power apparently convinced that America is being overrun with violent immigrant criminals. So all he had to do was order ICE to start rounding up these evildoers and kick them out.

However, tracking down undocumented immigrants who are also criminals has turned out to be a slow affair, because the great majority of immigrants — like the great majority of people in general — are law-abiding. In fact, the available evidence suggests that undocumented aliens are less likely to commit crimes than native born Americans. Things move a little faster if ICE ignores due process and just sends people it imagines might be criminals to overseas prisons. But this means sending people who may well be innocent — and legal residents — to horrifying gulags. And while such things don’t bother Trump or his top aide Stephen Miller, they do in fact bother many Americans.

Yet Miller, by all accounts, has been deeply frustrated at the slow pace of deportations. So the administration began just rounding up people who look to them like illegal immigrants. Again, the abandonment of due process and rule of law clearly didn’t bother them.

But the loss of an important part of the labor force bothered business interests. And so last week Trump suddenly announced that he wouldn’t be going after immigrant workers in agriculture and the hospitality industry, who are “very good, long time workers.”

What this meant, I guess, was that the dragnets will be limited to industries that employ large numbers of undocumented immigrants, but in which these immigrants are not a crucial part of the work force.

So I wondered how long it would take Trump to realize that there are no such industries. I mean, wait until he learned about who does the hard, dangerous work in the construction industry.

Sure enough, it only took a couple of days for the administration to reverse its policy of exempting farms and restaurants from immigrant raids. Anti-immigrant hardliners realized, even if Trump didn’t, that going easy on immigrants who are crucial to the economy would in effect mean abandoning the whole idea of mass deportation.

As often, it’s useful if disturbing to read what Trump says, unfiltered by media sanewashing.

Notice that Trump is still going on about “our crime ridden and deadly Inner Cities,” oblivious to the reality that homicides in major cities have plunged — in New York, where immigrants make up 37 percent of the population, murders were 83 percent lower in 2024 than in 1990, and have continued to fall rapidly this year. Note also that Trump has gone full Replacement Theory, claiming that Democrats are deliberately bringing in illegal aliens to “expand their voter base” (undocumented immigrants can’t vote.)

But in the context of Trump’s temporary move on farm and hospitality workers, the line that struck me was the one about how immigrants were “robbing good paying Jobs and Benefits from Hardworking American Citizens.” Which “good paying Jobs and Benefits” did he have in mind? Agricultural field work? Scrubbing toilets? Installing drywall?

Incidentally, not only do undocumented immigrants often do the most physically demanding and unsafe work, they are often deliberately misclassified as independent contractors, which means that they “do not have access to health insurance, medical leave, workers’ compensation insurance coverage, and safe workplace protections.”

The point is that in general undocumented immigrants don’t take good jobs away from native-born Americans. By and large they take jobs the native-born don’t want or would only take at much higher wages. This means that immigrants are complements, not substitutes, for native workers. They increase, not reduce, native-born wages. And mass deportation, if it really gets going, will be an economic as well as a human catastrophe.

Which doesn’t mean that it won’t happen. TACO doesn’t necessarily mean that Trump chickens out from bad policies. Sometimes it means chickening out from good, or in any case less bad, policies. In this case he has chickened out in the face of MAGA hardliners, retreating from a policy change that would have limited the damage from anti-immigrant fanaticism.

Reprinted with permission from Substack.

Now We Know What Trump's 'American Carnage' Rant Was About

Does anyone remember “American carnage”? In his 2017 inaugural address Donald Trump portrayed a collapsing society, emphasizing in particular the “crime and gangs and drugs” destroying America’s cities.

It was a peculiar and disturbing speech, in part because it bore no relationship to reality. Then as now, America had many problems. But runaway urban crime wasn’t one of them. In fact, Trump chose to proclaim urban carnage after a remarkable generation-long run of plunging crime in our major cities. New York, for example, had only 335 murders in 2016, down from 2,262 in 1990.

So what was that about?

At the time, I thought it was mostly about sadism. Trump clearly loves punishing people, so he was eager to portray a nation full of people who needed punishing. And it remains true, as Adam Serwer pointed out back in 2018, that for Trump and many of his supporters cruelty is a goal in itself, that they rejoice in the suffering of those they hate and fear.

But the events unfolding in Los Angeles as you read this and, I fear, the events likely to unfold across much of America soon, quite possibly this weekend, suggest that the motivations of Trump and his cronies go deeper than mere (mere!) sadism. They want to use false claims of chaos to justify a power grab that, if successful, would mark the end of the American experiment.

As I assume everyone knows by now, on Friday heavily armed — and masked — ICE agents began raiding workplaces in and around Los Angeles, seeking to arrest people they claimed were illegal immigrants. Crowds quickly gathered to protest. After all, ICE wasn’t rounding up members of violent gangs. It was scooping up ordinary people doing ordinary jobs, many of whom had friends and relatives in the neighborhood.

The protests were relatively peaceful, although there were some scuffles, objects thrown and vandalism. Los Angeles has experienced real riots in the past. This didn’t even come close. But ICE and some other law enforcement personnel responded with heavy application of force — not lethal weapons, at least not yet, but lots of tear gas, rubber bullets, and so on.

Until ICE moved in Los Angeles was, in fact, remarkably peaceful. Like other major American cities, LA experienced a significant but not huge crime wave in the aftermath of Covid but has since seen that wave more than completely recede:

Los Angeles right now is probably as safe as it has ever been.

But if you read Trump, which you should to get past the sanewashing, the City of Angels sounds like a scene from Fallout:

And Noem has called LA a “city of criminals.”

As a New Yorker, I’m accustomed to seeing my quite livable city portrayed as a hellscape. Still, there are 13 million people living in Greater Los Angeles who can testify that it has not, in fact, been invaded and occupied, let alone taken over by insurrectionist mobs.

Oh, and let’s not forget that an actual insurrectionist mob tried to overturn the 2020 election — and Trump has pardoned its members.

But no matter. Trump wanted an excuse to mobilize the National Guard, even though the governor of California not only didn’t request it, but has sued Trump to demand that he rescind the order.

When did a president last federalize the Guard against a governor’s wishes? Sixty years ago, when Lyndon Johnson mobilized the Alabama National Guard against the wishes of George Wallace, so that the Guard could protect civil rights marchers.

I’m still seeing some news analyses portraying what’s happening as a confrontation over immigration. And there are definitely people in the administration, led by Stephen Miller, who simply hate immigrants — legal or not, it doesn’t much matter. White South Africans seem to be the only exception.

But this looks bigger even than a play by an administration that has been finding, to its horror, that mass deportation is a lot harder than it sounds — especially if you make any effort at all to follow due process.

What it looks like is an attempt to create confrontations that can be used to impose something that, for practical purposes, amounts to martial law.

And if that’s what it’s really about, what’s happening in Los Angeles is just the beginning.

Most immediately, what is going to happen this Saturday? The government is going to hold a costly military parade in Washington, even though we aren’t celebrating any recent victories I’m aware of. This is the kind of thing one expects to see in Red Square, not the capital of a democracy. And guess what: the parade will also fall on Donald Trump’s birthday.

Many pro-democracy groups have teamed up to organize protests against the parade. There will be “No Kings Day” demonstrations all across the country. I don’t know whether there will be any violent incidents. But I’m quite sure that Trump and his allies will claim that violent incidents are happening and seek excuses to use force against the protestors.

So it’s important to understand what is happening here. Trump isn’t reacting to any real threat of disorder in California. And while anti-immigrant bigotry is certainly an important factor, it’s not the whole story.

No, this is all about finding excuses to use force against Trump’s critics and opponents and justify an anti-democratic power grab.

Reprinted with permission from Substack.

Musk Is Right, But He Too Is 'A Disgusting Abomination'

On Tuesday, after Elon Musk blasted out the screed below, a friend texted me: “I guess the worm has turned. Oh, wait, I guess that’s RFK.” Indeed. We don’t know exactly what set off this tweet and the series of whines that followed, but it may have been the ketamine talking.

Anyway, Musk happens to be right: The One Big Beautiful Bill Act — its actual name! — is indeed a disgusting abomination. But this is one of those cases where it takes one to know one. Few men have done as much damage out of sheer arrogance, ignorance and pettiness as Elon Musk. He has thousands, maybe hundreds of thousands, of deaths on his hands.

And even his parting blast is destructive, demonstrating that he has learned nothing from his abject failure as a policymaker. The OBBBA is terrible, but not at all for the reasons Musk claims.

There have been a number of articles about Musk’s departure that portray him as a “Mr. Smith goes to Washington” type, a well-intentioned naif thwarted by special interests. Gag me with a Cybertruck.

What actually happened was that a zillionaire who knew nothing about government marched in claiming that he could cut $2 trillion from the $6 trillion federal budget by eliminating waste, fraud, and abuse. This was obvious nonsense, but Musk has never showed any signs of being willing either to admit his mistakes or learn from them. The wild claims just kept coming, like his insistence that millions of dead people were getting Social Security.

Claims about budget savings by DOGE — the Musk-run not-actually-a-government department that has been running wild since Donald Trump took office — have rapidly shrunk over time. Still, DOGE has continued to put out “walls of receipts” purporting to document some of its achievements. Again and again, investigators going through these reports have found them full of ludicrous errors — the same canceled contract listed three times, an $8 million saving reported as $8 billion, and more.

Seriously, would any of Musk’s tech-bro friends have invested in a venture run by someone with such a record of making extravagant but completely unfilled promises, then following up with false claims of success?

Meanwhile, the Muskenjugend, the extremely young and utterly unqualified acolytes DOGE parachuted into government agencies, disrupted the federal government’s operations. In some cases they summarily fired crucial workers without making any effort to understand their jobs, while encouraging many others to take early retirement. Those workers who remained have found themselves devoting a lot of time and effort to justifying their existence rather than doing their jobs. And although it’s hard to quantify, the DOGE presumption that government workers are worthless unless proven otherwise must have done large damage to morale and efficiency. In the end, DOGE has almost surely increased the budget deficit.

The one area where DOGE really has managed to make big cuts is foreign aid, a very small part of the budget but one it has virtually shut down. The savings have been tiny, but the human impacts immense — as I said, thousands have died as a result of Musk’s actions, and many more will die in the future.

Aside from the special hostility Musk and co. seem to have toward helping the world’s poor, the big driver behind Musk’s whole role in Washington seems to have been the belief that the federal government is a bloated bureaucracy that wastes vast amounts of money. Yet Musk kept not being able to find all that waste. This is despite the fact that he had months to dig up the wasted billions, along with unprecedented, almost surely illegal, access to government data.

A better man might have said to himself, “Hmm. Maybe I was wrong. Maybe the federal government is actually a pretty well-functioning organization, with many workers trying to do their jobs well.”

But Musk isn’t that kind of man. In denouncing the One Big Beautiful Bill Act, he calls it a “pork-filled Congressional spending bill.” Hey, Elon, where’s the beef pork? You’ve spent months trying to find it, with basically zero success. And the reason this bill will explode the deficit is that savage cuts to Medicaid and food stamps aren’t enough to offset huge tax cuts for the rich.

Um, what cost savings? And what personal risks are we talking about?

In the end, Musk’s legacy will be a damaged federal government that has lost many of its best people and will have a hard time replacing them. Oh, and a lot of dead children.

In a just world Elon Musk wouldn’t be heading back to run Tesla. He would, instead, be retreating to a remote monastery somewhere, to spend the rest of his life in poverty and penance.

Reprinted with permission from Substack.

Crypto Is A Criminal Enterprise That Now Controls Our Government

I spent my very early years in Utica, New York. I was too young to know anything about the city’s reputation — I left when I was 8 — but I would later learn that it was known at the time as “Crime City,” because it was reportedly controlled by the Mob.

Stories of towns infiltrated by organized crime or ruled by blatantly corrupt politicians used to be fairly common. These days you hear tales of blatant personal corruption at the local level less often.

But who could have imagined raw corruption determining policy for the United States as a whole?

Unless there’s a sudden outbreak of conscience and rationality on Capitol Hill, Congress is about to pass, with (alas) wide bipartisan support, the GENIUS Act, which will legitimize and normalize “stablecoins” — cryptocurrency tokens that, unlike the original tokens such as Bitcoin and its imitators, are supposed to be protected against wild fluctuations in their purchasing power, because they’re backed by conventional assets like Treasury bills.

I’ll talk in a minute about why encouraging stablecoins is such a bad idea. But first let’s talk about crypto in general.

Crypto’s early enthusiasts may well have been idealists, imagining that they could create something that was better and safer than traditional money. But as the years have gone by — Bitcoin was introduced in 2009! — crypto keeps failing to find legitimate uses. There is, to a first approximation, nothing you can legally buy with crypto assets except other crypto assets.

The journalist Zeke Faux, who wrote “Number Go Up,” a portrait of the crypto industry, went around the world both studying cryptocurrencies and trying, when he could, to use them. In the end, he wrote, “Traveling around the world investigating crypto had given me a new appreciation for my Visa card.”

So why do ordinary people keep buying crypto? Part of the answer is intense marketing; as I mentioned in a recent post, my Venmo app (which is actually useful) is constantly trying to sell me crypto. But the most compelling explanation why people buy crypto is that there is a clear affinity between the psychology of buying crypto and the psychology of gambling. Retail crypto looks, in particular, a lot like the “numbers racket,” which siphoned millions of dollars from generations of working-class Americans until it was largely supplanted by state lotteries.

The numbers racket was illegal, but flourished anyway because the criminal organizations paid off police and politicians.

But they were pikers by today’s standards. According to Public Citizen, crypto companies accounted for almost half of all corporate spending during the 2024 election. Donald Trump and his family have made billions off the $Trump and $Melania “meme coins,” but I wouldn’t be surprised to learn that other politicians have also been the beneficiaries of crypto largesse.

And what the crypto industry wants out of today’s politicians, above all, is legislation that gives a veneer of legitimacy to stablecoins like Tether.

What is a stablecoin? It’s a digital token like Bitcoin — that is, an asset that “belongs” to whoever has the secret numerical key that unlocks it. But unlike Bitcoin, whose value in dollars fluctuates wildly day to day, a stablecoin is supposed to retain a fixed value in dollars. The stablecoin issuer maintains that stability by standing ready to buy its tokens back, holding reserves of conventional assets like Treasury bills for that purpose.

One way to think about this is that stablecoin issuers are like banks back in the days before the Civil War, when gold and silver coins were the only official forms of money. Many banks issued paper currency, which they promised to redeem for gold and silver coins on demand. Similarly, stablecoin firms issue tokens that they promise to redeem for dollars.

Antebellum banks that issued their own notes served a useful function, because the federal government wasn’t yet issuing its own paper currency. So bank notes played an important role in ordinary, legitimate commerce. For example, the $10 “Dixie” notes issued by the Citizens Bank of Louisiana (they were printed in French on one side) circulated widely across the lower Mississippi. Yet some of these early, unregulated banks were “wildcat banks”: banks that were specifically set up to defraud anyone foolish enough to accept their bank notes as payment.

So like antebellum bank notes, which were privately issued currencies supported by the claim that they were backed by gold and silver, stablecoins are privately issued tokens supported by the claim that they are backed by dollars. Unlike antebellum bank notes, however, stablecoins don’t serve any clearly useful function. They can’t be used to make ordinary purchases, and there’s nothing you can do with them that can’t be done more cheaply and more easily with debit cards, Venmo, Zelle, wire transfers etc. That is, why not just use dollars instead of tokens that are supposedly backed by dollars?

The answer to that question is that the ownership and disposition of stablecoins, unlike the ownership and distribution of bank deposits, is anonymous. This is a highly valuable feature for those who want to engage in money laundering, extortion, purchase of illegal drugs, and so on. In other words, the only economic reason for stablecoins is to facilitate criminal activity.

Do the politicians backing the GENIUS Act not understand this? Some of them probably do. As for the rest, well, it’s difficult to get someone to understand something when their campaign contributions and, in some cases, their personal wealth depends on their not understanding it.

But wait, there’s more. As I’ve already explained, stablecoin issuers are teched-up versions of antebellum banks, which were for the most part unregulated and, when they failed, provided no safety net for people who placed their money in their care (or accepted their notes.) As a result of this lack of regulation, the antebellum banking system repeatedly experienced “panics” — mass runs on banks perceived as risky.

Today, however, the federal government is deeply involved in banking, for very good reasons. After the devastating bank runs of the 1930s, in particular, officials realized that they needed to guarantee the value of deposits via the FDIC, while at the same time requiring banks to limit the kinds of risks they take. The goal was to limit the risk of financial crisis. While we did have a nasty crisis in 2008, that mostly involved “shadow banks” that evaded precautionary regulation. And stablecoins are, among other things, a new kind of shadow bank.

Recognizing that they could suffer the equivalent of self-fulfilling bank runs, the biggest stablecoin issuers are trying to reassure holders of their solvency by accumulating large reserves of U.S. government debt. But the flip side of this is that a run on stablecoins could turn into a run on U.S. government debt! That is, if the owners of stablecoins were to rush to convert their holdings into dollars, this would force stablecoin issuers into a fire sale of U.S. Treasury bills, driving up interest rates.

The fundamental point is that the growth and legitimation of stablecoins poses new risks to overall financial stability — all in the name of making it easier for criminals to do their business.

It's an amazing, depressing story, one that many readers may find hard to accept. But the truth is that when it comes to crypto (and other issues, but I’ll talk about them another day), Washington has become Utica on the Potomac: A town that, if not entirely controlled by the digital Mob, has at least been largely bought and paid for.

Reprinted with permission from Substack.

How Trump Will Make The Tariff Shock Worse

In the fall of 1979, as I was just beginning my teaching career at MIT, I went to an economics conference in Vermont. I made the trip in a state of high anxiety — not because I was worried about my presentation, but because I was driving. And it wasn’t at all clear whether I’d be able to find gas for the return trip.

For those were the days of fuel shortages and gas lines, with drivers sometimes waiting hours for the opportunity to refill their tanks.

What happened in 1979 was that the United States faced an inflationary shock: soaring oil prices in the aftermath of the Iranian revolution. That was a bad thing for American consumers. But the experience was made much worse by botched policy. Rather than simply accept higher prices at the pump, the U.S. government imposed a gasoline price ceiling. And as often happens when the government tries to control prices, the result was shortages and a lot of disruption.

Obligatory disclaimer: Price controls, or more generally government pressure on companies to keep prices down, aren’t always a bad thing. Back in 1962, when John F. Kennedy pressured the steel industry to roll back a coordinated price increase, his actions made sense: Steel companies weren’t responding to higher costs, they were collaborating to take advantage of monopoly power.

But trying to simply order businesses not to pass on a genuine cost shock is asking for trouble. Which brings us, as most things seem to these days, to Donald Trump.

Right now U.S. business is facing a large cost shock created by Trump himself. Even after the partial climbdown last weekend, the average U.S. tariff rate stands at 17.8 percent, up 15 points from its pre-Trump level. Since imports of goods are more than 11 percent of GDP, that’s a big shock to consumer prices. And no, foreigners won’t pay the tariffs.

Now, an inflationary hit this size is a bad thing. Still, it could be a one-time event, something the economy absorbs before moving on. But for that to happen we’d need an intelligent, responsible policy response.

Hehehe.

What we’re actually going to get are the three Ds: denial, dirigisme and deception.

Denial: Trump has, of course, repeatedly insisted that there is no inflation in America, pronouncing reports of rising prices “fake news.” What’s new is that Scott Bessent, the Treasury secretary — who was, you may remember, supposed to be the adult in the room — has gotten into the act. On Meet the Press Sunday, Bessent dismissed inflation concerns by asserting that

Gasoline prices have collapsed under President Trump … that is a direct tax cut for consumers.

Now, in general presidents deserve neither credit nor blame for fluctuations in gasoline prices, which mainly reflect the global price of crude oil. But that aside, what the heck is Bessent talking about? Here’s what has been happening to gas prices:

Source: Gasbuddy.com

I do not think that word “collapsed” means what he thinks it means.

So is Bessent just lying? Or has he joined Trump in his epistemic bubble, where reality is what he wants it to be? I’m not sure which is worse.

Dirigisme: Originally a term from postwar France, it refers to an economy that remains mostly in private hands but in which the government sometimes tries to tell companies what to do. It remains unclear to this day how well dirigisme actually worked or even how much it was real as opposed to officials getting in front of an economic parade that was happening anyway and pretending that they were leading it. What’s true is that dirigisme may not do too much harm when practiced by sophisticated, well-informed technocrats.

What won’t be harmless is when dirigisme is practiced by a president who takes time off from declaring that Taylor Swift is “no longer hot” to issue demands like this: Now, Walmart, while profitable, can’t actually afford to EAT THE TARIFFS. (Weren’t the Chinese supposed to do that?) So what will Walmart and other companies do if Trump’s tariffs are way up but they’re afraid to risk Trump’s ire by increasing prices?

Hello, empty shelves.

Finally, deception: What will happen when the tariffs start showing up in official measures of inflation, which will happen soon? Erica Groshen, former head of the Bureau of Labor Statistics, is worried. In a recent briefing paper she warned that changes in personnel policy

could lead to the politicization of the federal statistical workforce … for example, Bureau of Labor Statistics’ leaders could be fired for releasing or planning to release jobs or inflation statistics unfavorable to the President’s policy agenda.

So when inflation rises, the Trump administration could simply bully the statistical agencies into claiming that it never happened. You may say that they couldn’t or wouldn’t do such a thing. But so far people downplaying what Trump and co might do have been wrong every time, while the often-mocked alarmists have been consistently right.

The bottom line is that the direct economic consequences of Trump’s tariffs will surely be bad, but his unwillingness to accept the reality of those consequences will probably make them considerably worse.

Reprinted with permission from Substack.

Drill Baby Drill? How 'MAGA Brain' May Kill US Energy Independence

Does anyone remember “Drill, baby, drill?” What with all the tumult over Donald Trump’s disastrous trade war, many have forgotten that energy production played a big role in his second inaugural address. He claimed that we were facing a “national energy emergency,” and that he would bring prices down and make America rich by releasing the “liquid gold under our feet.”

There was, in fact, no energy emergency. One thing you always find Trump and MAGA in general doing is assuming that the real world must look the way their prejudices say it should look. Squishy liberals who believe in rule of law were in charge last year, so America must have been in the grip of a terrifying crime wave — even though the homicide rate in 2024 was close to a 65-year low:

Source: Jeff Asher

Similarly, the Biden administration was full of woke environmentalists who believe in the global warming hoax, so they must have crippled energy production — even though America in the Biden years was, for the first time in generations, producing more energy than it consumed:

When I wrote about this at the time, I suggested that Trump was suffering from "MAGA brain,"

the belief that the only way you can get results is by being tough and nasty, avoiding anything that might be considered woke. Thus, to achieve energy independence, we must put aside worries about pollution and climate change while blocking clean energy.

So administrations that care about climate change and the environment in general must be crippling the energy sector. Biden may have presided over record oil production and growing energy exports, but we’ll just say that we have an energy emergency anyway.

You can probably guess what’s coming next. There appears to be a real chance that America will lose its newly reacquired energy independence. And if it does, we know who will be responsible: Trump himself.

To see why, we need to look at the factors responsible for America’s return to energy self-sufficiency.

One of these is fracking — extracting oil and gas embedded in shale by fracturing that shale with high-pressure liquids. Yes, there are serious environmental issues involved both in the fracking process and in the fact that more fossil fuel production adds to greenhouse gas emissions. But while the Biden administration took climate change seriously, that didn’t stop oil and gas production from rising on its watch.

The other factor was the incredible rise of renewable energy. Not that long ago wind and solar power were widely seen as silly, hippy-dippy conceits. Now they’re major contributors to energy supply:

Data source: US Energy Information Administration

In the case of shale, it’s all about prices. Drilling new shale wells is expensive. In fact, Trump’s vision of drastically lower oil prices never made any sense, because any large drop in oil prices would make new shale wells unprofitable. And since production from any given shale well drops quickly over time, anything that caused new drilling to fall substantially would quickly translate into declining oil production.

How low would prices have to go to shrink the U.S. oil industry? Recently the Dallas Fed did a survey which suggested that drilling in many major fields would stop if the price per barrel fell below the low 60s:

And that was before Trump’s tariffs raised costs, so the critical price is probably higher now. And guess what: oil prices right now are at a level where we can expect production to fall. Here are oil futures:

Why did oil get cheap? Look at the sudden drop on April 2, a.k.a. Liberation Day, when Trump first announced extreme tariffs. It’s obvious that oil prices are down thanks to pessimism about the global economy, which in turn is tied to Trump’s trade war. And by the way, that war is by no means over. A new analysis by the Yale Budget Lab finds that the damaging effects of Trump’s tariffs are only modestly mitigated by his surrender to China.

And as for renewables: Trump hates them, wind power in particular. He offers crazy justifications for that hatred — did you hear about his claim that offshore wind farms kill whales? — but it’s pretty clear that he has been nursing an irrational grudge ever since he was unable to stop a Scottish wind farm that he thought ruined the view from a golf course he owns.

Oh, and I’m pretty sure that MAGA types in general dislike renewable energy because they don’t consider it manly.

So what will be the economy-boosting effects of drill, baby, drill? Nil, baby, nil.

Reprinted with permission from Paul Krugman Substack.

Tariffs, Jobs And Why You Should Care About Poverty In Bangladesh

I’ve returned from Europe to the United States. Miraculously, my flight to Newark landed on time. So this seems like a good day to write about … Bangladesh. I’ll explain shortly.

First, a note on the current state of the trade war. Many people, including many small investors, still believe and/or hope either that Donald Trump will soon negotiate many trade deals or that he will claim he has, declare victory, and back off his massive tariff hike. They’re deluding themselves.

Consider what we’ve learned about Trump as the negative fallout from his tariffs has started to become obvious.

First, he’s invincibly ignorant. The collapse of imports from China has businesses terrified and warning both of soaring consumer prices and of looming shortages. But Trump says it’s all good:

We were losing hundreds of billions of dollars with China. Now we’re essentially not doing business with China. Therefore, we’re saving hundreds of billions of dollars. Very simple.

Hey, remember those empty shelves during Covid? Americans were doing great! Think of all the money they saved by not buying toilet paper, because there was none to be had. Very simple.

Second, when he’s in a hole, he just keeps digging. His talk about making Canada the 51^st state had a decisive effect in Canada’s recent election, hugely bolstering anti-Trump forces. But yesterday, meeting with Prime Minster Mark Carney, who kept his office thanks to this backlash, Trump kept pushing the idea.

Carney remained polite — he is, after all, Canadian — but his facial expressions during the meeting were something to behold.

The best bet, then, is that the trade war will proceed, even intensify. There will be some winners, at least in terms of global influence, including China, which gains from America’s loss of credibility, and the European Union, which unlike Trump’s America can be trusted to honor its agreements. The United States will be a big loser, both politically and economically.

But the biggest losers will be poor countries that have become less poor largely thanks to exports and are about to see their hopes of progress dashed.

Possibly the most hated article I’ve ever written was a 1997 piece for Slate titled “In Praise of Cheap Labor,” which was mainly aimed at left-wing critics of globalization. I argued that much as the sight of low-paid workers producing cheap goods for rich countries may — and should — disturb us, labor-intensive exports are often poor countries’ best hope of progress.

This argument has only become stronger over time. The New York Times recently had a very good article on Bangladesh, which 50 years ago was the poster child for warnings about mass famine driven by overpopulation. Instead, the South Asian nation became, not a banana republic, but a pajama republic, one of the world’s leading clothing exporters. It’s still a poor country, with wages and working conditions that are appalling by advanced-country standards. But as the chart at the top of this post shows, Bangladesh is about four times as rich as it was in the 1980s, when its exports began rising.

But now the country faces the possibility of economic catastrophe, made in America. Trump’s “Liberation Day” trade plan would have imposed a 37 percent tariff on imports from Bangladesh. That plan is temporarily on hold, but it seems all too possible that it or something as bad or worse will come back.

OK, I know that most Americans don’t care about Bangladeshi living standards. They should, even on selfish grounds: condemning 170 million people to deeper poverty would be a threat to global stability. But here’s the thing: Throwing up barriers to Bangladeshi exports doesn’t involve a tradeoff, helping American workers at others’ expense. It’s pure loss, hurting both nations.

Why? Because making imported clothing more expensive here won’t create U.S. jobs. Apparel production, still largely carried out by people hunched over sewing machines, is just too labor-intensive to be economically feasible in the United States, no matter how high the tariffs.

Trump’s people don’t seem to get that. True, Howard Lutnick, the Commerce Secretary, famously claimed that tariffs could indeed create jobs in labor-intensive activities, although he didn’t use clothing as an example:

The armies of millions of people- well, remember, the army of millions and millions of human beings screwing in little- little screws to make iPhones, that kind of thing is going to come to America.

Um, no it isn’t, and shouldn’t.

Taxes on imported clothing will, however, raise Americans’ cost of living. The poor and the working class, who are more likely to buy inexpensive imported clothing, will be hurt worst. But hey, Trump says that children don’t need multiple dolls; why do their parents need multiple pairs of underwear?

Not incidentally, Greg Sargent looked into what it would actually take to manufacture dolls in the United States. Even if it could be done, it would produce only a handful of jobs — and the jobs would be terrible and pay badly.

The point is that Trump and his team have done something remarkable: They have started a trade war that is bad both for Americans and for countries that sell to us. But Trump is unlikely to change course. The economic punishment will continue until morale improves.

Reprinted with permission from Paul Krugman.

Ignore Trump's Distractions -- This Is His Economy Now

Many people have complained about New York Times headlines, with reason. All too often an equivocating, sanewashing headline belies the excellent reporting that follows. But yesterday the Times got it right about the first-quarter decline in GDP: “Trump boasts about the economy, but says weak data is Biden’s problem.”

There will be much more of this as the data get worse, which they will. (I’m going to keep treating “data” as plural unless it refers to a Starfleet commander.) In fact, I worry a lot about Trump putting pressure on the statistical agencies to report better numbers. He has already said that reports of rising prices are “fake news”.

For now, however, it’s important to be clear that the bad news is all on Trump’s head, and we mustn’t let him get away with claiming otherwise.

It’s true that most of the time presidents have much less impact on the economy than many people believe. It’s also true that a president’s policies usually don’t have large economic effects in the first few months of their administration.

But Trump’s policies have been so extreme that they are already making the economy visibly worse. In particular, expectations of high tariffs began distorting business decisions even before the tariffs went into effect. If you look at the GDP numbers released yesterday, you see a huge surge in imports coupled with a large surge in inventories. Both of these clearly reflected businesses “front-running” expected tariffs, racing to buy as much from China in particular as they could before the tariffs went into effect.

And the effects of Trump’s policies will become even clearer, and even worse, over the next few months. Those insanely high tariffs on China have led to a collapse in shipments from China to the United States, which will soon be reflected in soaring prices and, probably empty shelves.

We’re also already seeing signs of Trump’s policies causing broad economic weakness:

Trump himself seems to be aware that he’s causing major supply-chain disruptions.

“You know, somebody said, ‘Oh, the shelves are going to be open,’” Mr. Trump said. “Well, maybe the children will have two dolls instead of 30 dolls, you know? And maybe the two dolls will cost a couple of bucks more than they would normally.”

OK, having Trump come out as a critic of consumerism and proponent of the higher, spiritual side of life wasn’t on my bingo card.

What I and everyone else did expect was that when the economy turned bad, Trump would refuse to accept responsibility and blame his predecessor. And right on cue, that’s what is happening.

So this is a good time to remember that Trump actually inherited a very good economy, one that was outperforming all its peers. From The Economist, last October:

When Trump moved into the White House, America had historically low unemployment and inflation only slightly above the Federal Reserve’s (arbitrary) target of 2 percent. Look at the “misery index,” the sum of inflation and unemployment — a crude but usually pretty good measure of how the economy is doing. As of January that index was quite low by historical standards:

Were there deep underlying problems, reasons to believe that the appearance of prosperity was somehow misleading? No. I’ll probably write at some point about claims by Trump’s minions that the Biden economy was somehow bad despite low unemployment and inflation combined with rising real wages. But for now let me just say that none of these claims stands up to even casual scrutiny.

In short, pay no attention to Trump’s excuses. The U.S. economy was in good shape when he came in. If everything is going to hell — which it is — he has nobody but himself to blame.

Reprinted with permission from Paul Krugman.

Trump Is 'Godfather In Reverse' -- And Now Faces Economic Catastrophe

Yesterday’s election in Canada was a bit closer than polls predicted. Nonetheless, Mark Carney’s Liberal Party, which appeared doomed just two months ago, won a solid victory. And the credit goes mainly to Donald Trump.

If Trump had merely made economic demands on our northern neighbor, Canada might have acquiesced, although it’s not clear what concessions it could have made. But by repeatedly insisting that Canada must become the 51^st state, he made any hint of Trumpiness toxic in Canadian politics. Hence the stunning defeat for Pierre Poilievre, the Conservative leader (who lost his own seat in Parliament.)

The Canadian election, then, demonstrates why Trumpist trade policy, and foreign policy in general, is doomed to catastrophic failure. Trump isn’t trying to drive tough substantive bargains. Mainly, he seems to want to indulge in narcissism, demanding that other nations humiliate themselves so he can put on a display of dominance. And America doesn’t have remotely enough leverage, even against Canada, to make such demands. You could say that Trump is a reverse Godfather, making offers other countries can’t accept.

Consider the state of negotiations — or, actually, non-negotiations, since talks appear to have broken down — with Japan, another country Trump appears to have thought he could bully. Japan does sell a lot to the United States and might have been willing to offer something to preserve its access to our market.

But reports indicate that Japanese representatives sent to Washington left without accomplishing anything because they found Trump’s people impossible to deal with. The Americans insisted that the Japanese make offers without giving any indication of what our side wanted — in effect, they demanded that Japan make a show of obeisance without any reason to believe that it would get anything in return. The Japanese government wouldn’t, probably couldn’t do that. After all, it has to answer to its own voters. So there is no deal.

And then there are the Chinese, who — unlike the Canadians or even the Japanese — probably have more economic leverage over us than we have over them. They have no interest in helping Trump sustain his fantasies of dominance. Bear in mind that Trump’s trade war is working out very well for them. Bloomberg reports that

President Xi Jinping’s diplomats are fanning out across the world with a clear message for countries cutting deals with Donald Trump: The US is a bully that can’t be trusted.

Unfortunately, they’re right. And Trump’s repeated insistence that the Chinese are negotiating with him, when they say they aren’t, comes across as pathetic.

Will Trump manage to make any trade deals? I guess it’s possible that Trump will announce trade deals with a few countries here and there. But his ability to get even fake deals is rapidly dwindling, for two reasons.

First, he’s plunging in the polls. True, he’s insisting that the polls are wrong and that pollsters should be investigated for election fraud. And the MAGA base may believe him. But this denial just makes him look even more pathetic to foreign governments, and they won’t be inclined to throw a drowning Trump a lifeline.

Second, Trump’s trade war is about to have a disastrous effect on the U.S. economy — more disastrous than even pessimistic economists, myself included, expected. Tariffs always raise prices. But the sheer size and suddenness of Trump’s tariffs, combined with the paralyzing effect of uncertainty about what comes next, are about to deliver a Covid-type supply shock to an economy already sliding into recession. This looming disaster, which will further weaken Trump, makes it even less likely that our main trading partners will help him pretend that he’s achieving anything.

Oh, and Amazon is planning to show the effects of tariffs on its prices — and the White House has gone berserk.

Back to Canada: Our northern neighbor is, along with Mexico, among the countries most at risk from Trump’s trade war. Canada does a lot of trade with the much larger U.S. economy. According to Statistics Canada, 2.6 million Canadians, 13 percent of the work force, are employed directly or indirectly producing goods exported to the United States. So U.S. tariffs will impose a huge shock on Canada’s economy.

It's not clear how much Carney can or will do to mitigate that shock. But he has no alternative to going elbows up: There’s no way to satisfy Trump’s demands. And you do have to wonder whether Trump will fold once it becomes clear how badly his trade war is going.

Reprinted with permission from Paul Krugman.

'Sudden Stop': A Trump-Branded Crisis Hits US Economy (And Dollar)

Bloomberg posted an article titled “Markets Are Discovering the Real Trump Trade Is ‘Sell America’.” That’s about right. Look at the value of the dollar on international markets, shown at the top of this post. For a while after the election investors loved Trump, not wisely but too well. But in the face of one idiotic policy move after another, they’ve gradually fallen out of love, and now seem to be capitulating. I think they still haven’t faced up to how bad it is, but they’re figuring it out.

What we’re seeing now is something familiar to those of us who have studied economic crises in other countries, usually but not always emerging markets. For this is looking more and more like a “sudden stop.” That’s what happens when a country that has relied on large inflows of foreign capital loses the confidence of international investors. The inflow of money dries up — and the economic consequences are usually ugly.

Trump inherited an economy in remarkably good shape. We’d had “immaculate disinflation”: The inflation spike of 2021-22, largely caused by Covid-related supply chain disruptions, had faded away without a large rise in unemployment:

Source: St. Louis Federal Reserve

But Trump wasted no time in squandering the hand he’d been given. It’s not just the destructive tariffs. It’s also the chaos, as policy zigzags wildly, and the craziness. If you were a foreign investor, would you want to bet on America right now? Would you even want to visit to look at investment prospects, given the risk that you might be imprisoned by ICE because you once sent a text critical of Trump?

The economic consequences of sudden stops are, as I said, usually ugly. I’m writing this from Portugal, which — along with other southern European nations — was hit by a sudden stop in capital inflows just as it was recovering from the global financial crisis of 2008. The result was another severe economic slump that produced immense misery:

Can the United States suffer comparably? We have some big structural advantages that, say, Portugal in 2011 or Argentina in 2001 lacked. Above all, America’s foreign debt is overwhelmingly in dollars. This means that a plunging dollar won’t cause the domestic-currency value of our debt to explode, the way it typically does in emerging-market crises. And U.S. businesses and individuals have large overseas investments that will become more valuable in dollar terms as the dollar falls. As a result, the Trump slump in the dollar will, at least temporarily, lead to an improvement in our international investment position, the difference between U.S. assets and liabilities.

On the other hand, Portugal in 2011 or even Argentina in 2001 had mostly sane leadership. We don’t. As a number of people have pointed out, there may be no other government in the world that would have kept Pete Hegseth in office given his performance so far.

And as things get worse, there’s no reason at all to believe that Trump and those around him will look for policy solutions. Instead, we’ll see a combination of denial and efforts to blame someone else. Trump has already declared that reports of rising prices are “fake news.” And he’s already setting the stage for making Jerome Powell — “Mr. Too Late” and “a major loser” — his scapegoat for everything that goes wrong.

Coming next are conspiracy theories.

[Screengrab may have been fake?]

None of this was necessary. The U.S. economy was doing well before Trump came into office. Trumponomics isn’t a response to real problems. It’s a president who has waged a war on competence indulging his personal obsessions.

But America and the world will suffer the consequences.

Reprinted with permission from Paul Krugman.

Reprinted with permission from Substack.

Why We Should All Fear A Trumpified Federal Reserve

Sometimes the Federal Reserve has extraordinary power over the economy.

Consider what happened from 1982 to 1984. For most of 1982 the U.S. economy was in grim shape. Employment had plunged, especially in manufacturing. The unemployment rate hit 10.8 percent in December (it was 4.2 percent last month.) And economic pain helped Democrats make major gains in the 1982 midterms.

But everything was about to change, thanks to the Fed. In the summer of 1982 the Fed decided to ease monetary policy. Interest rates plunged, and about 6 months later the economy began a stunning rebound, growing 4.6 percent in 1983 and 7.2 percent in 1984. Ronald Reagan claimed credit for “Morning in America,” but actually it was the Fed that did it.

This episode illustrates the Fed’s power — power that must be insulated from abuse by politicians, especially politicians like Donald Trump.

Over the past several days Trump has been demanding that the Fed cut interest rates and calling for the Fed chairman’s “termination.” It’s worth looking at what he posted on Truth Social to get a sense of how, to use the technical term, batshit crazy he is on this subject:

And we really, really don’t want someone that crazy dictating monetary policy.

The reason we don’t want politicians in direct control of monetary policy is that it’s so easy to use. After all, what does it mean to “ease” monetary policy? It’s an incredibly frictionless process. Normally the Federal Open Market Committee tells the New York Fed to buy U.S. government debt from private banks, which it does with money conjured out of thin air. There’s no need to pass legislation, place bids with contractors, deal with any of the hassles usually associated with changes in government policy. Basically the Fed can create an economic boom with a phone call.

It's obvious that this kind of power could be abused by an irresponsible leader who wants to preside over an economic boom and doesn’t want to hear about the risks. This isn’t a hypothetical scenario. Consider what happened in Turkey, whose Trump-like president, Recep Tayyip Erdoğan, recently arrested the leader of the opposition. When the global post-Covid inflation shock hit, Erdogan embraced crank economic theories. He forced Turkey’s central bank, its equivalent of the Fed, to cut interest rates in the belief, contrary to standard economics, that doing so would reduce, not increase inflation. You can see the results in the chart at the top of this post.

How can we guard against that kind of policy irresponsibility? After the stagflation of the 1970s many countries delegated monetary policy to technocrats at independent central banks. Can the technocrats get it wrong? Of course they can and often have. But they’re less likely to engage in wishful thinking and motivated reasoning than typical politicians, let alone politicians like Trump.

What makes Trump’s attempt to bully the Fed especially ominous is the fact that the Fed will soon have to cope with the stagflationary crisis Trump has created. Trump’s massive tariff increase will lead to a major inflationary shock:

Moreover, Trump has also created huge uncertainty by radically changing his policies every few days, which will depress spending and may well cause a recession:

Not incidentally, Trump has been able to pursue these destructive policies because U.S. law gives the president enormous discretionary power over tariffs. And now he wants the same kind of discretionary power over the Fed.

As a consequence of Trump’s destructive tariff regime, the Fed will soon face a dilemma. Should it raise interest rates to fight inflation, or should it cut rates to fight recession? It’s a really hard call, and it’s quite possible that Jay Powell will get it wrong. Trump has made Powell’s dilemma even worse with his attempted bullying, because a rate cut would be seen by many as a sign that Powell is giving in to avoid being fired.

But one thing we know for sure is that we don’t want Trump making that call. Like Erdogan, he has embraced crank economic doctrines to justify his policies, in Trump’s case the ludicrous claim that tariffs won’t raise consumer prices. Does anyone doubt that when inflation rises, he’ll dismiss it as “fake news”?

So will Trump’s attempt to bully the Fed succeed? According to the Wall Street Journal, he has spent months talking privately about firing Powell. He doesn’t have the legal authority to do that, but Trump doesn’t worry about pesky things like legal limits to his authority. Yesterday he told reporters that he can easily get rid of Powell: “If I want him out, he’ll be out of there real fast, believe me.”

And given how quickly Trump has been able to subvert or destroy many other government institutions, it’s hard to feel confident that he can’t do the same to the Fed. Fear of market reaction — America is already facing a serious credibility problem, with the dollar falling even as interest rates rise — will probably restrain him, but he may not believe people telling him that taking over the Fed would cause the dollar to plunge while long-term interest rates soar as investors expect higher inflation.

Between Trump’s tariffs, the economic spillover from deportations and terrorization of immigrants and the attempt to politicize the Fed, the upside risk to inflation now looks very high. The bitter irony is that many Americans voted for Trump because they thought he would bring prices down.

Reprinted with permission from Paul Krugman.

Why Trump Will Lose His Trade War With China

Scenes from the trade war:

In response to Donald Trump’s huge tariffs on Chinese exports, China’s government has suspended exports of rare earth minerals and magnets, both critical to many modern industries and the military

Trade talks between the United States and the European Union appear to have gone nowhere, with Maros Sefcovic, the EU’s top trade official, reportedly having “struggled to determine America’s aims.”

In other words, the Chinese, unlike the Trump administration, understand what trade and trade wars are about. And the Trumpers, in addition to not knowing what they’re doing, don’t even know what they want.

Here’s what Trump and his sycophants don’t understand about international trade: It’s not about what you can sell, it’s about what you can buy.

Think for a minute about the finances of individuals. Why do people work? Not to be able to boast that they ran trade surpluses with their employers — “Hey, they paid me a lot, and I hardly bought anything from them.” No, people sell their labor so that they can afford to buy stuff.

The same is true for countries. Importing what you want — being able to get stuff from other countries — is the purpose of international trade. Exporting — sending stuff to other countries — is something we do so we can pay for imports.

OK, in practice there’s a bit more to the story, as I’ll explain below, but the complications don’t change the fundamental proposition that the benefits from international trade basically come from being able to import goods that would be expensive or impossible to produce at home. Think hydroelectric power from Canada.

This fundamental reality explains why serious analyses of Trump’s trade war with China often conclude that China, not America, has the upper hand.

On Tuesday the Financial Times had a mostly good writeup of the stakes, which pointed out that US exports to China are “heavily focused on agriculture.” The FT said that these goods are “low value-added,” which I’m not sure is true — U.S. farming is highly productive and highly capital-intensive. But what matters in a trade war is the fact that China can fairly easily find other agricultural suppliers, buying soybeans from Brazil instead of Iowa.

By contrast, the United States will have a hard time replacing many of the goods it imports from China. Furthermore, many of the goods we buy from China are industrial inputs rather than consumer goods.

So Trump has started a trade war that will disrupt our own supply chains. Remember Covid and its immediate aftermath? Remember how shortages spread through the economy and fueled inflation? Those days are about to come back, inflicting especially large damage on the manufacturing sector Trump claims he will revive.

Is the U.S. economy at China’s mercy? No. America remains a highly productive nation that could cope with even severe economic shocks if it had smart, clear-headed leadership. But we don’t.

True, Wednesday’s Wall Street Journal had an article with the headline “U.S. Plans to Use Trade Negotiations to Isolate China.” So you might think that there’s an actual strategy out there. But I don’t believe it, for four reasons.

First, this story was clearly leaked by Scott Bessent, the treasury secretary, or people close to him. In a normal administration this kind of supposedly inside scoop would offer valuable insights into the policy process. But one thing that’s clear about Trump tariffs is that there is no policy process. Individual officials — Bessent, Peter Navarro, Howard Lutnick — keep floating policy ideas in public, hoping that putting them out there will somehow create facts. But a day or two later another official will go on TV, or Trump will post something on Truth Social, completely contradicting what the last official said.

So what we’re hearing about Bessent isn’t really a scoop about Trump policy, it’s almost surely an attempt by Bessent to influence policy. And there’s no reason to believe that he’s actually in charge.

Second, even if U.S. negotiators are trying to cut deals with other countries that would isolate China, they will be unlikely to succeed because Trump has lost all credibility. After all, you can’t make deals with other countries unless foreign governments believe that you will honor the agreements you make. Trump has already destroyed U.S. credibility on that front, ripping up all our existing trade agreements, then making wild changes in his own tariffs every few days.

Third, even if Trump’s promises were credible, why would a European government want to join America’s trade war with China, destroying its own supply chains? If the argument is that it’s worth paying the cost of ruined supply chains because that will protect you from Trump’s tariffs, who trusts Trump not to reimpose punitive tariffs on our supposed allies the next time he thinks they’re looking at him funny?

Fourth, the Trump administration is bringing a knife to a gun fight.

To the extent that there’s a real plan to confront China, it appears to center on reducing China’s ability to sell abroad. It’s true that this will be painful for China’s export sector. As I said, my flat statement that trade is about imports, not exports, needs some qualification because the short-term interests of exporters can’t be ignored. But China can cope with lost exports by aiding affected industries, the same way Trump funneled money to farmers hurt by his first trade war. It can also offset any loss of export jobs by stimulating domestic demand. Moreover, Xi and the Chinese Communist Party don’t face elections.

So while China can manage the loss of exports in various ways, it will be much harder for America to cope with the loss of crucial inputs produced in China.

The overall point is that even relatively sophisticated Trumpers like Bessent are still thinking in terms of Chinese access to the markets of the United States and our imagined trade war allies, when the real issue now is whether China can strangle the U.S. economy by disrupting our supply chains.

PS: I know that I’m mixing metaphors here — China has brought a gun that is strangling us by cutting our supply chains. But you get my point.

Furthermore, America’s ability to fight a trade war is severely damaged by our descent into authoritarian rule. A few months ago other advanced countries might have been inclined to take our side because of shared democratic values. Now we’ve become a country whose government claims the right to kidnap people whenever it likes and ship them to foreign gulags. Who wants to be allied with such a government? Who will trust such a government to keep its word on anything?

Of course, the fact that the collapse of democracy will contribute to our defeat in the trade war isn’t the main reason to be horrified at where we are. Losing real GDP is bad, but it’s much less important than losing our soul. As it happens, however, we seem to be on track to do both.

Reprinted with permission from Paul Krugman.

Political Styles Of The Rich And Clueless

As we wait to see what fresh hell awaits us this week, one obvious question is, who put these malevolent clowns in power?

The short answer is ignorant people. But political ignorance takes two different forms.

On one side there are “less-engaged” voters who don’t follow politics closely. And to be fair, ordinary Americans have good excuses for not paying close attention to the news: They have jobs to do, children to raise, lives to live. Unfortunately, many of these voters believed Trump’s fabulist promises. They are only now beginning to understand what they voted for.

There’s now a huge debate among Democrats about how to reach less-engaged voters. But that’s a topic for future posts.

But less-engaged voters weren’t the only people who missed the warning signs and supported Donald Trump. Trump also had a number of ultra-wealthy backers, both on Wall Street and in Silicon Valley, who are now shocked, shocked to discover that he is who he always was.

Over the weekend Bill Ackman, a hedge-fund billionaire who has been one of Trump’s most vocal supporters, suddenly turned on his champion, declaring on X that

by placing massive and disproportionate tariffs on our friends and our enemies alike and thereby launching a global economic war against the whole world at once, we are in the process of destroying confidence in our country as a trading partner, as a place to do business, and as a market to invest capital.

But Ackman refused to take any responsibility for enabling the destruction:

I don't think this was foreseeable. I assumed economic rationality would be paramount. My bad.

Indeed. Who could have foreseen that the self-proclaimed Tariff Man, who posts crazy stuff on Truth Social every day, would impose destructive tariffs? Who could have imagined that the many economists, myself included, who warned that a Trump victory would be very bad for the economy would turn out to have been right? Or if we were wrong, it was only because we underestimated the damage.

OK, Ackman is a fool, but he wasn’t alone in getting Trump all wrong. Many wealthy people imagined that Trump II would be like Trump I, mostly a standard right-winger with a bit of a protectionist hobby. They thought he would cut their taxes, eliminate financial and environmental regulations and promote crypto, making them even wealthier. They expected him to back off his tariff obsession if the stock market started to fall. If he ripped up the social safety net, well, they don’t depend on food stamps or Medicaid.

And if Trump II really had been like Trump I, America’s oligarchs would be very happy right now.

It's also true that successful businessmen often believe that their financial success makes them experts on economic policy even though they haven’t made any effort to understand the issues.

Even relatively sensible business leaders like Jamie Dimon of JPMorgan Chase tend to stumble when they try to play economist. Does anyone remember Dimon proclaiming in 2014 that we couldn’t restore full employment because American workers didn’t have the right skills? Five years later the unemployment rate was below 4 percent.

I was struck over the weekend when Elon Musk (I know, I know), seemingly breaking with Trump, called for zero tariffs between the United States and Europe. I think it’s safe to assume that Musk has no idea that trans-Atlantic tariffs were, in fact, close to zero in 2024: The average European Union tariff on U.S. goods was 1.7%, the average U.S. tariff on EU goods was 1.4%.

Finally, great wealth often enables great pettiness. Some readers may remember Wall Street’s “Obama rage”: Financial titans were furious at the president who bailed them out after the global financial crisis because he dared to hint that they had played some role in causing that crisis. Why, he even called them “fat cats!”

The pettiness has been even worse this time around. A few days before the inauguration the Financial Times ran an article titled “Is corporate America going MAGA?” that quoted one “top banker”:

I feel liberated. We can say ‘retard’ and ‘pussy’ without the fear of getting cancelled . . . it’s a new dawn.

I wonder how liberated he’s feeling now.

To be honest, I’m actually glad that Trump II is proving to be such a disaster for the economy. If he had exercised some restraint, if he had simply claimed credit for the very good economy Joe Biden left him, many wealthy people would have cheered him on while he destroyed democracy. Now they may turn on him.

But I hope the rest of us have learned a lesson from the oligarchy’s support for Trump, even if it’s now cracking: Extreme wealth inequality has given great power to people who exert a malign influence on our politics.

Reprinted with permission from Paul Krugman.

Trump's Autocracy Is A Rude Awakening For His Small Business Fans

One odd feature of U.S. politics is that businesspeople, especially small business owners, always seems to believe that they will do better under Republicans, even though history shows that business does better under Democrats. Small business owners supported Trump in the last election, despite ample evidence that he would be very bad for business.

And now they’re getting a rude awakening.

Let’s talk for a second about price controls.

A few weeks ago Viktor Orban, Hungary’s de facto dictator and a darling of the MAGA set, announced that he was imposing profit-margin caps — basically price controls — on groceries. I intended to write something about that as a warning that something similar might happen in the United States, that businesspeople were fools if they assumed that Donald Trump was on their side.

Unfortunately, I never got around to writing that post. So I missed my chance to be prophetic, because it has already happened: Trump reportedly told auto executives sometime in March not to raise prices in response to tariffs. He denies that he said it, but the reporting looks solid. His headline-making assertion that he “couldn’t care less” about rising car prices seems to have been about imported autos, not domestic production.

The reason I expected Trump to follow in Orban’s footsteps is that Trump, like Orban, clearly doesn’t have any fixed principles other than power and self-aggrandizement. Under Trump, policy won’t reflect any consistent ideology. It will, instead, change with his perception of personal advantage, his temper tantrums, his whims and his malignant narcisissim. If he doesn’t like rising prices, he’ll try to stop inflation through bullying.

In short, MAGA will be very bad for business.

Most immediately, it seems as if Trump doesn’t care that his tariffs will raise business costs in addition to raising prices for consumers. We’ll get a better sense of how much costs will rise after “Liberation Day,” the big announcement of new tariffs planned for Wednesday. (War is peace, freedom is slavery, tariffs are tax cuts.) But the increase has already begun.

Indeed, thanks to tariffs already in effect the U.S. economy is already getting unscrewed, with manufacturers having a hard time keeping their stuff together.

You see, steep tariffs on steel and aluminum were the opening salvo in Trump’s trade war, and they are being applied not just to the metals themselves but to anything made from the metals, including screws, nuts, and bolts. And foreign producers are not absorbing the tariffs; they are sharply raising prices.

This was, of course, predictable and predicted. Tariffs don’t just make foreign goods more expensive to consumers. In a world where many of the goods we import are productive inputs like screws — or auto parts — tariffs directly raise the cost of manufacturing in the United States. Yet Trump’s threats against automakers suggests that he thinks he can control inflation through intimidation.

The direct effect of tariff-driven rising costs is, however, just the beginning of the ways Trumpism will be bad for business.

In the past I’ve been skeptical about claims that uncertainty is a big factor in the economy. During the Obama years vague appeals to “uncertainty” often seemed, in practice, to be invoked as a fancy way of saying “policies I don’t like,” and was used as an excuse for ignoring that fiscal austerity forced by congressional Republicans held the economy back. But in the 10 weeks since Trump was inaugurated, perceived uncertainty has soared. Here’s one widely cited index:

It’s not hard to see why. Trump’s apparent turn to price controls is just one more indication that there are no longer any rules, that economic policy changes from day to day with Trump’s moods. I’m finishing this post up just two days before the big tariff announcement, and all indications are that the administration still hasn’t decided on the general structure of the tariffs, let alone their size. Nor will we be able to take the issue as settled after the big announcement: Trump may impose further tariffs, or slash them as suddenly as he raised them, depending on who spoke to him last. L’Etat, c’est Trump.

This kind of uncertainty is paralyzing for businesses, who are realizing that any kind of long-term commitment can turn out to have been a disastrous mistake. Build a plant that depends on imported parts, and Trump may cut you off at the knees with new tariffs. Build a plant that’s only profitable if tariffs stay in place, and Trump may cut you off at the knees by backing down.

Again, the point is that there really isn’t a MAGA economic philosophy, just whatever suits Trump’s fragile ego.

All of this was predictable and predicted. Before the election many economists warned that Trump’s policies would be destructive, although the models didn’t really take the sheer craziness into account.

The remarkable thing is how many supposedly hard-headed businesspeople didn’t see the obvious. Small business owners, in particular, clearly favored Trump, and as the chart above shows, their optimism soared when he won. Now it’s crashing.

So business owners allowed themselves to be deluded, as usual, but with even less excuse than normal. What they should have realized is that Trump’s lack of concern for ordinary Americans’ lives doesn’t mean that he’s pro-business, and that the election wasn’t about left versus right — it was about rule of law versus autocracy. Now we’re getting a first taste of what life under autocracy is like, and it’s bad for everyone, including businesspeople.

Reprinted with permission from Paul Krugman.

        About The National Memo
    
The National Memo is a political newsletter and website that combines the spirit of investigative journalism with new technology and ideas. We cover campaigns, elections, the White House, Congress, and the world with a fresh outlook. Our own journalism — as well as our selections of the smartest stories available every day — reflects a clear and strong perspective, without the kind of propaganda, ultra-partisanship and overwrought ideology that burden so much of our political discourse.
TAGS

Created By

RebelMouse

About Masthead Terms of Service Privacy Statement Advertise Contact

Smart. Sharp. Funny. Fearless

Sign up for our Daily Newsletter and never miss a story.

About The National Memo