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Trump’s Inflation Problem Is Getting Worse
This month, US households delivered successive damning indictments of the US economy.
Both the Univ
Crude is under $60 a barrel. People I talk to don’t even notice it at the gas pump, exasperation has set in,. Any kind of oil shock and truly we would be the 70s again. I don’t think that would be great again.
The problem is that prices reset higher across the economy by ~20%-40% post-pandemic. So, regardless of what happens now — i.e., even if prices were to fall economy-wide by, say, 5%, which isn’t going to happen, but let’s pretend — average people are still going to say “inflation is a problem” because for them inflation = prices, not price growth.
Turns out that running a $2T deficit, year after year, causes inflation- no matter what else you do to try to circumvent the problem.
Shocker.
If deficits are the problem, why are we seeing inflation in the last few years and not the previous decade when deficits were almost as high?
The long term average deficit, as a percentage of GDP, is about 3.3%. Starting in 2019 through 2024; annual deficits, as a percent of GDP, were 4.6%, 14.7%, 11.7%, 5.3%, 6.1%, 6.2%.
Since we aren’t likely going to cut spending, we need to raise taxes IF we want to curb inflation.
This isn’t as simple as you tend to present it. These aren’t natural laws. This isn’t like, “If you want that plant to grow, you need to give it more sunshine.”
In other words, there’s some causation, but it’s not unequivocal.
Here in Hong Kong, we have the opposite problem (benefit?) The prices in Mainland China are falling so much that Hong Kongers are flocking across the border to dine and shop, which has been really hurting the local Hong Kong economy. Lots of restaurants and shopping centers are going under. Hong Kong has gone from being expensive relative to the USA to being cheap. It’s a lot less expensive for groceries and dining out here than back home in the USA!
Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.
“Notably, 40% of Republicans polled said Trump’s not telling it like it is when it comes to inflation.”
Only 40% of Republicans will believe their own eyes.
I guess that’s better than 30%.
NYT had a funny article about the different ways Bessent has tried to downplay inflation.
In 2024, he told clients that tariffs were inflationary but they wouldn’t be used much.
After becoming Treasury Secretary, he has variously said that
– Reshoring production via tariffs is Americans’ patriotic duty
– Prices are not rising because inflation is in services, not in goods
– Tariffs will cause only a one-time price adjustment
– Like “melting ice cubes”, tariffs will only be temporary until production is reshored, then will be removed
– Inexpensive goods are not part of the American Dream
It is amusing to watch him say everything but the truth, which is that tariffs have not yet driven a large broad price increase because large corporates have ways to slow or reduce their impact via front-loading, squeezing suppliers, and cutting employees, while taking revenue from small companies without similar levers, and ultimately sacrificing margin as demand destruction gathers force, while high tariffs are permanent even if individual tariffs are so inconstant as to slow or stall reshoring.