The Bulwark Podcast - S2 Ep1041: Justin Wolfers: Trump's Centrally Planned Economy

Episode Date: May 13, 2025

China sounds downright Reaganesque and is acting like a more stable, attractive trading partner than the country that launched a trade war. And even though Trump loves play-acting businessman, and calling CEOs by their first name, no one on Wall Street and no one who studies economics likes his continuing tariffs—they know they hurt American companies and American consumers. And the uncertainty is paralyzing. Meanwhile, the GOP will use fancy terms to try to paper over their budget, which would hurt the working class and dramatically increase the deficit—all for tax cuts. University of Michigan's Justin Wolfers joins Tim Miller. show notes Justin's pod, "Think Like An Economist" Tim on the "Raging Moderates" podcast Tim on the podcast, "Breaking Points" The New Orleans antique store Tim referenced

Hello and welcome to the Bullard podcast. I'm your host, Tim Miller. We are going deep on tariffs and the economy today. If you want my thoughts on some of the other issues of the moment, I've been a podcast slut lately. I was on Breaking Points today. Breaking Points is kind of the horseshoe podcast between Bernie and Maga types. And so that's interesting. We got to talk about the New York airport, David Hogg, the DNC drama, the Biden book, my political journey.

So that could be interesting. If that's not your cup of tea. I was also on with Scott Galloway. I was guest hosting Raging Moderates. And so you could check out that too. And we talked about, you know, all the stuff. So Raging Moderates, Breaking Points, I'm on both of them. But up next on this show, we've got Professor of Public Policy and Economics at the University of Michigan. He's also a senior fellow with the Brookings Institution and at the Peterson Institute for International Economics, co-host of the podcast Think Like an Economist, an audio course in economics.

It's Justin Wolfers. Hey, man. Hey. You're Aussie. I take it. You can tell just from the word hi. Just from the hi. You have an E for an accent.

I do. I do. Well, you know, I know the difference between the Dingoes and the Kiwis and all that. I'm wondering, how are you feeling about things down there? We had a good election victory. Can we talk about that first before we get to the sad stuff? Yeah, sure. One of my very dearest friends is part of the Labour Party government that was just

re-elected. Very interesting election for Americans to hear about, partly because I suspect there's not been a lot of reporting. So you go back four months ago and the opposition conservative party was in the lead in all the polls. The leader of that conservative party, bloke by the name of Peter Dutton, decided he sort of ran as a bit of Trump light. He, in particular, sort of anti-woke.

And then he sort of started leaning into it. He started to attack. Woke has hit Australia. I didn't know that woke's gone down under. Oh, mate. It's everywhere. Okay. The people have seen it as an electoral strategy.

He attacked the media, which used to be out of bounds in America and still is in most serious democracies. And Australians didn't react very well to that. He decided that he'd include a doge-like element in his election platform. And he still was in the lead. And then Trump got elected, not only Trump got elected, Trump started his term. And the utter chaos that MAGA implemented was enough the Aussies looked at it and all of a sudden said they didn't want this.

So they nicknamed this bloke Timur Trump. And he really only went 10% of the way down the Trump agenda, but it was enough that the Australian electorate was like, we're not having any of this. And so the left-wing party, the Labour Party, ended up not only getting re-elected, which, by the way, remember, we're on a run of incumbents getting booted out of office all around the world, but also an enormous swing towards them. So you assess that. I don't know.

I sometimes wonder, I mean, as Americans, we're solipsistic and as a never-Trumper, I've got TDS. So sometimes I'm like, you know, projecting that it's more about Trump than it is, but you assess that it was really quite a bit about Trump. It was about an Australian running on a Trumpist agenda at a moment where that didn't appear. Well, look Tim, I worry about the same thing, about me seeing things poorly from over here, so I consulted experts on this, which was my family group chat. And they were quite convinced. And it is actually the standard story now in Australia is running as team, and Trump

turned out to be a mistake. And so right now, Trump has determined two major international elections, Canada and Australia. And so even as he moves the US to the right, he's moving the rest of the world to the left. Yeah, that's a cold comfort, but we'll take it when we can get it. Do you have any, I don't know, what's your stat, do you have any concerns that you're going to get hassled at the airport coming back in and out? Lots of people tell me that I should be worried.

I happen to be dumb enough, blonde enough, and humble enough to think that there's other people far more worth hassling, but they are sort of hassling everyone these days. I'm actually in a very fortunate situation. I held two passports and I have tenure and I'm not relying on federal government spending, so I haven't spent 10 minutes thinking about it. That's good. I appreciate that actually, because I think that it's important to contextualize the threats, right?

Like the threats are real, but not to panic people, right? And so I like having folks on that are clear-eyed about, you know, the degree to which you have some protections, that maybe other folks don't. I was the other YouTuber, kind of the more lefty YouTuber, Hassan Piker claims that he was, I don't mean to be skeptical of that, he says, I haven't seen the full evidence of this yet,

that he had spent two hours in the airport getting hassled about his views. Now, he's been much more pro-Palestine and all of that, and that has been this kind of initial target group. So, who knows? But he ended up being fine. Tim, I'm just going to tell you a story just for fun, and you should edit this out if you feel like it.

Okay, no, absolutely not. Long time pre-Trump. So, crossing the border as a foreigner is the worst experience imaginable. Basically, you understand that this is an institution that understands itself not to be democratically accountable to you because you are not American and you do not count. So this is true 20 years ago. And I was returning from Australia with my girlfriend. I just started dating my now long-term partner, Betsy Stevenson.

And we go to cross the border and the bloke pulls me aside and it's a terrifying experience and he pulls me into the little room, pulls Betsy with me too and says, you know, ask me about myself. And then at some point he goes, you're planning on marrying this woman. Mate, I've just been dating her for like three months. And I think he saw this look of fear on my face and I'm like, no one wants to talk about this at three months into a relationship. He's slatty palms.

Yeah. And I actually think that total look of fear is the point at which he gave up and he realized, no, I was just coming back to finish my degree. And if things work out with this, Sheila, so be it. Got it. So you're saying that, you know, it's not everything necessarily about Trump. to finish my degree, and if things work out with this Sheila, so be it. Got it. So you're saying that, you know, it's not everything necessarily about Trump.

Some of the customs agents have been assholes across administrations. Time and memorial. I have so many stories. You really do learn that you don't count. All right. Well, that's sad for me. That goes against, you know, my idealist view of what

America should be, but we'll keep monitoring it. I'm going to share one more with you. I remember once I had to go to an embassy to renew my visa, and for security reasons, they said, you can't bring your cell phone in. And of course, they hadn't warned you in advance, and of course, they didn't have lockers. So like, I'm there with hundreds of other immigrants

who are literally running back outside and climbing trees to hide their cell phones. That's crazy. Where was this? I'm trying to remember which country I was in at the time. I honestly can't remember. Yeah. But, I mean, I was there. This happened. Yeah, right. I believe you. I believe you.

And, you know, I eventually went up the road and a local newspaper seller said he'd hold onto my phone for me for 10 bucks. That's a good deal. So this has been a, it's an administration. It's a part of the federal government, whether it's democratic or republican, which doesn't believe in customer service. Indeed not. Okay. That's enough down under talk. We've got to get into the economics while you're here.

So we have, I guess, a deal. We have some relief from the China embargo, at least. Why don't you just give us a big picture, you know, kind of state of play, both of, you know, how you see our status with China, but also just globally. Okay. So let me actually begin the story at the beginning, because I think it's kind of important. Great. It gives you a sense of the incoherence of the policy approach.

Trump comes to power, first thing he does, having run on tariffs, having not mentioned the word Canada through the entire campaign, the first thing he does is puts tariffs on Canada and Mexico. No one had that on their bingo cards. Our two are either closest enemies or closest allies, depending on your perspective. Those tariffs were originally put on to prevent illegal immigration and then to prevent fentanyl. To and fro, they're on, they're off, so on. Then there's a lot of talk, what should we do with tariffs?

Oh, we need tariffs because we need the revenue. So tariffs, we're going to have an external revenue service raise lots of money. Then the administration decide, there's a lot of talk about, no, we need tariffs to onshore manufacturing and or for national security reasons. Then we get Liberation Day or it turns out the way we onshore manufacturing is we put tariffs on absolutely everything, including non-manufactured goods. The way we defend national security is by putting a tariff on leather saddles, not just on steel.

Or we put a tariff on bananas, which is something we're never going to grow. So Liberation Day comes. There's two parts to that. It's a 10% across the board tariff on the whole world, plus an absurd formula that yields what the administration calls reciprocal tariffs. They've been saying, if you tariff us, we're going to tariff you. So you would think what you would do is go and measure how much other countries tariff us, but that's too much work.

Literally too much work. They just never did it. They could have asked Grok to do that. They could have asked Grok. They could have asked any number of trade economists on Earth. Honestly, I would have done it for free for them in an afternoon, but they didn't. What they did instead was they looked at the bilateral trade deficit, which is the most boring and uninteresting thing on earth.

I'm happy to return to it, which yields this absurd formula where we have now a 50% tariff on Los Oto, not because Los Oto has important tariffs on the United States, but because Americans like buying diamonds and that's what they have. We have a very high tariff on Israel, which has no tariffs on the United States and so on. A week passes, the market's crater, everyone starts forecasting recession. A week passes and the president says, just kidding, the point of the tariffs was not to reduce bilateral trade deficits.

It was not an across the board tariff. It was to give me leverage in negotiations. 90-day pause, I'm going to negotiate with 192 countries in the next 90 days. 30 days pass and nothing happens. It becomes a bit of a drum beat. You know, guys, looks like you're not getting your work done. They come out and announce a special trade deal with Britain. What's utterly clear about that trade deal is they'd actually been working on it before, months before. And it's utterly clear that what happened was the president just called Stammer and

said, yeah, I know we're probably about a third of the way through this negotiation, but we're announcing tomorrow you win. We know that because Stammer actually wanted to watch the Arsenal football game on a Thursday night. Right. On Friday, the press said to him, did you expect to be here today doing this? And he said, no. So you might think, well, if we have to announce a deal that we actually haven't negotiated, what is it we're announcing?

There were very different announcements in the US and the UK. In the US, Trump calls it a comprehensive, wide-ranging agreement. In the UK, Stammer is mildly more honest. Here's what that deal was, though. The Americans walk into the room and say, we're doing a 10% across-the-board tariff. You've got 10%. So, what I want you to do is now just think about one big sheet of paper with the word 10% written in 96-point font.

Then they put an asterisk next to it. The asterisk in six point font. The asterisk is now we'll do you a deal. So this 10% that was officially going to be the leverage and the bargaining power is no longer being bargained with at all. The end of the deal actually says this is not a binding legal commitment. Classic Trump. It's a deal to make a deal, but it does have a couple of commitments in it.

The Brits are going to buy American ethanol, which serves a particular American constituency, albeit not the American worker. The Americans are going to allow a certain amount of steel and aluminum in at a lower tariff. 100,000 British cars are going to come in at a reduced tariff and 100,000 British cars are going to come in at a reduced tariff, lower than if it were coming from other countries. Do you know what British cars we import into this country, Tim? Probably Rolls Royces, Jaguar.

Land Rover, Bentley, Aston Martin and actually the Mini. So there's something there for the upper middle class too. So I just want you to imagine the meeting in which someone says to the president, the voters are revolting. They don't like the distributional implications of these tariffs because they hurt the working and middle class. And Trump says, you know what I'll do? I'll carve out British cars. And engines, I think it was some of the engines for the planes too, didn't they get carved

out? There's a little bit of a carve out for plane parts as well. Yeah. But for consumers, the only consumer facing good, the only thing that consumers got a break on was British cars, the cheapest of which is a Mini. It's very popular in mega America too, the Mini. You see a lot of Minis at SEC tailgates. You do.

You do. You and I get at the same football games. So the most important thing is despite all the rhetoric, it's 10% tiny asterisks. Okay. And this is with one of our long-term allies. So the press reported this as if it were a walk back. But actually, I think they got it wrong. This is the administration during the 90-day pause doubling down on the 10% tariff with the rest of the world.

Basically everyone's now been told, and it's becoming increasingly explicit, every country is getting a 10% tariff, full stop, not in negotiation. So now, here's the part I want you to see go in full circle. We imposed this tariff, causes total chaos. So, then he says, just kidding, it's just leverage for negotiations. We go into the negotiations and he refuses to negotiate over it, says, just kidding, it's a baseline for everyone. So, within 35 days, we're full circle.

The difference is, I think the PR has been somewhat better for the president this time. Then we move into China. So China just escalated quickly, which is the president appears to believe it's a political winner to tell China to go fuck itself. China says, fuck you. Two bullies in the school yard. And things just escalate. Well, I'm going higher.

I'm going higher. I'm going higher. And then China at some point says, you're at a 145% tariff. That's crazy. I don't even need to go higher. Yes. Basically, we're not trading already. We gave up.

I mean, we could keep going to infinity percent, but what's the point? This causes huge economic disruption in both countries. Because basically, any company that uses any input from China has been told you're not getting it. That's what 145% tariff is. And the Chinese have the same problem to a slightly lesser extent. So this is sort of like COVID, right? Remember COVID, suddenly you couldn't get stuff.

Right. So, we have now a White House caused COVID supply shock. It's bad for both countries. So they decide that what they'll do is negotiate. Now it turns out the most punishing thing was that the White House was imposing a 145% tax on Americans who imported from China. You don't need to go to Geneva to cut taxes on Americans. You can do that from the comfort of your own home. Yeah, right.

Maybe you need to go there for political cover. So we all go over to Geneva and now tariffs on China. The Trump-caused tariff hike on China is down to 30%. We actually had 8% left over from Trump won Biden in history before that. So now the average tariff on China is 38%, which is in any other era, we would have said is incredibly high. But thank goodness it's a whole lot lower. And so percent comes out and says, we have gotten the room with China and China,

by the way, has cut its tariff to 10%. So is that right? The 8%, I thought it was, I thought it was 30 all in. It's 38 as actual. It's 30% Trump tariffs. Got it. Which loaded onto what we previously had. Got it.

In the language of the nerds, it's stackable. Sure. And part of the problem is everything keeps stacking. So China reduces theirs to 10%. There's a point in which I've been on a half a dozen TV programs where, God bless you, Tim, you haven't done this. The host leans in and says, so who won, America or China? God love all our cable friends.

Not that I can't show you, but it's just, it's a different animal. Yeah. I want to rehearse the answer for your viewers so that they know how to yell when it comes up in their conversations. So trade, the big intellectual mistake people make is they think trade is about competition, that it's a fixed pie. And if I win, you lose. That's not true. that it's a fixed pie and if I win, you lose. That's not true.

The beauty of economics and of international trade is my field studies cooperation. We study how we can make each other better off. I looked at my dinner plate last night. It had salmon that some Norwegian farmer had decided I might want to eat. It had quinoa, which proves I'm a liberal, but some Peruvian fan. Wow, I was going to say, look at you, fancy pants with your quinoa. Do you have some kale? Do you have some arugula?

Of course we had arugula. That was a religious sacrifice at the beginning of the meal. We lit it up, actually, and said three halo barmas. So I had quinoa. Very nice gentleman in Peru thought I might want quinoa. There was some dill that went with my salmon, because I am fancy. Look, when it's in season, I buy it from America. When it's not in season, rather than go without, it comes in from Israel. My dinner plate was just, it was the product of so much beautiful cooperation from people around

the world who want me to eat well and healthy and balanced and I am so grateful to them. And in return, I woke up the next day and I worked on revisions of my economics textbook which is sold all around the world. And so that Peruvian farmer's daughter might be learning economics from me. And maybe I'm better than the local economics professor in the local village. Maybe I'm not. The point is we cooperated and made each other better off. Tariffs prevent cooperation. They make it expensive for me to do business with the Peruvian farmer.

So we won't do it. His daughter won't buy my textbook, I won't buy his quinoa. So whenever we get rid of tariffs, we create more cooperation in the world. Who wins? Both sides. So who won out of the de-escalation? Who won out of the fact that the Americans reduced to the extent to which the American government taxes American people for buying from China?

Americans because we can now buy more things and cooperate more easily and Chinese people. Who wins from the fact that the Chinese reduced their tariffs? Chinese and Americans. So both sides won. It's a beautiful moment and I hope the Trump administration understands this as being one of their great achievements. I don't think they are going to see it like that. I will say just to share the burden, my version of the cable news question is when Trump says

something crazy, they ask me, do you think this will have any impact on his voters? I'm like, I don't know. And for starters, it's May 2025 and they're not going to have to vote again until 2026 and God willing, they might never have to vote for Trump again, fingers crossed. If they are voting for Trump again, probably isn't it going to be a free and fair election. So it's kind of an irrelevant question. But anyway, everybody's got to do their business. Now, I got to tell you, when you get a new house, about all of the things that is the most annoying to purchase, the surprise for me is blinds. Blinds

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bulwark. One last time, that's buy one, get one 50% off when you head to the number three, dayblinds.com slash the bulwark. Now we're here. That was a great table setter. And the tax and tariff situation is much worse than it was back in last November. That said, it's much better than it was yesterday. So the stock market's gone up. I'm wondering like what, who you think is impacted by this right now?

I it's possible maybe that the stock market is sanguine. It's possible that maybe these, just these big corporations are insulated from this a little bit and other people will be hurt. Like, what do you make of the current status quo? Okay. Let me take that in two parts, which is what is the stock market telling us? And separately how is this affecting people's lives?

There's a lot of stuff where people are like, oh, the stock market rose, therefore Trump is good, or the stock market is not as low as it once was, or blah, blah, blah, blah, blah, blah. There is one fact that's absolutely true, it's unbeaten since January 20. Every time Trump moves towards imposing more tariffs, stocks fall. Every time. Every time he backs off from tariffs, stocks rise. So whatever you want to say about the overall level of the market, it is absolutely clear

that the market as a whole thinks Trump's tariff policy is terrible. Now that's actually kind of surprising because the first people that should be helped, who's traded in the stock market, it's not the happiness of the working class. These are bets on the profitability of American business. If anyone is helped by Trump's tariffs, it's reducing the competitiveness of markets here, allowing them to jack up their prices or to continue to exist even when they're inefficient. So it can hurt moms and dads, yet help American business. But in fact, the stock market's betting it hurts American business.

So if it hurts American business, to the extent that there are any gains from tariffs, they're all downstream from helping American business. If you help American business, they might hire more workers, bring in manufacturing back, blah, blah, blah. If you don't even help American business, you get no benefits and you get a whole bunch of costs. And so every time Trump announces he's doing more Trumpy stuff, the market bets that's going to hurt American business and so therefore hurt everything downstream of that.

That fact I think is absolutely undefeated. That says no one on Wall Street and no one in the economics profession thinks that this is a constructive policy. That's how to think about financial markets. Now, I actually have been talking more about financial markets than I normally do and it's not because I care about stocks. It's because I think this is a very informed betting market where people are betting on the profitability of American business and that tells me about the downstream effects.

Now of course there are, I hear quite a lot from retirees, they're worried because their 401Ks are going up and down like crazy. Sure. And that's also the American stock market. So then, let me come back. Who does this help or hurt in the longer run? It hurts consumers. And who are consumers? Consumers are all of us.

What we are going to see, and we haven't yet seen much of it, is higher prices on stuff we import. So instead of eating gorgeous Norwegian salmon, I might end up having factory-farmed salmon. It's kind of okay. I'll live. I know you feel for me. I do. Salmon prices are already kind of going up. They've gone up quite a bit over the last five or six years just based on my...

I'm also a salmon consumer, particularly the smoked salmon, those little packages that have gone up significantly. Oh, they're good. Costco? Well, you know, my husband does the Costco shopping, so it's possible they're cheaper in Costco. My local Rousers, they've gone up quite a bit. My partner does our Costco shopping too. Okay.

I guess the good thing about being in a two-blok household is no one can call you sexist when your husband does the shopping for you. There's a lot of good things about being in a two-blok household. You know, A, just very chill Mother's Day. I watched some basketball, got to hang out, no pressure, you know, sharing clothes. Clothes sharing is nice. You know, there are a lot of benefits. Yeah.

Okay. I'm going to think about that. Closed sharing is nice. Yeah. You know, there are a lot of benefits. Yeah. Okay. I'm going to think about that. Okay. Never too late. It's true what they say about the gay agenda trying to convert people here, too. I am. I'm grooming you right now.

Watch out, Ron DeSantis. You know that most of my interviews don't go this way. Well, I'm a little different. I'm noticing. Okay, so how's it going to affect people? Here's a real simple thing I think your audience should try. If your grandma and grandpa are alive, call them. And if not, call your parents.

And if they're not alive, I'm sorry. Ask them how many toys they had growing up. And then if you're a parent, go and look at how many toys your kids have. And if you're not a parent, go and look at your nieces and nephews or your godkids or I'll lend you my kids. I can send you a picture of my child's room. And it is a bounty. A bounty.

Like no child has ever seen before. Are your parents still with us? They are, yeah. Ask your mother how many toys she had. Yeah, I will do that. My grandmother had like three. That's not a joke. That's like literally serious.

They were wooden toys. They're beautiful and they last forever. But that's it. Like go play with your blocks. Yeah. What changed? What changed is the price of toys. Where do our toys come from?

China. So, it's very fashionable in left-wing circles to be anti-China or to be anti-cheap plastic stuff. It's also become fashionable in right-wing circles now. I'm anti-China but pro-cheap plastic stuff. So, I'm a man of contradictions, but we can continue. So, for the purposes of this conversation, all I care about is that you're happy that your kid has more toys.

Yeah. And the cause of that, there have been very few forces raising the material living standards of the working class, but actually trade with China is one of them. And it's not just toys, right? The president uses dolls as a metaphor, but actually almost all our baby equipment comes from China. Right. But it's not just that, the furniture, I mean, I am sure that you buy Scandinavian mid-century

modern furniture because I assume that's what gay men do. Sad to live up to the stereotype there, but yeah, go ahead, continue. Is it actually true? I mean, not Scandinavian, but I've got some pretty, I don't know, we've got some fun furniture.

Tell me about your nicest piece. We've got some Eames chairs and we just got a new, we actually, we got a nice new kitchen table that was made right here in New Orleans. So I didn't import that. That's a table from a local artisan here in New Orleans, Dopp Antiques. Check them out if you're in New Orleans. They did great work. Right. So, people who cannot afford that, who don't have your exuberant lifestyle, Tim, they're

buying furniture from Wayfair, which has great prices. All of that furniture is from China. So when you walk into a working middle class family and you can see that they can afford a material standard of living that folks a generation ago couldn't. It's actually trade with China. And so that's where all of this hits working in middle class families. That's the first thing.

Second, so I'm going to try and think about it the way a macroeconomist does. All of that's saying tariffs are what we economists call a supply shock. They raise the cost of doing business, stuff becomes more expensive. And as we rearrange things that may cause unemployment to rise. The second thing that's happened is just a massive rise in uncertainty. So high, my guess, Tim, is that you prefer not to talk to economists if you can help it. Okay.

You're not at the top of my list, not at the bottom. It's nice to hear. Yeah. Many journalists prefer not to talk to economists. Right now they are. Why is that? Because they understand that all of our lives feel very much up in the air right now. Should I buy an air conditioner or not? Is my job safe?

What's going to happen to prices? Should I try and buy stuff ahead of the tariffs? No, no, no, no, it goes. That uncertainty is paralyzing. That uncertainty means, let me take the business side of this because it's easier. If you're the CEO of any kind of company right now and your staff came to you with expansion plans or they wanted to break ground on a new factory or open a new outlet, you might say to yourself, I don't know what the future looks like.

Let me wait three to six months for the air to clear. That's what an uncertainty shock does. Uncertainty leads to a decrease in demand. And so I think we're in the midst of that, and that's what's led to a lot of the recession talk. That in turn will, could lead to a rise in unemployment, fall in income, and lower wages. So that's how it hits everyday folks. Let's look at the recession talk.

It was Steve Bannon's co-host. I'm on the Bannon show. Yesterday was chastising the media for not noting that on cal she, the predictions of a recession has gone down significantly down to 40% now. I don't know if it's been updated since the show yesterday, but somewhere around there. And so, you know, because I'm not the fake news, I'm happy to address this. The recession, the self-imposed recession that Trump was going to gift us, concerns about that have been downgraded somewhat among the public, but I assume you're not betting

on Kal-Shee, you're an economist. How do you assess the recession fears today versus last week versus last year? Actually, I think checking Cal-She is a pretty good idea because the problem with talking to one economist is you don't know if the guy you're talking to is honest, is left-wing, is right-wing, is in the pocket of big something or other. Well, I'm trying to only have honest people on the show. So if you're telling me that that should be a concern here, we can stop. Well, no, I'll give a different answer then, which is there's a lot of research showing

the average of many economists is better than any individual economist. So it's almost never worth saying, what is your forecast, Justin? What you should say is, Justin, what is the consensus of economists? Okay. Cal-Sheer is sort of like that. It's a prediction market. So, in fact, Steve Bannon's point is an excellent one. I tweeted 15 minutes ago that Goldman Sachs has cut its recession odds to 35%. Goldman's at the bottom end, but it's absolutely true that the odds of a recession have fallen

since the China deal. Now, let me come back and I want to repeat a point I made earlier, but saying it slightly differently. Every time Trump steps into tariffs, everyone puts out new research notes saying that the odds of recession have gone up. Every time Trump retreats, they reevaluate and they say the odds have fallen. The bigger the retreat, the bigger the revision. What this says is, yes, the chances of recession have retreated.

They've retreated, they've retreated because Trump has retreated from Trumpism. If he kept doing that, we'd be in great shape. About three months ago, I gave a forecast that I think is a useful rule of thumb, maybe it was two months ago. If Trump fully retreated, actually let me give the pure background. As of January 20th, I would have said the chances of a recession with a normal American government would be 10%. It's actually lower than normal.

Normally, you get a recession roughly every seven years. I said it was a one in 10 chance because the global economy wasn't going haywire. There didn't look to be a pandemic coming. Oil prices weren't going crazy. Things things looked good on January 20. Then Trump did a lot of stuff and Elon did a lot of stuff and people got very upset and consumer confidence crashed. Then at that point I said, if Trump were to fully retreat from the full Trumpism, the chances of recession would be 25% and if Trump were to fully lean in, the chances would be 75%.

Just think of that as a spectrum and then think where we are on that spectrum and it's basically going to be some average of those two numbers. If you think we're halfway between the full Trump and no Trump, then you think there's a 50-50 chance of a recession. If you think the China back down is actually even bigger than that, you might say it's a 40% chance of recession. It's roughly a useful way of thinking about this. Some of the recession, I assume, the potential recession, I assume could be in part because

of, again, still we've increased sales taxes essentially on Americans substantially over last year. That's one. Meanwhile, the federal government's firing people, so that is contributing. And then I guess the third contributing factor would be something you referenced earlier was the supply chain issues. And so I'm just wondering how you assess that. I guess Larry Summers was on with my colleague Bill Kristol a couple of weeks ago and he

was like, look, if nothing changes, we're really going to see supply issues mid to late May. So Trump pulled out before that, but it takes ships a lot longer to get across the ocean. So are we still going to see some of that, do you think? And then on top of that, I saw some chatter yesterday that the inverse could now happen where people are trying to get ships across as quickly as possible in case Trump changes his mind and we could have a backup at the ports. What do you assess just generally on all that? I think the most helpful answer I can give you is it's really freaking hard to know.

That's actually really important because now put yourself in the shoes of a business person whose economist tells him, I have no freaking idea. So a couple of things about the China pause. The China tariff pause is 90 days. Tim, what you should do, let's say that you manufacture lawn chairs, call your Chinese supplier this afternoon and ask them how long it would take them to manufacture 10,000 lawn chairs and then to get them on a ship to the United States and have them clear customs in both ends.

89 days, I'm hoping. 89.8 days, yeah. 89.8 days, yeah. And the problem is the pause was announced yesterday, so that means you're going to miss by 0.8 of a day. Yeah. At one level, you might think, let's get him in before he changes his mind. That means you have to load up the ship this week. So it could mean there's going to be a queue at the ports in 89 days. The other thing is we know from today for the next 30 days, because the ships have already started sailing or not sailing, is actually it's a really good time to be at the ports because there's nothing going on.

You could pull out your phone and just really improve your score on your favorite angry birds. The other thing is, if you believe the rhetoric coming out of the administration, they're now engaged in fruitful talks with China and they don't want to decouple our economy in which case you might forecast that our China tariff is going to come down to 10%. China does a couple of things on fentanyl. They'll get the same tariff as the rest of the world. If that's the case, then now I want to sit for 90 days doing nothing.

Wait to get those lawn chairs in right before Christmas. Yeah. Right. doing nothing. Wait to get those lawn chairs in right before Christmas, you know? Yeah, right. So I'm genuinely unsure whether everyone's rushing to the ports right now or the 90 days means that they're going to wait and rush in 90 days. I'm genuinely unsure about that. And then you've got one more problem. The half-life of a Trump trade policy is approximately one scaramagic. So today,

we feel good that Trump is walking back from tariffs. But remember, it was only, I think, seven days ago when Trump woke up in the middle of the night and realized that he liked American made movies and tweeted he was going to impose a 100% tariff on all foreign films. Oh, I thought you were talking about the time he was watching the movie about Alcatraz and then decided we're going to reopen Alcatraz. Another excellent idea. I'm trying to stick to trade policy because that's the thing I know something about. Got it.

Okay. I've been to Alcatraz. But if there's just some random chance on any given day that the president just starts tweeting out the tariff button again, I mean, honestly, if I wanted to bet, what's the bet that this China thing lasts 90 days? Who could even come up with odds for that? Yeah, I don't know, 50-50. I just guess it's a total coin flip.

Who the hell knows? Right, right. So given that, does that mean I'm going to rush to the ports or does that mean I'm going to wait? Yeah. And if you and I feel paralyzed as commentators or economists, imagine how businesses are feeling. And I guess if you're a business that has stuff that's been sitting over there, you know, because you didn't want to pay the 140, you're a business that has stuff that's been sitting over there, you know,

because you didn't want to pay the 140, you're going to want to rush that over because it's already been made. And that is the thing that I guess I would say that seems the most logical. Maybe, but if you believe the White House, we're on path for productive talks. And if you believe China, they have no particular interest in sending fentanyl over here, in which case we could be set for 10% tariffs in not very long. What do you think China wants out of this? Like that's the other side of this, right?

Like do they even, do they want it to be lowered? Like at some level, the chaos over here has been a boon to them. Other markets are opening up. Yes. You know, uh, I was on with Scott Galloway yesterday and he's pointing out that Asia broadly and Europe broadly are bigger trading partners with China than us, right?

We are as an individual country, but as a group and those markets have been reopening to them recently or at least there's been talks of these fucking crazy Americans, like let's talk about doing more business. So yeah, and their motivations are also kind of unclear to me. So number one, they didn't start this tariff war. Yeah.

Obviously, it's entirely from Washington. Number two, if Washington acts in such an idiosyncratic fashion, they have a huge interest in being steady. If they show themselves to be the steadiest trading partner, they become the more attractive trading partner and I see that happening around the world. Number three, it would be interesting, I actually read the China Daily yesterday or an English translation thereof. It was state-run media explaining their perspective on the tariffs.

And it was amazing. If I had excerpted the right paragraph from the Chinese and the right paragraph from the White House, and I said one of these came from a pro-capitalist country and one came from a communist country, could you guess which one is which? country and one came from a communist country. Could you guess which one is which? You would have guessed wrong. Yeah. They are using rhetoric that kind of looks like my economics 101 textbook. And I don't know if that's good or bad for me or them, but.

Good for them. Certainly bad that Donald Trump is sounding more like he's wanting to run a state managed economy. But he is. I mean, I think this is, I mean, I would love to see you talk more about this because I think it's so interesting. If you watch his, the way he manages, even in the first term, like he'd bring in a particular company, I remember there's one called Carrier. Yeah. But even in the first term, like he'd bring in a particular company, I remember there's one called Carrier, and he'd talk to that company and then they'd go out and do something. And it's like he's still running the Trump organization.

A bunch of guys, they come in and then my organization does well. And he seems to think of the economy as being sort of like a bunch of companies and he calls them and he feels very proud that he's on a first name basis with many CEOs. While I can be a center left economist, I'm also a market oriented economist and I think that the healthiest, I'm not pro-business, I'm pro-market. It's markets and the forces of competition that deliver. If that's the case, the role of government is to put in place a set of rules that help competition thrive.

If that's the case, the healthiest president is one who doesn't know the name of any CEOs. We've seen the opposite. This is very, very centrally planned economy right now. I'm sorry. I interrupted you though on the China thing. Did you have any other observations from reading China Daily yesterday? Just their rhetoric sounds like Reagan. I saw somebody tweet another clip from them that, uh, not China daily, but

some other state run spokesperson where, you know, basically their position was we gave up nothing. Like Trump back down and we gave up nothing. And so we'll, we'll see how the conversations continue. Okay. So I'm going to, I'm going to insist on my rule, Tim, let's stop scoring this as who won and who lost. Right. I'm not sure what I'm saying, but I'm just saying they didn't, there was no negotiation.

Right. Like they didn't, my point was- This is the point that Trump can cut taxes on Americans from Washington. He doesn't need to go to Geneva. Right. Right. And the only reason that the Chinese government imposed taxes on the Chinese people was in retaliation.

So it was almost obvious if you walked back, they're going to follow. They have no interest in imposing larger import taxes on the Chinese people. Simultaneously to all this trade stuff, we have the budget coming out of the Hill and we can all play our roles here. I'm not asking you to kind of weigh in on what is the Kremlinology of the hill and we can all play our roles here. I'm not asking you to kind of weigh in on, you know, what is the Kremlin ology of the house Republican caucus. That's like, that's my turf. But just as a, just looking globally at the economy, like from a macro level,

as we mentioned earlier, the Doge cuts were happening. And so that's has an impact on the economy in some ways. This trade nonsense is impacting the economy in some ways. Now we have this budget coming out and essentially what it is is tax breaks for tipped income over time pay, private school tuition gets another break, seniors get a break, the state and local tax deduction gets added back in here, the Trump tax cuts get extended. There is some budget tightening on healthcare benefits for the poor, but pretty substantial for the poor that will lose the healthcare, but just as part of the broader budget package,

it's small in comparison to the cuts. And so you have Republican Chip Roy, who assessed that all in this would add 20 trillion to the debt over the next 10 years, current debt's about 33 trillion. So I'm just wondering how you, like, let's just say this happens, right? And they put through a bill such as this, tax cuts across the board, extending tax cuts for the rich, extending tax cuts for corporations, huge deficit number, combine it with what we're seeing in the other areas. What do you make of that economic environment?

Yeah. So I have, I think two observations. One is about the budget deficit and what we used to call fiscal responsibility. Here's a basic fact. Over the last 50 years, the average revenues of the federal government have been about 16% of GDP. Over the last 50 years, outlays have never been 16% of GDP or lower. So you kind of see the problem.

We're spending more and there's never been an appetite for raising the revenue. So you could think, I think you would think about that as a revenue problem. There has never been the political taste to get outlays down anywhere near the 16% of GDP that we take in. And now they're looking to cut that. That seems ass backwards. Let me say the whole thing in a different way. Budget deficit is currently 6.4 percent of GDP, to say that in English, large.

A basic rule of thumb might be what you want to do is during good economic times, suck a bit of money away, either to pay down the debt or to make sure it stops expanding. And also, so you've got a bit more money to add to the pot when things go wrong, like during the COVID era. 6.4% is the sort of budget deficit you'd have if things were going wrong. And then they're going to take that and cut taxes. So none of this makes sense, right? That's the first point, which is, I'm not really a budget hawk. I'm not the center for responsible federal budget. My personal budget's a mess, you

know, like, it takes a lot to get me worried about the federal budget. I'm worried about the federal budget. I'm worried about the federal budget. I just think at some point, if unemployment's 4%, that you've got a deficit this large and growing, it's absurd. Yeah, or are paying huge interest on that too. It's just another side of it right now. And we've had the so-called sell America trade happening recently, in which the rest of the world has started to understand or believe that investing money in America is no longer the safest bet in town. As a result, the interest rates, it was a big story four weeks ago, it's less of a story

now, but if you have an irresponsible budget, it's going to zoom back into the headlines. If you feel that you can no longer trust the US government, then the interest they charge us goes up. For your listeners, if you've ever done the calculation what would happen to your mortgage payments if the bank would erase the interest rate by half a percentage point, do that math but do it with trillions of dollars of debt. It's terrifying. The second thing to say about this budget is just the extraordinary redistribution involved.

Bobby Kogan, who's one of the best budget wonks I know, says this may be the largest redistribution from the poor to the rich in American history. The gains to the top 0.1% of the income distribution, the one in 1,000 Americans, their gains in total add up to slightly more than the gains to the poorest 50% of Americans. Maybe you're okay with that, but I'm not. I do think we are going to be just absolutely baffled with bullshit. These debates are complicated and there's so many acronyms, salt and deduction this and carried interest that, and they're inaccessible, but they

come down to two things. Should we be spending more money than we're taking in right now? And do we want to take from the poor and give to the rich? That's it. And if someone's not speaking in that language, it's probably because they don't want you to understand. So when you hear the blah, blah, blah, realize blah, blah, blah, I'm speaking in words above your head, that's actually code for fuck you. Yeah, no. I mean, the budget is big fuck you.

It's fucked a lot of people within the Republican conference, by the way. I mean, it's fucked you to the people that the Hollies of the world that are concerned about working class, to the people that care about the debt. I mean, maybe it's just Chip Roy left and Rand Paul, maybe they're the only two people left that still care about it. But to the two that do care about it, like it is preposterous to put forth this budget and to claim that like you're doing this doge effort to cut the deficit.

And that was actually one of the tariff rationales earlier too. The tariffs were going to pay for the deficit and- Which by the way, also means the working class pay for it. Right. Because tariffs are a sales tax. Who spends a bigger share of their income? The working class. It's a good flag.

All right. Before I lose you, can we, can we just pick just pick on the Democratic run state for one second too? Let's do that. I had a news item this morning. It's really all the climate issues and the way that states run. In California, obviously in LA, we've seen the devastation from the fires. It's going to have a big economic impact. They launched a new website yesterday that helps you track

how many new building permits the county has approved for rebuilding. They've approved seven so far. So at a pace of one new building permit every two weeks, they'll be able to rebuild Pacific Palisades in 461 years. So I think that's pretty encouraging progress by the mayor of California. I don't know if there are any economist thoughts on all of that. Yeah. So it's profoundly disappointing and it's not just profoundly disappointing, it's an outrage. Let me try and bore your audience by turning that into economics and then come back and

be pissed off with you. Okay, great. So you might be upset about high house prices. High house prices are going to make it hard for my kids to be able to afford to get into the market. They make it hard for people to move to the most lovely places on earth. Of course, I live in Michigan and if you wanted to buy a place in Flint, they're going pretty cheap.

Bring your own water. Some benefits and, you know, detriments between Pacific Palisades and Flint. There are some slight differences. Yeah. So house prices are a problem. Just say it. Because of that, they really take a huge chunk of your spending power. So how do we make housing cheap?

There's two classes of solutions. Politicians love things that stimulate demand. Why don't we give first home buyers a break? Why don't we provide subsidies? Why don't we have a mortgage interest deduction? The mortgage interest deduction basically means that folks who buy bigger houses spend more money on their houses, get bigger tax breaks than folks who buy smaller houses. As a certified member of the upper middle class, thank you to the working class for

paying for my house. But as someone who cares deeply about distribution, this is a horrible way of doing it. The problem is, if you think about our housing problem, if you make it easier for some folks to buy a house, that just means that the way we sell houses in Australia is usually by auction. It means more people turn up on auction day. Is that helping you kids? No. What you want is more houses so fewer people turn up on auction day. Anything that's demand focused is looking at the wrong side of the market.

So all of the easy solutions are if we build more houses, there'll be more houses and they'll be cheaper. It seems good. Fantastic. So anything that we can do on the supply side can make everyone better off, except maybe real estate speculators, and I don't care about them. The story you tell is one of the most important supply side constraints, which is it's just

too freaking hard to get a housing permit. And then my favorite example, and the left are huge sinners here. My favorite example is, I believe, Robert Reich, the former Labor Secretary, it became a matter of public record that he wrote to the Berkeley local government to oppose an apartment building going up on his block because there was a beautiful tree that he really liked. The result is Berkeley became more unaffordable. And so Robert Reich is part of the reason for higher housing prices.

I like to use a simpler language here. Pacific Palisades is a beautiful place to live. Berkeley is a beautiful place to live. If you don't allow people to build apartment buildings, you're just saying, it's beautiful and I'm not sharing. Okay, but realize you're a selfish prick. You don't want to allow that beauty to be enjoyed by young couples, by working class families, by middle class families. And so, you know, this is the case against NIMBYism.

It's a powerful case, but we have this disease-afflicting government, local government, that if one person feels it's bad, we probably shouldn't proceed. And one does see this particularly in liberal areas. Indeed. Well, Justin, it's been wonderful. It's been a delight. Do you have any Aussie phrases you want to share, you want to leave us with? Any kind of little colloquialisms?

Mate, the ones I can think of right now are so dirty, I'm not even going to say them on your podcast. Okay. Well, we can do it in the green room then. Thank you so much to Justin Wolfers. Come back again soon. Everybody else will be back here tomorrow for another edition in the green room then. Thank you so much to Justin Wolfer for coming back again soon. Everybody else will be back here tomorrow for another edition of the Bulwark Podcast. Peace. Oh well, that's my also-in

Oh well, that's my also-in I'm gonna take the four of you out, the trains to the rush Send me on my bicycle, the trains to the rush Oh well, that's miles away Oh well, that's miles away Can't open limits, ain't nowhere in no rush Tried to get my number away but I haven't got much Oh well, that's miles away The Bulldog Podcast is produced by Katie Cooper with audio engineering and editing by Jason Brown.