Trump's tariffs ARE "the competitive struggle for markets"

Stephen Miran, Chairman of the Council of Economic Advisers, has Trump crying Unfair!: 

The desire to reform the global trading system and put American industry on fairer ground vis-à-vis the rest of the world has been a consistent theme for President Trump for decades.

At best, crying "unfair" is zero-sum economics. And Trump's unfair is far from the best.

From Chapter 24 of The General Theory:

[U]nder the system of domestic laissez-faire and an international gold standard such as was orthodox in the latter half of the nineteenth century, there was no means open to a government whereby to mitigate economic distress at home except through the competitive struggle for markets.

Little has changed since Keynes wrote those words. Laissez-faire is now called "free markets", and the international gold standard has been replaced by floating exchange rates. Things are the same as they were, except our gold standard has no gold, and our laissez-faire has a different name. 

Keynes continues:

But if nations can learn to provide themselves with full employment by their domestic policy (and, we must add, if they can also attain equilibrium in the trend of their population), there need be no important economic forces calculated to set the interest of one country against that of its neighbours.

And then

there would no longer be a pressing motive why one country need force its wares on another or repulse the offerings of its neighbour ... so as to develop a balance of trade in its own favour.

Donald Trump is doing economics that Keynes rejected in 1936. Trump is setting the interests of our country against those of our neighbours, with the goal of developing a balance of trade in our own favour.

Trump's policies do seem specifically designed to set our interests against those of our neighbors. Unfortunately, we still have not learned how to provide ourselves with full employment by domestic policy. This, however, does not mean we must go with Trump's plan.

Now, on domestic policy let me start by saying that our problem is a cost problem... 

Linked-In predicts recession within 3 months

At Linked-In, April 6, 2025:

Drawing on the timeless wisdom of Milton Friedman, this keynote analyzes why America may face a looming recession within the next three months if these policies remain unchecked.

There is a lot in the article that is not my kind of economics. But on this point we agree: Recession is coming. And by the way, I heard somebody on TV the other day say it is all Trump's doing, what with the uncertainty he loves to create and the disruption he is forcing upon our economy.

Stranger Things

The Graph at FRED: https://fred.stlouisfed.org/graph/?g=1Jhhk

This Graph at FRED: https://fred.stlouisfed.org/graph/?g=1Jhiz

1. It is pretty rare that measures of debt go negative. These two graphs show the change in debt for households and for non-financial corporate business. Going negative means that households and NCB owe less than they did a few months ago. That's a good thing on an individual level, but when we reduce debt we reduce the quantity of money in the economy.

2. Money that we borrow and spend is money we put into the economy. If households and non-financial corporate businesses are putting less money into the economy I start to worry, because Milton Friedman said

There is strong evidence that a monetary crisis involving a substantial decline in the quantity of money is a necessary and sufficient condition for a major depression.

3. Not all of the "Debt Securities and Loans; Liability, Level" datasets at FRED went negative at the end of last year. I only find a few. But I have to wonder if this is the best time to cut the federal spending. I have indeed said that Trump's policies are creating a depression, but I say it as a warning, not a wish.

By 2009 we were sure it was a problem

Debt of All Sectors relative to M2 Money

Alt National Park Service

From r/fednews:

Trump’s “Big Beautiful Bill” isn’t just about tax cuts, it quietly guts federal protections and reshapes entire agencies. Here’s what’s buried inside...

Go there. 

It's from the Alt National Park Service, which Google's AI Overview calls "a self-described 'resistance' team of the National Park Service".

I saved GAIO's whole response to my inquiry at Google Docs. It includes these links:

• What is the Alt National Park Service? What to know about group protesting Trump layoffs from USA Today, 26 Feb 2025, and
• Their site, AltNPS. The page reads in part: "The Alt National Park Service (AltNPS) was a movement that began around the time of the inauguration of President Donald Trump in January 2017..."

plus a couple Facebook links.

"Income Velocity"

Profit per Dollar of Labor Cost

I want to look at profit relative to the cost of labor for nonfinancial corporate business. I'm using datasets from FRED's handy data table, so I know I've got datasets that go together.

The graph below shows profit per dollar of labor cost. It consistently shows low profits (and relatively high labor cost) at recessions, and high profit (and relatively low labor cost) between recessions:

The Graph at FRED: https://fred.stlouisfed.org/graph/?g=1IPrF

Profit is now above 30 cents per dollar of labor cost -- and rising in the years since Covid. That puts profit as high today as it was at times in the 1940s, the 1950s, and the 1960s. So I have to ask: If profits are so good, why is our economy so bad? (Excessive private debt, that's my answer: We didn't have excessive household debt in the 40s, 50s, and 60s. In recent decades, however, debt service takes an increasingly hefty chunk of after-tax income. It also eats into business profits.)

Put a straightedge on the lows in the first 50-odd years of data. You see profit in decline for half a century, then increasing since the 2001 recession. Again: If profits have been rising for a generation, why is our economy so bad? And why should we believe Trump when he promises to fix the problem? Is he gonna forgive private-sector debt? Household debt? Student debt, even? 

Maybe he will, if we tell him: Tell him it will boost economic growth. But tell him also, it won't do much for the economy unless he forgives a lot of debt. And tell him if he does, it'll be worth his while: With Solon, Trump will be remembered.

Inflation (inverted) and the Home Purchase Sentiment Index

I put a minus sign in front of the inflation numbers (to make the Biden inflation go down instead of up) so that I could compare the inflation to the Biden low in the Home Purchase Sentiment Index.

Sentiment is blue; inverted inflation is red:

This Graph at FRED: https://fred.stlouisfed.org/graph/?g=1IOiF

The most recognizable event of the past few years is the Biden inflation. The two lines on the graph match up pretty well during that inflation. There is a lag: the path of blue line comes after the red line on the way down (during the rising inflation of 2021, for example) and up again. The lag varies, from 4 months to about a year.

The lag surprises me. Rising prices are immediately obvious to shoppers. But I suppose the impact on home-purchasing decisions has to wait until those decisions are being made.

(I just wanted to see how they match up.)

In context

The Home Purchase Sentiment Index:

At FRED: https://fred.stlouisfed.org/graph/?g=1INwY

Subtracting the Rate of Inflation from Real GDP

In order to see how much the volume of output changes, you have to take price changes out of the numbers. It can't be helped.

Does this mean that I am not allowed to compare Real GDP to the Consumer Price Index? Certainly not.

This may trouble you, but I want to compare RGDP and the CPI by subtracting the CPI from RGDP. I want to see how RGDP stands up to that abuse. It is a simple comparison of the rate of inflation to the rate of growth. But it doesn't look like it. It looks like I am trying to take inflation out of Real GDP. You will want to tell me But inflation is already removed from those numbers!

I know you will be tempted to say that, because I am tempted to say it myself. So I have to go around the circle again now and say that I am not removing inflation from RGDP. I am comparing inflation to RGDP. Surely such a thing is allowable.

This Graph at FRED: https://fred.stlouisfed.org/graph/?g=1IK2v

The graph uses the annual Real GDP Growth rate, and an annual measure of the inflation rate. I subtract the CPI from RGDP. The first thing you'll notice is a big downtrend from 1965 to 1980. That big downtrend was created by the Great Inflation in those years. We are subtracting big inflation numbers from much smaller RGDP growth figures.

That big downtrend is the most interesting part of the graph. Other than that, the graph shows relatively high values in the years before the Great Inflation, and relatively low values after the Great Inflation. And in those latter years, it seems to me that the graph shows higher values on average from 1983 to 1999 than from 2000 to 2024. I marked up the graph to outline the deep downtrend of the Great Inflation and to show the average value for each of the three other periods:

Same Graph, marked up to highlight some interesting features

The three red horizontals indicate the average level of "RGDP minus CPI" for three periods:

Period	RGDP - CPI	RGDP Avg	Inflation Avg
1948-1965	2.14866	4.10800	1.95934
1983-2000	0.45519	3.72727	3.27207
2000-2024	-0.36669	2.20950	2.57619

From 1948 to 1965, RGDP growth averaged about 4 percent and inflation averaged about 2 percent. So the red horizontal runs near the 2 percent level.

From 1983 to 2000, RGDP growth averaged about half a percentage point higher than the rate of inflation. So the red line runs about half a percentage point above the zero level.

From 2000 to 2024, average RGDP growth was less than the average CPI for the period. And in these years the red line runs below the zero level.

I have only one thing to say about this: Economists spend a lot of time focusing on inflation and talking about the Great Inflation of 1965-1982. They spend little time talking about the decline of economic growth. That is a huge mistake, and a massive flaw in their thinking.

Hey -- the "Great Inflation" ended forty years ago. Yes, inflation came back a couple years ago, and nobody liked it. But the inflation started dying out again within three months when the Federal Reserve finally got around to raising interest rates. The problem was not that inflation wouldn't go away. The problem was that the Fed did nothing about inflation -- nothing except let it get worse -- from March 2021 to March 2022.

Compared to the long-term slowing of economic growth, inflation is a small problem. Slowing growth is the big problem. Slowing growth means slowing job growth and slowing income growth. Slowing growth makes it more difficult to survive a bout of inflation, if and when it comes. 

Slowing income growth means things are not getting better.

What is this mysterious "something"?

From Trump's "100 days" interview with Terry Moran:

Trump: "Look, you're trying to say something's gonna happen, Terry. Nothing's gonna happen."

What is this mysterious "something"? I took it to mean "recession" because that's what I think, the r-word that no one wants to say, which I expect to become a full-blown Depression probably before the end of 2025. But I wasn't part of that interview.

Before the words "something's gonna happen" Terry Moran is asking about the tariff on China. Moran says "Your Treasury secretary said we basically have an embargo on China." That's when Trump responds "Look, you're trying to say something's gonna happen, Terry. Nothing's gonna happen." So it looks like the "something" would be a result of the so-called "embargo".

That doesn't mean anything to me. So I googled what does an embargo cause?

Google's AI Overview responded:

An embargo, a government-imposed trade restriction, can cause several consequences, primarily impacting trade, economics, and potentially, foreign policy. It restricts the movement of goods and services, both in and out of a targeted country or region, leading to potential shortages, price increases, and disruptions in international commerce. 

Well, not a war, then. But there was this from r/CallOfWar, a subreddit for the World War II strategy game:

Q: Does anyone know what the point of trade embargo is? 

A: It reduces the decrease in your global popularity when you go to war with someone you've imposed a trade embargo on. 

Well, that makes more sense than what Trump said.

 

Yeah, I'm just going with "Depression".