Why Trump’s Economic Illiteracy Might *Not* Tank the Economy

I didn't live through the Civil War, but I've certainly read about it.

I did have someone saying this is the worst time in U.S.

history.

I'm like, I'm going to go for the Civil War.

Yeah, I know.

The Civil War.

I wasn't there, but.

Hi, everyone, from New York Magazine and the Vox Media Podcast Network.

This is on with Kara Swisher, and I'm Kara Swisher.

There's been a slew of economic news in recent weeks, a lot of which has been kind of confusing and contradictory.

Whether it's tariffs, employment, the stock market, everything seems to be in flux, largely because of Donald Trump.

So what is exactly happening with the economy, and what can we expect in the weeks and months ahead?

My guest today is the perfect person to explain that all.

Steve Ratner is the chairman and CEO of Willett Advisors, an investment arm for former New York Mayor Michael Bloomberg's personal and philanthropic assets.

He's also an economic analyst analyst for MSNBC and a contributing opinion writer for the New York Times.

I've known Steve a long time.

I met him back in the dot-com days when he was an investment banker.

And he really has had a new life sort of doing a lot of economic discussions that really reach regular people.

So I'm looking forward to getting Steve's take on the economy.

For example, why we haven't seen major price hikes yet and whether Trump's tariffs are going to spiral us into inflation, why there's such a disconnect between the economy and the stock market, and what impact generative AI is going to have going forward for the good or the bad.

Our expert question this week comes from Raj Bala, professor at the University of Kansas School of Law and a prominent expert on international trade law.

Stay with us.

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Hi, Steve.

Thanks for coming on.

Thank you for having me, Kara.

We've known each other a long time when you had Quadrangle and before that, right?

Before that, a long, long time.

I know, I know.

My family was asking me that, and I said it was a long, long time.

Yeah, at the beginning of the internet age.

In any case, what you're doing now is talking a lot about the economy.

And so I think we're going to just focus in on that right now.

We're going to talk a lot to talk about tariffs, inflation, the job market, the stock market, things you know a lot about.

And President Trump seemingly doesn't, according to you, you recently wrote an op-ed titled, Our President is Economically Illiterate.

Explain what you meant by that specifically and what impact you think Trump's economic illiteracy is having on the country.

I think he basically doesn't understand fundamental principles of economics.

He went to the Wharton School, or so it is said, but he knows, in some ways, less than someone

who's never taken an economics course.

Obviously tariffs are the most prominent and now famous example, but even things like supply and demand and what causes inflation and what interest rates should be and how the Fed should go about doing its job and things like that, he just shows complete ignorance of and it is manifesting itself in the kinds of economic policies that we're all having to deal with at the moment and the impact that they're likely to have.

If you were giving him a quick econ 101 lesson, what do you think is the most critical thing he doesn't understand?

Is it terrorists, interest rates, inflation, AI?

We'll get to all those issues.

I think it's a little bit all of the above.

I think, and it depends on what moment you're asking and what's going on, tariffs were really scary when he was talking about massive, massive tariffs.

Now he's backed off a lot of that.

And so my biggest fear at the moment is really the Fed, the Federal Reserve, our central bank, for your listeners listeners who may not spend all their time thinking about these things, is one of our most important institutions.

It was set up about 110 years ago after a series of financial crises and panics in order to provide a stabilizing force in the economy.

And when it was set up, it was very deliberately set up as an independent arm of the government.

It took a little while for it to evolve completely to that, but that was the idea.

And presidents generally don't interfere with it.

And as a result, it's very apolitical.

And it really does embody best practices rather than whatever the ideology is of the moment.

We'll talk more about the Fed in a minute.

Let's start with tariffs, though, because that's something you've written a lot about.

Trump's new tariffs on roughly 90 countries took effect August 7th.

This was a result of negotiations following April's alleged liberation day.

Brazil and India are on the top list with 50% tariffs.

Our neighbor Canada is at 35%.

Russia is at 10%.

I'd love to hear what you think about that.

Can you explain the logic?

Now, they've been less than people thought.

And obviously, there's Taco Trump, which is Trump always chickens out.

Can you explain the logic and where we are now with tariffs in general?

Because it hasn't been what he had threatened to do.

Aaron Powell, it's been a completely disorganized process.

On Liberation Day, he rolled out tariffs on more than 100 countries, I think it was.

And the formula he used made no economic sense whatsoever.

Basically, some poor country like Lesoto that doesn't buy anything from us because they can't afford to and sends us some textiles or whatever, got slapped with these massive tariffs and other countries got off relatively easily.

And then he paused them, then he resumed them, and we've kind of gone back and forth like that.

And then he started negotiating some deals and he did a deal with the UK.

He's done a deal with Europe.

Now, when I say he's done a deal, I think they're more handshakes than actually fully negotiated.

Correct.

They usually take a long time.

They take a long time, yeah.

I mean, administrations can spend three or four years negotiating a tariff deal with one country or a couple of countries.

He spent a lot of his first time negotiating the revision to NAFTA, the trade agreement between us and Canada and Mexico.

And that's just two other countries.

And so you can imagine how hard this is going to be to actually get it done.

And then he goes back and forth, and they're on, they're off, they're higher, they're lower.

Then he puts a 50% tariff on Brazil because he doesn't like the way they treated Bolsonaro, the dictator who they voted out.

And so it's just all on the fly.

And the uncertainty of it is almost as bad as the reality of it from the standpoint of business and the the country.

He has argued that the uncertainty is a good thing.

They don't know what he's going to do.

I'm going to go left.

I'm going to go right, that kind of thing.

That's been one of the arguments made as their logic for it.

He has brought, shall we say, certain private sector negotiating tactics, which not even most private sector people would employ, to the public sector, which is

ask for or demand the sun, the moon, and the stars, and hope you get a couple of stars.

Threaten to blow yourself up unless they do what you want them to do.

Threaten to blow them up unless they do what you want them to do.

And as you say, this sort of on again, off again, you never know what I'm going to do next kind of approach.

You know, it may work well as a real estate developer.

I'm not sure it works as well when you're the president of the United States.

And what would be the problem with the uncertainty?

Oh, the uncertainty is, I think, terrible for every participant in the economy.

So if you were to listen to earnings calls, which are now coming out for the second quarter, you'll hear CEO after CEO say, it's really hard to plan.

We can't tell you what we think our profits are going to be this year because we don't know what's going to happen with trade policy.

And so it just causes everybody to kind of slow down and pull back.

If you're a consumer, you have the same set of issues, right?

You just don't know whether to make some purchase you were thinking of making now or whether the economy is going to turn down or the tariffs are going to be on or the tariffs are going to be off.

None of this is good for an economy.

You discussed Brazil, India, the 50%, Canada, 35%, with Russia just at 10%.

Explanation for that?

No, there's no real logic to it.

We have banned Russian oil and gas, so that effectively is an infinite tariff.

And that's really much of what I think we probably were buying from Russia.

So I think depending on how this round of negotiations goes, he'll get around to doing something else on Russia, I assume.

Depending on what happens here.

Depending on what happens here.

And Canada and India?

Some of that is about Russian oil and the fact that they do buy a lot of Russian oil.

Canada, Mark Carney, the new prime minister there, unlike many of the other presidents and prime ministers out there, he's chosen to kind of fight Trump, and he's been pushing back.

And so those tariffs are high.

Now, remember, goods that are compliant with the USMCA, which is the renegotiated NAFTA, don't get tariffed.

So not everything that comes in from Canada will get tariffed.

He's in a polite but tough fight with Canada over where these tariffs are going to land.

And why did Carney choose to push back compared to other leaders?

That's a good question.

I don't honestly know the answer to that.

Canada is one of our three biggest trading partners, along with Mexico and China.

And so

he may view it as fairly existential that he needs to get to a better place and he simply can't accept really high tariffs.

We do actually import oil from Canada.

We are a net oil exporter, as you probably know, but we actually import a fair amount of oil from Canada.

And so Carney, I think, felt he had some leverage over the president because we get oil and some natural gas as well from Canada.

So speaking of China, for a while it looked like China was going to be hit the hardest, but last week Trump extended the trade truce with Xi Jinping for another 90 days, which he does typically.

It's going to be, I'm doing it Wednesday, but oh no, Friday, but oh no, Monday.

What do you make of this about face on China?

I'm not sure it's a complete about face.

Trump realized that 150%, I think he got up to at one point, tariffs on China were simply not realistic.

There's too many things that we buy from China that we can't get from anywhere else.

Toys, umbrellas, bicycles, all these are things that China supplies the vast, vast majority of what we buy here.

And he made that crack some months ago about how, well, kids don't have to have $30 a Christmas.

They can have $3 at Christmas.

That's not really what Americans want to hear, that they have to buy fewer dolls because he's in a fight with China.

So I think he's trying to land that plane, so to speak, in a place that's livable for us and livable for for China.

So, one of the major concerns, mentioning cost of toys and things like that, one of the major concerns economists have about the tariffs is that they could fuel a spike in inflation.

This has been discussed from the beginning, possibly a recession.

But two different indicators came out last week: the Consumer Price Index and the Producer Price Index, which are up slightly different rates, but together didn't indicate the tariffs were having much of an impact yet.

Explain why and whether you expect that to change and

what they do indicate.

Well, first, let's recognize that we're in somewhat uncharted water here.

I mean, economists have theories, but we haven't really had tariffs like this since the 1930s, and therefore we don't have a lot of data points in which to predict what's likely to happen.

I think one has to say, in honesty, that the impact of the tariffs so far has been less than people perhaps thought it would be.

Some of that is because he's paused so many of them.

The average tariff rate is about the average tariff rate is about 12 to 15 percent now, where you know, not 30 percent or 50 percent or 150 percent or any of those numbers.

So, it's relatively small.

We import only about 15 percent of our GDP, so to speak.

So, that's a factor.

And I'll rattle off a couple others.

The companies in the exporting countries have been more willing to absorb the costs than people expected.

Companies in our country have been more willing to absorb the costs than people expected.

Rather than pass them on to the center.

Rather than pass them on, which is typical, which is what we expected and still expect.

There was a lot of buying and anticipation.

So there are inventories that were at the lower price.

There are some games being played.

There's what's called trans shipping.

So China's exports are up to the world, but they're down to the U.S.

So where's all that other stuff going?

It's going somewhere else and probably ending up back here.

And Trump has threatened a 40% tariff on that, but you have to find it.

So there's a lot of stuff going on, a lot of moving pieces.

But I think there was evidence in both, even though, as you say, the CPI and the PPI were muted, there was evidence, particularly in the PPI, that there was some effect.

Furniture, apparel, things like that are starting to go up in price.

So we will feel some of this.

It may not be as bad as we feared, but we will feel some of it for sure.

But they have absorbed them, right?

They haven't passed them on to the consumer, which is typical.

Why is that?

Why have they done that?

I think somebody has to go first, and everybody's trying not to.

They also don't want to incur Trump's wrath.

That's what I mean.

That's what I'm saying.

And they're kind of hoping this, yes, and you know what Trump does.

And they're kind of hoping it will pass.

But I think they've all said very clearly, companies I'm talking about in the U.S., that they can't go much further without raising prices.

Like Ford or GM.

They talked about that.

They definitely saw an impact.

Yeah, so I think that's coming.

I think that's coming.

So in March, you wrote that CEOs were privately cheering Trump's move fast and break things approach.

Axios reported last week that the White House created a loyalty scorecard to keep track of who's paying homage and talking nicely about Trump's economic agenda, including his tax and spending bill, and who isn't.

According to Axios, good partners include Uber, DoorDash, United, Delta, ATT, and Cisco.

Who do you think is on the nice list?

And is it just so they can placate Trump for now?

And who's on the naughty list?

And what are business leaders now telling you?

Well, look, Trump has made clear that he is prepared to punish companies who he feels are not cow towering to him or not doing what he wants them to do.

And it varies.

You can be on, for example, the CEO of Intel, which I'm sure you followed very closely,

was on the list.

Then he went to the White House, and now

the White House is talking about investing in Intel.

Yeah, yeah, I noticed that.

We were banning H-20 chips of NVIDIA's to China until Jensen Wong, the CEO, went to the White House, and then we approved them.

So Trump has got no compunctions whatsoever about playing favorites or being willing to use whatever leverage he has and so forth to get what he wants.

Trevor Burrus, Jr.: So when they said CEOs were cheering the move fast and break things, what are they doing now?

What are you hearing from them?

I mean, loyalty scorecards would be like, whatever, we'll give them the gold statue like Tim Cook.

Everyone was horrified when Tim Cook gave him the gold statue.

Of course he did.

That was pretty amazing.

I know.

It was, but it was also like, whatever.

Like, seems cheap, right?

Like, here, have a key or whatever.

Do you think that's a bad thing?

Or I wasn't particularly offended because Tim Cook's interested in shareholders, correct?

Well, exactly.

I don't fault Tim Cook.

I think if you're a CEO of a major public company with hundreds of thousands of employees, you have a responsibility to the employees, you have a responsibility to shareholders, you have a responsibility to your customers.

And getting him to fight with the president

is not something if I were on the board of one of those companies, I'd want my CEO to be doing.

So I don't really fault Tim Cook.

I fault the president for being willing to allow people to flatter him this way, way, this really kind of gross flattery that he seems to revel in.

But just to get to your question, look, I was surprised, the piece that you're referring to, I wrote in the spring because I was really surprised at how many business people had moved to Trump.

And I'm talking about, you know, business people are not all right-wing.

A lot of them are kind of fiscally conservative, socially liberal, especially in New York, especially in finance, and of course in the tech community, as you well know.

And I was surprised at how many of them had voted for Trump.

And most of them, for similar but far different reasons, in a way,

were not fans of Biden.

And they didn't want to say it while Biden was president because he was president.

But after the election and after the inauguration, I realized how deep the animosity of the business community toward Biden was.

And so that's why they were cheering him on.

Business doesn't really understand Washington.

They don't really understand the government.

They don't understand that it is a bureaucracy by definition.

You can't run a million-plus million-plus civilian workforce and not have it be bureaucratic.

And so

they were very much in favor of the Elon Musk Doge kind of, let's go in there and find the fat thing.

If you ask them today, I think what they would tell you is they don't like a lot of what Trump has done, whether it's the personal stuff, whether it's some of the foreign policy stuff, whether it's

the fact that he has just gone in there and slashed stuff right and left with no particular rhyme or reason.

But they would still tell you that

and better than Kamala Harris.

And they don't really regret their vote, even though they're not thrilled at what's been going on.

Aaron Powell, what was the reasons for Biden?

Give me like the top three from your perspective.

And does it link to Democrats in general going forward?

Yeah.

Or just Biden.

Yeah, that's a good question.

I was for Biden and for Harris, but I have to tell you that the anti-business

feeling that came out of the White House for four years is very hard.

If someone is basically telling you you're like a bad, bad person, it's very hard to think well of them.

And the Biden administration did put out, for example, I remember there was one CPI number they didn't like, and they blamed it on big business.

They said big business is gouging America.

Gouging America.

That's not really what was going on.

That's fine coming from Elizabeth Warren, but.

Yes, in a sense.

I mean,

the Biden administration was very, very sensitive to the feelings of the, what I'll call the Democratic wing of the Democratic Party.

And they wanted to keep those progressives on side.

And so they did and said a lot of stuff to keep the Elizabeth Warrens happy that I think was bad.

And we'll get to the next part of your question about the future.

And then, of course, you had the regulatory agencies, most famously, Lena Kahn at the FTC, but not just her.

The SEC, they were very unhappy.

The crypto people, of course, were really unhappy with the SEC.

The banks were really unhappy with the fact that capital requirements had not been lifted, even though the financial crisis was way in the rearview mirror.

And so you can go through every industry's or every company's checklist.

And so

that put the Democrats in a pretty bad place with business.

And that has not yet changed, really.

Aaron Ross Powell, is there voices that you're hearing that isn't?

Because largely Democrats are attacking either Gavin Newson's making very funny memes about Trump, or you don't hear a lot of discussion about business at this moment from the Democrats.

No, but you don't see the opposite either of the Democrats basically saying, you know,

we were really unfair to business.

Business plays an important role.

Most businessmen and women are honest and trying to do the right thing and so on and so forth.

Look, as we sit here at this moment, I think you have to say that the center of gravity in the Democratic Party is still pretty far left.

You may want to talk about the situation with the New York mayoral election, which is an evidence of that.

You may want to talk about the oligarchs tour that Elizabeth Warren and Bernie Sanders conducted and got, sorry, not Elizabeth Warren, AOC, I I missed AOC,

conducted and got tens of thousands of people turning out.

I was thinking of AOC because she has become an even more formidable force in New York politics.

And, you know, people say to me, well, who are the moderate candidates that the Democrats are going to put forward?

And I can think of a few.

Hattie Spanberger.

Mickey Sherrill.

Yeah, she's, well, they still have to be, get to be elected governors and so forth.

But in the presidential, yeah, we have Andy Bashir and Josh Shapiro and maybe Gretchen Whitmer, some governors, and Gavin Newsom, as I'm sure you know better than I, is clearly trying to pivot a bit toward the center.

But the center of gravity of the party is still pretty far left.

And this is going to be an interesting debate, shall we say, over the next couple of years to see what the party really wants to be.

Well, in that case, it was the voters who voted for Mamdani, not the center of power, because they're trying to run from Mamdani, the center of power, it seems like.

It's actual voters who are picking that or showed up at AOC's events, et cetera.

He has excited a certain lot of people,

not just a small base, but a large base of people.

But when you think about that, the Republicans have an opening with business people, correct?

They haven't shifted over by any means.

Aaron Powell, I think not just business people.

I think a lot of people, but business people certainly among them, are waiting to see how the Democratic Party comes out of this.

You know, this has happened in every party after every losing election, where you have a debate inside the party of where you want to be.

And so

I mean, my hope is that having lost two of the last three elections and would have lost the third but for COVID, that the Democrats

frankly learned their lesson and concentrate on winning elections, not carrying ideological torches around.

We'll be back in a minute.

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Trump is also threatening to raise, by the way, get back to the tariffs, 200 to 300% tariffs on imported semiconductor chips within the next two years.

But he said he'll exempt companies that invest in the U.S.

And as we talked about, Tim Cook gave him the black, but also a $100 billion investment pledge in exchange for exemption.

I will note he did this before, and nothing really came through.

So did the Foxconn guy, like it's happened before these press conferences.

And as you mentioned, NVIDIA's Jensen Wong also struck a deal with Trump to pay the U.S.

government a 15% cut on sales, basically an export tax, of previously restricted advanced chips to China.

We can debate that, whether China should be getting these chips or not.

But NVIDIA also promised to invest $500 billion in the U.S.

Talk about these deals and their potential long-term impact, because this is sort of paper.

play, right?

Stay here.

And this has been Trump.

Trump has consistently talked about these companies returning manufacturing to to the U.S.

Trevor Burrus Well,

there are several different questions embodied in that.

Maybe I'll start with your last one and we can work backwards.

Look, I worked on the auto rescue, as you know.

I spent a fair amount of time dealing with manufacturing issues in the course of that.

And so I think I understand it.

We are not going to bring manufacturing back to this country in a major way, and nor should we try.

The cost to us, to consumers, to taxpayers, if we subsidize them, of bring back every auto parts manufacturer who's moved to China or moved to Mexico or moved somewhere else is just too high.

We should focus more on solving the problems of the people who were left behind by that, not trying to recreate a world that doesn't exist anymore any more than we should send half of Americans back to work on the farms the way they did 100 plus years ago.

So that's that one.

I think there are exceptions to that and notwithstanding the auto rescue, I'm not a huge fan of industrial policy.

I think the government generally should lean out, not lean in, on trying to micromanage, either by taxes or tariffs or any other way, what gets made here versus not.

I think there are exceptions to that, and I think semiconductors may well be one of them.

For national security issues, correct?

Yeah, semiconductors to us today are what Saudi Arabian oil was to us in 1973.

It is

probably the most essential component we need to make our economy run.

We solved our energy problem.

As I said before, we're now a net exporter of oil and gas.

I don't know whether we can ever really be self-sufficient in chips, but I think the CHIPS Act was directionally the right thing.

Could have questioned a couple of the ways it was implemented from my own experience doing that, but basically the right thing.

But when you read Trump's, at least as I take his words literally, TSMC, which as you know, supplies 92% of the world's high-end chips, is building several fabs in Arizona.

So presumably they don't get tariffed.

And that's, you know, that they and Samsung are the only real, two real producers of very high-end chips.

And so I'm not sure whether this sleeves off your vest kind of thing where he says all this, but it doesn't really end up affecting very much because I'm not sure who's going to get tariffed if TSMC is not going to get tariffed.

Right.

And so these investing pledges, but whether it's by Apple, whether they follow through, in some cases they do, in some cases they don't, or taking a cut of sales to allow China to have these chips, which has been a big problem by promising $500 billion.

That's industrial policy, right?

These are sort of unnatural acts he's asking these companies to make.

Trevor Burrus, Jr.: Right.

So thank you for reminding me.

So the idea of paying a 15% tax, it's really a tax, to be able to export your chips

is really outrageous.

And, you know, one of the favorite things that people in my Democratic world read now more are the Wall Street Journal editorials, because the Wall Street Journal hates this stuff as much as you and I might hate it.

And just the idea, you know, Trump just can't resist that there's, you know, he can extract it.

He thinks he's still in the private sector.

You can extract this pound of flesh.

Yeah, well, it's or a mobster.

It's a big.

You know, Trump's attitude is: well, why would I give them permission just to export their chips unless I get something for it?

Now, we can debate whether H-20 chips should go to China or not.

I've heard both arguments.

I'm sure you know them better than I do.

I do.

They're arguments, they're good arguments on both sides, but we should decide it on the merits, not based on whether Jensen Wang gets into the Oval Office or not, or whether Trump can get a 15% tax out of them or not.

Yeah, absolutely.

And it may be, in fact, unconstitutional.

Every episode, we get a question from an outside expert.

Let's hear yours.

Hi, I'm Raj Bala.

I'm a University Distinguished Professor at the University of Kansas School of Law.

And for many months, including on this program, I've characterized U.S.

trade policy under the second Trump administration as xenophobic autarky, a fear or distrust of foreigners, and a desire to shut down trade and reshore or onshore industrial production.

And the Trump administration has raised tariffs from an average of about 2.3%

to 15.2%.

They've done so because they think trade deficits threaten national security.

And on some items like aluminum, they've even raised tariffs to 50%.

So here is my question or questions.

Do you think trade deficits threaten U.S.

national security?

And by Oktoberfest, given that beer is put in aluminum cans, how much higher will beer prices have risen?

Well, I don't know if I can answer the second question, but look, let's just go back to the basics for one second.

Trump fundamentally doesn't understand trade deficits and what they mean.

He thinks that if we have a trade deficit of $50 billion with some country, it means we're, quote, losing $50 billion to that country.

We're paying that country $50 billion to get their whatever,

their things, and we're getting the things.

And it's not that different than if you go into a store and you buy yourself a new pair of shoes or

you're in a trade deficit with Nike, for example.

Yeah, do you have a trade deficit with Nike?

And so he fundamentally doesn't understand that.

So let's start with that.

Number two, I just want to make a related point to what your good questioner asked you, which is among the stupidest tariffs Trump has put in place are the tariffs on steel and aluminum, because as your questioner pointed out,

those are actually raw materials that are used to make stuff here.

And if you raise the price of steel and aluminum here, it means that a car company, and this is part of why the car companies, ironically, who are supposed to be the beneficiaries of these tariffs, hate them as much or more than anybody, because steel and aluminum go into cars.

And so if you're going to tariff stuff,

he's tariffed the wrong kinds of

things.

I would say this, though, and to be honest about all this, a trade deficit in and of itself is not a bad thing.

When we were in the latter part of the 19th century, when we were developing our own industrial capacity, we ran large trade deficits because the flip side of a trade deficit means that money is coming into this country.

And the money was coming into this country to invest in our railroads and in our steel mills and so on.

And we needed that capital.

That can be a really good thing for a country.

The problem we have is that we're running these massive federal budget deficits at the same time.

So a lot of the money that comes in the country, in effect, the money is fungible, but you can think of it as financing those deficits.

And it's a huge number now.

And that's not really a good thing.

I would feel a lot better about

our trade deficit if we weren't running a budget deficit as big as what we're running.

But those are the so-called twin deficits that I think are dangerous for a country to run.

Which Trump does not focus in on because he's added some of the trends.

He He doesn't understand that either.

He did it in his first term and he's doing it again now.

And he doesn't even understand that.

He believes this tax bill, the one big, beautiful or big ugly bill, depending upon which side you're on, is going to reduce the deficit.

It's been well documented.

It's going to increase the deficit by trillions of dollars.

And he doesn't seem to understand that.

Another piece of the troubling economic news coming out this month is, of course, the July jobs report, which showed that hiring has cooled.

Trump said the data was rigged to make him and Republicans look bad and then abruptly sacked the head of the Bureau of Labor Statistics.

Another non-political job, really.

Explain why Trump's firing the messenger was so concerning and not just to you.

And is it at all possible for the head of BLS to fudge numbers or more generally, any validity to the criticisms of jobs data or the CPI or the PPI for that matter?

Revisions do make people nervous, right?

And he's taking advantage of this.

So starting at the beginning, economic data is really important to our country in order to manage economic policy.

It's important to the financial markets in in order to evaluate the quality of companies' earnings and what's likely to be the economic impact on their earnings makes markets more efficient.

And the better the data, the better the performance of financial markets and of the economy as a whole.

And so Trump firing an apolitical appointee and actually being criticized by the guy he put in place in his first term to run the BLS for doing it was, I can't recall a precedent like that of someone in a job like that being fired almost by a tweet.

It wasn't quite, but it was pretty close.

And the person in that job has almost no ability, not almost, has no ability to influence the actual numbers that get produced.

They're produced from the bottom up in rather old-fashioned ways, actually, by people literally going out and checking prices in grocery stores and things like that.

And then it all bubbles up and it comes out in numbers.

We do have a problem with the data at the moment in that it's done by surveys and the response rates have been dropping.

And you would think in the modern internet digital world, there would be a better way than having two people drive around Omaha checking prices to collect this data.

So I think there's work to be done, but I think we're going in the wrong direction.

And the idea of shooting the messenger and shooting the message in the sense of, well, if we don't like the message, let's just not have any more messages

is a terrible way.

And it's gotten, you know, again, he's gotten criticized by the Wall Street Journal up and down the line.

I don't know anyone who outside the administration who thinks this is a good idea.

Because he also criticized Goldman Sachs as very well, I think, respected economists.

All these companies have their own economists, right?

And they do this numbers, but they can't operate without the government data, correct?

Well, I mean, economists everywhere, companies or elsewhere, they do predict, they do make projections all the time of what they think the unemployment numbers are going to be or the price numbers or whatever.

Then when the real numbers come out, they adjust their numbers.

So you can make a projection and might be right for a little while, but if you don't get actual data to help you know whether you're right or wrong and adjust it, then you're just going to get further and further wrong.

And at some point, you're going to have absolutely no idea what's going on in the economy.

And again, you can go back.

You know, modern GDP statistics really only go back less than 100 years.

And before that, again,

we were managing an economy without really knowing what was going on out there.

And it didn't work out so well all the time.

No, but they need this data is my point.

Everybody needs this data.

Everybody, everybody wants, business needs this data in order to predict

how many people are going to buy their stuff, what the demand is going to be, what the pricing should be.

And it's not just CPIs or unemployment numbers.

The government puts out unbelievable reams of data that farmers use, everybody uses.

He's also nominated Heritage Foundation economist E.J.

Antoni to head the BLS.

Any thoughts?

One of the things he said is that there should be quarterly jobs reports instead of monthly, for example.

Talk a little bit about why he would do this and why this guy.

What are your thoughts on him?

Well, again, he's trying to politicize something that's been an apolitical job for as long as, pretty much, I think, as long as the BLS has been around.

I have no knowledge of any president putting an appointee in there because they thought he was going to somehow make the numbers come out the way he wanted to.

Presidents have been unhappy with the numbers.

They've occasionally questioned them in a mild way.

You may remember Jack Welch, who was obviously not the president, claimed that Obama was manipulating the unemployment numbers in 2012 to try to get reelected.

But, you know, that's all sort of statistical noise on the edge.

This is like a full-throated, double-barreled attack.

And

again, I think putting them out every three months is a step in the wrong direction.

It would be like going from flying in jet planes to flying in propeller planes.

I mean, why would you want to go backwards in the quality and quantity of data you have when data is so important to every participant in this economy?

Any thoughts on him, particular?

He's an economist.

I guess that's the good news.

I mean, he could have been some friend of Trump's from Mar-a-Lago.

But he's got a record of being a highly partisan economist in a job that, to my knowledge, has never been filled by a highly partisan individual.

It's always been someone who is the best qualified person to do that rather ministerial job of churning out data.

It's not supposed to be a policy job.

It's supposed to be a reporting job.

So Federal Reserve Chair Jerome Powell has also been, as we noted in Trump's crosshairs, because Trump says Powell has been too late to cut interest rates.

Treasury Secretary Scott Besson also weighed in on this recently.

Talk about how unusual it is for this kind of pressure.

Now, again, people have fought with Fed officials.

I have lots of memories of that, but it's never quite been like this, especially someone he himself appointed and seems to have forgotten, praised effusively when he did so.

Trevor Burrus, Jr.: Well, this goes all the way back to one of your first questions, which is Trump's economic illiteracy.

He looks at our interest rates and he looks at Europe's interest rates, and he says, well, our interest rates are a couple percentage point higher than Europe's interest rates.

And so obviously the Fed is wrong.

And Europe has cut interest rates nine times.

Why haven't we?

What he doesn't understand is that our economy is much stronger than Europe's.

Our budget deficit is much larger.

And so it's competing with capital in the private markets and that forces interest rates up.

And because we are still trying to get inflation back to 2%, which it has not gotten back to, and now it may be going in the wrong direction.

And so I think Powell's been quite judicious about it.

And it's driving Trump crazy.

Partly because he does, I think, feel, as I do and many people do, the economy is starting to slow.

Because, notwithstanding the bravado, he does understand that the budget deficit and the national debt is very large and it has to be financed.

And if you can cut interest rates, as he keeps saying, two percentage points on $37 trillion of debt, you can save a lot of money.

But I think

every

rational,

non-ideological economist would tell you you that

with inflation still a bit high, the economy doing okay,

this is not a time for massive interest rate cuts.

And frankly, the Treasury Secretary, who I think is normally a fairly reasonable guy, like everybody in the Trump orbit, is

trying to sing the master's voice.

People are trying to also parse Powell's speech at the Jackson Hole Symposium on Friday to see what direction the Fed could go.

It's not just up to Powell.

The Federal Open Market Committee has to agree.

They tend to.

The next meeting is September.

At this point, do you think, how much of a likelihood of a rate cut?

And do you think the pressure from the administration will finally work?

It hasn't worked so far.

He does what he wants.

I think the administration's pressure so far has had no effect except at the last meeting where they didn't change rates, the July meeting, two Fed governors who are both people aspiring to Powell's job voted against it and said we should be cutting rates.

Sure.

The Treasury market, which

in effect predicts interest rates, was predicting 100% probability of a rate cut, not because of the pressure, but because I think it felt that with the economy weakening after that jobs report, it was appropriate.

And we say rate cut, the parlance means a quarter of a point, not a half a point that Besson's been trying to get.

After the PPI in particular, the producer price index number came out, those odds are now at about 87% as we speak today.

Oh, so

they're still very, very high.

And so the market is expecting a rate cut.

And I don't think the market believes that this is Trump's pressure.

I think they simply believe

given the unemployment numbers and

the still reasonably muted

price numbers.

It's not crazy to cut rates by 25 basis points.

To worry about inflation.

Powell's term is up next year.

What odds would you give him for making it to the end?

He seems to have a lot of staying power.

And who of the many people brought up do you think Trump Trump will choose to replace him?

I think Powell's chances of staying are now close to 100%.

I think Trump has been talked off the ledge by people around him that this was absolutely crazy.

It may not even be legal, but it's certainly crazy.

Powell's term as governor goes on for two more years.

Right.

There's no precedent that I'm aware of of a Fed chairman staying on as governor after their term as chairman ends.

They generally say, let my successor worry about it.

You know, I shouldn't be sitting around here getting in his way or her way.

There is speculation Powell might stay on

to deny Trump another pick on the board and to be able to keep policy in a better place.

And his influence.

Yeah, I would have taken the under on that, but enough people who are really good at this stuff think it's possible.

Maybe it's possible.

I still would put it well less than 50-50.

What would Trump's reaction be?

Oh, he'd go crazy.

It would be pretty funny.

It would be pretty funny.

And and he'll accuse him of all manner of crimes but you know the way it the way it works right now is that um you know uh one governor resigned a couple weeks ago and he put the chairman of his council of economics in there as a placeholder so that he knew he had a slot where he could appoint a new chairman so you could be in a situation where the only thing that changes is a chairman comes in powell stays and everybody else stays and then depending on who he picks Powell could actually end up potentially having more influence than the new person.

I just don't think Powell's going to do that.

I think he's probably had enough.

I think he's probably respectful of the tradition of letting the new guy have his or her

chance without the old person looking over their shoulder.

But who knows?

It'll be very interesting to watch.

I don't know.

I think he's got a little bit of sauce in him.

Who knows?

But who do you think of the replacements would be the best?

And who do you think he will choose?

I think Governor Waller is a, you know,

probably

more on the side of cutting rates than some other people, but would still be pretty good.

I think Kevin Hassett, who runs the National Economic Council, is a serious economist.

You know, those are probably the two names that most people believe.

You know, he runs some of these, some of these appointments he just wakes up in the morning and does.

Others, he runs like the apprentice.

And this one, he's kind of running like the apprentice.

Yeah.

You know, this one they were down to two people, then they expanded the list to 11 people, and then Besson took himself out.

And so I don't know.

But

I don't look, Powell was a very good choice he made in 1.0.

I'm not sure he's going to be as apolitical and as agnostic to pick just like the best person.

I think he's really going to be looking for someone who he believes is going to do what he thinks they should do.

And of course, once that person gets there, they can do whatever they think is right.

And that'll be interesting.

Kevin Hassett smiles a lot on Fox News.

I feel like he's got the...

Well, they're all trying.

Some of these are very serious economists, but they're trying to thread this needle of not completely

diminishing their credibility, but also not ruling themselves out as potential appointees.

We'll be back in a minute.

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Despite all of this economic uncertainty, the stock market has been doing doing great.

And a lot of people are wondering about that.

Rusty Foster wrote in his media blog Today in Tabs recently, our economy might just be three AI data centers in a trench coat.

I think about that a lot, that it's the tech companies.

Do you think it's the AI boom that's keeping the economy afloat?

If not AI, why do you think there's such a disconnect between a sluggish, unstable economy and this booming stock market?

There's estimates it makes up to 2% of GDP.

And certainly the tech stocks are the ones that are roaring, not anybody else, really.

Well, that last point is the first important point to make, which is simply just math.

The so-called magnificent seven, of whom not all are so magnificent at the moment.

Tesla is a little bit less magnificent.

Apple's had a tough year.

And Google's Alphabet's had a mediocre year, but certainly Meta, Nvidia, and Amazon and Microsoft have all had good years.

Those seven companies make up 30 to 35 percent of the S ⁇ P.

So right away, the market is just mathematically heavily driven by what happens with those companies and they're doing quite well.

That's sort of point one.

Point two is that if you believe interest rates are coming down, lower interest rates are a friend of the stock market because the alternative for investors is bonds.

If interest rates come down, bonds become less attractive.

You put the money in stocks to some degree anyway.

I'm just rattling off some of the reasons.

Second quarter earnings have been quite strong and seem to remain quite strong.

And the worst of the tariff wars seem, as we talked about earlier, seem to be unlikely to materialize.

And then you get to the last thing, which is the most interesting, which is a combination of AI and productivity.

Productivity is, as you well know, the holy grail of economic progress.

It's the only way an economy can really grow.

And nobody completely understands productivity, what makes it go up, what makes it go down, but certainly technological innovation is one of the things that helps it.

And that was what we saw saw in the late 90s when computers and the internet really hit their stride.

And that may be happening again.

And what may save Trump's butt, if you pardon the expression, is the AI boom, ironically, in that if AI really succeeds in producing a productivity

boon, it's very good for the economy.

It's very good for corporate earnings.

We talk to a lot of companies.

Companies are really excited about AI.

They think it is going to be a significant game changer for the cost of their business.

Absolutely.

And therefore, for their profitability.

And that, of course, ends up back at the stock market.

And also the capital expenditures, going back to those data centers, the Wall Street Journal has noted that Google, Amazon, Meta, Microsoft together will invest nearly $400 billion this year on capital expenditures.

Huge amount of capital expenditures, largely to build AI infrastructure and actual things, not just in investing in the AI.

It's energy and data centers and et cetera.

That's more than the EU spent on defense last year.

And let me just finish this.

There's an analysis that has this surpassed peak spending in the dot-com era, as you and I both know.

A lot of debt being built up.

But talk about whether it's a net positive or are you worried about a bubble?

And you and I have been around for both those things.

Well, a couple of things.

First of all,

as you point out,

Building data centers is building real things.

And ironically, now it is hard to find electricians.

It's hard to find plumbers.

It's hard to find all the workers you need to build these things.

So it is definitely creating a tailwind behind the economy.

You obviously have seen the OpenAI round at 300 billion, Dow at 500 billion, Anthropic at 170 billion, a lot of smaller companies at tens of billions.

Yeah, Grok, which is even losing their founders and it's still going up.

Grok,

Cognition, which is a coding company which raised money at 4 billion, is now raising money, according to papers anyway, at 10 billion.

And so the valuations are soaring.

But what is different between this and the internet bubble, the dot-com bubble that you and I live through, is that the usage rate and the adoption rate of these technologies is unprecedented in our history, I think, certainly in modern history.

This is not pets.com.

This is not webvan.

These are companies that are providing real services that people are finding useful and going back and buying more of.

And so there's no question there's an arms race in data centers.

I can't promise you all that money is going to prove to be well spent, but I don't think that the capex on data centers is going to bring down the economy or anything like that, because I think the businesses that are going to be built on it are real businesses.

Which we don't know what they are yet.

Well, we don't know exactly.

But, you know, interestingly, as you well know, AI may prove more useful for math than for language.

We thought it was going to be like a fancy kind of search engine that was going to give us words.

Right.

Or agents.

Or agents.

But its usefulness as a coding tool is fantastic.

I had a demonstration by somebody the other day of something they used it for that would have taken weeks.

It gets done in a day.

Drug discovery, drug trials.

Yeah, drug discovery, absolutely drug discovery.

On the other hand, a recent report showed that AI had already directly accounted for more than 10,000 job cuts this year.

Everyone I talked to said, I'm going from 6,000 coders, specifically talking about coders, to 1,000 or whatever.

And especially white-collar college grads already struggling to find entry-level jobs.

How do you think about this?

You talked about the people left behind with NAFTA, and those were manufacturing jobs, right?

And what to do with them.

What impact do you think having on the economy overall for these jobs and what is to be done?

Because this is a different class of people, a different type of person,

highly educated,

but hard to place, you know, in different ways.

They're not all going to become plumbers or work on the farm or anything else.

No, ironically, of course, that the same,

I don't want to call them ivory tower economists, but the same people who thought trade was such a great thing because their macro model said the economy was going to grow faster and they didn't think about the guy in Ohio are now worried that they're going to be out of jobs because

it's going to be white-collar jobs next time.

So that's sort of ironic.

But look, I'd say two things.

The first thing is There is no technological innovation in the history of humankind that I am aware of that did not ultimately create more jobs than it destroyed.

Because it created more productivity, it made the economy more profitable.

People who were employed had more money to spend.

They bought things that required other people who might have been cum coders to become something else in order to produce those things that they were now buying with the extra money they were making and so on and so forth.

And so, again, you know, at a 30,000-foot level, I have no doubt that this is going to be a positive for the economy.

I absolutely recognize, and I hope everyone recognizes, that we need to do a better job this time around than we did over manufacturing and trade competition in making sure that people are directed, appointed, incentivized to go into the fields where there is a need for

more workers rather than to try to go into a field where there's clearly going to be fewer.

And

I know that's easier said than done.

I know it's easy for me to say, but that's where we should be spending a fair amount of time and attention.

We certainly should not be thinking about it the other way, which is, oh, let's have less AI because that way fewer people will lose their jobs.

That would be, you know, that's that's the Luddites smashing the looms.

That's a really big mistake.

So last question, going back to Trump and his impact on the economy.

You were working in the New York Times Washington Bureau when Nixon resigned.

As we all know, a lot of guardrails were put into place after Nixon was there to improve the government and safeguard it.

But you've also written the damage Trump has inflicted could be irreversible.

I would agree with you.

So big picture, what makes you hopeful and where are you worried Trump could have lasting effects?

Well, I mean, I'm worried, don't get me wrong, but I'm less on the apocalyptic side than many other people because I lived through Nixon.

I lived through 1968.

I lived through 1970.

So I think we will see the other side of this.

When I say irreversible, you know, look, he fired 10,000 people at USAID in a week.

You cannot rehire 10,000 people and recreate USAID in a week.

Soft power.

There are people who say you cannot ever get our allies to depend on us again after this.

Well, they said the same thing at the end of Trump 1.0, and Biden pretty quickly turned that around.

And so I think if we get it move in the right direction in the next election,

it can still, so far anyway, be turned around.

But I would grant you that this Trump is far worse than the Trump 1.0 in terms of his willingness to just flout the law, do whatever he wants to do, break things to the point where it is going to be hard to put them back together again.

But I do believe,

and I'm not going to give you like huge odds, but I do believe we will put them back together again when this is over.

What's the most critical last question thing that needs to be put back together?

I think it's really the rule of law.

I think it's really the idea that the president is not - you know, Trump is verging on being a dictator in terms of his willingness to flout laws, to just abrogate processes.

And we'll see what the Supreme Court does.

So far, at least they haven't gotten in his way.

And he just does stuff that no president that I know of, even Nixon, wouldn't just say, okay, there's a law fine.

I don't really care.

I'm just going to do this.

And

I think that you have to think of that as the worst sort of general aspect of this.

All right, Steve.

Thank you so much.

This has been incredibly substantive, and I really appreciate it.

Thanks so much for having me.

Nice to see you as always, Kara.

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