Trump Promised Voters Lower Prices: He Lied—& People Are Angry
Affordability is mostly anger at high nominal prices after a one‑time inflation jump. Even as inflation cooled, prices didn’t retreat. Plus tariff policy operates like a tax that lifts them further...
Affordability is mostly anger at high nominal prices after a one‑time inflation jump. Even as inflation cooled, prices didn’t retreat. Plus tariff policy operates like a tax that lifts them further. Meanwhile, housing outpaced wages, amplifying the pain. Politically, the promise to cut prices was undeliverable—and now visibly broken. The appropriate response is income‑raising, margin‑shrinking policy, not magical price reversals…
Paul Krugman: Another Talk With Martin Wolf <https://paulkrugman.substack.com/p/another-talk-with-martin-wolf>: ‘We had… from 2021 to 2023… a one-time step jump in prices. People are upset about the jump in the level…. Wages went up a lot and contrary to what many people believe, wages rose more towards the bottom of the wage distribution… an equalisation…. Ordinary struggling, struggling families on the whole were better off in terms of purchasing power [after]. But… you feel that you earned your wage increase and then it was snatched away by inflation…. Trump ran a campaign… about… bring[ing] prices down… cut[ting] the price of energy in half… mak[ing]… groceries much cheaper…. [He] obviously hasn’t delivered… and hasn’t even made an effort to deliver…. I’m glad that people feel betrayed. This is important…
Matthew Yglesias: ‘Affordability’ is just high nominal prices” <https://www.slowboring.com/p/affordability-is-just-high-nominal>: ‘Democrats of all stripes have coalesced around the idea of running on affordability…. [But] what is affordability, exactly?…
Inflation-adjusted consumption spending per person… [is higher] than ever before…. Affordability is just nominal prices…. Inflation clearly made voters furious. But over the course of 2023 and 2024, the inflation rate came down and voters did not abandon their fury…. Trump… promised people that prices would go down. But prices have not gone down!…Voters want prices to fall, which is what he promised, but that’s not something he could accomplish….
Once you realize that the “affordability crisis” is basically just anger at [the just-past] inflation, I think you see that while Democrats should definitely talk obsessively about their ideas for promoting affordability, they should also be a little bit cautious… The money illusion really is blinding…. People are still going to feel that life isn’t as “affordable” as it should be until macroeconomic inflation concerns are in the rearview, either because a long span of low inflation makes people forget or because a recession gives them something new to worry about…
Admittedly, both Paul and Matt give it the good old college try that there is actually more there there:
Paul Krugman: Another Talk With Martin Wolf: ‘The Consumer Price Index is honest… [and] based on a lot of hard thinking…. But it… doesn’t really take account of interest costs…. Husing is one of those things where prices really have outpaced earnings. And so the sense that my father was able to buy a house and I can’t, that is not wrong…
Matthew Yglesias: ‘Affordability’ is just high nominal prices”>: ‘[Is] “affordability”… essentially relative price shifts[?]. I like to quote Agatha Christie’s recollection in her memoir that when she was a young mother, she never thought she’d be rich enough to own a car or so poor that she couldn’t afford a live-in nurse and maid…. Compare… 2025 to… 1985… inflation-adjusted consumption of telecommunications services has improved dramatically. But it is harder to afford child care or a babysitter or other labor-intensive services….. Relative price shifts over the course of my lifetime have been unfavorable to a kind of commonsense view of “the good life”… in achiev[ing] basic life goals in terms of employment, housing, family formation, and fulfilling work…
And then there is often some claim that relative price shifts have been adverse toward the purchases of goods and services essential for the maintenance of self-respect as a successful, achieving member of society: that affordable college, less-expensive medical care, childcare, and housing (in the sense of not just what you purchase but it being within convenient travel distance of everywhere you might want to go) are more important and salient than consumer electronics, toys, clothing, furniture, and cars. But this argument is never made: it is only gestured at.
I think there is a lot of evidence, quantitative economic and polling, and vibes I feel, that Paul and Matt are correct here.
So then what do I have to add?
Well, the most important thing for raising the chances of a good future for America and the world would be to recognize a somewhat cynical somewhat subtext underlying Paul’s and Matt’s gladness that people feel betrayed by Trump’s breaking his promise to make things affordable again by lowering nominal prices. And the second most important thing would be to draw implications for those people who—unlike me!—are not in the inform-the-public business but rather in the projecting-shadows-on-the-walls-of-the-cave business, in the hope of getting those people who will never ascend to see the truth of things to hold beliefs that will at least get them to act in their own true interest, and to advance their own well-being. What are those implications? That Democratic candidates should and democratic policy-advisors validate and endorse:
Banging on the “Trump said he would make things affordable by lowering nominal prices. He lied. He and his appointees have no desire to do that at all. Tariffs are taxes that raise nominal prices!” drum as often and as loudly as possible.
Making good policies that raise people’s incomes and diminish monopoly- and shortage-driven margins and rents.
Keeping from overpromising with respect to actually being able to even start making things “affordable” until 2029 and the end of Republican occupancy of the White House.
Hoping that come 2029 expectations of what the normal values of nominal prices are will be reset, so that then good policies that make people better off can be pursued without the side constraint of guarding against the rage induced by money-illusion sticker-shock.
But do go read both Paul (and Martin Wolf) and Matt, if you have not already. Doing that will make you wiser.
Moreover, the Krugman-Wolf conversation spent a lot of time talking about the labor market and about “AI”. I found six more points made by them worth noting. So let me indulge myself by now going on to spell out what I see as some of their implications:
First, the labor side of the job market right now looks very very different depending on whether you have or do not have a stable job. Paul puts it this way:
Paul Krugman: Another Talk With Martin Wolf: ‘We have not yet had mass layoffs. We’ve not yet seen large job losses.
But what we have seen... [is] ery low hiring. It’s a frozen labour market… at least in part because of tariffs and general uncertainty…. If you’re in your job, then you’re reasonably secure. But should you lose your job, or if you’re a young person entering the market for the first time, it’s actually very grim…. And this does reflect back even on people who have jobs…. I better not get sassy with my boss because if I’m laid off, then I’m in big trouble. And so this does colour people’s people’s perceptions. Also, it’s a tragedy…. If the labour market is poor when you’re starting out, you… never get as far up the ladder as you would have otherwise. And so this is a big deal…
Call it the Great Hiring Freeze: a labor market that looks fine in the aggregate but feels brutally stagnant at the margin. The headline unemployment rate—hovering in the mid‑4s—doesn’t capture the core reality that hiring truly has seized up. Business Insider reports hiring rates reminiscent of the post–Great Recession 7% unemployment economy <https://www.businessinsider.com/cant-find-job-labor-market-hiring-great-recession-2025-11>.
Why now? Start with uncertainty. Tariff regimes in flux and an on‑again off‑again legal cloud over trade policy raise the option value of waiting. If you think input prices or market access may shift within a quarter, you postpone the hire. Layer on a macro environment with slowly cooling demand and sticky prices, and the rational firm eschews payroll commitments in favor of capex that can be throttled. Then add AI. Unlike prior tech cycles, much of today’s investment surge is concentrated in a handful of oligopolistic platforms and their data‑center buildouts. That pushes measured investment up while dampening broad‑based hiring, especially for college grads whose tasks are precisely those being recombined by software. The productivity-boosting effects of AI do not yet appear real on a macro scale. The hiring-discouraging effects are definitely already here.
Careerminds’ 2025 survey finds two-thirds of firms in hiring freezes, entry-level roles disproportionately paused, and AI cited by ~30% as a driver; quit rates down ~33% from their Great Resignation peak, indicating the “Great Stay” <https://careerminds.com/blog/career-frameworks-report>. Job seekers reporting “post and pray” dynamics—applications into the void, occasional interviews, no offers. That is a sharp change decline in matching efficiency: fewer vacancies per search and more cautious screens per vacancy. It also mutes productivity diffusion because labor reallocation slows.
We badly need policy and firm‑level responses should target the bottlenecks. At the macro level: reduce regime uncertainty—clarify the legal bounds of tariff authority, commit to a predictable trade path, and align monetary easing with real‑time labor indicators rather than lagging aggregates. At the micro level: accelerate public co‑funding for apprenticeships, short‑cycle credentialing, and employer‑led training that pairs AI tools with complementary human skills. Incentivize hiring risk via temporary wage subsidies or hiring credits for new grads and the long‑term unemployed. Shift some AI investment toward deployment and productivity gains in the long tail of firms, not just hyperscaler capex—where employment multipliers are modest and asset depreciation fast.
The Great Hiring Freeze is not a recession; it is a confidence and matching shock. We need smart policies to deal with it. We are not going to get them.
Second, register that the thing keeping the Trump tariff-and-uncertainty-chaos-monkey-economy out of recession right now it the current AI-boom:
Paul Krugman: Another Talk With Martin Wolf: ‘It used to be that there were lots of things that… we just couldn’t do…. And all of a sudden, all of that is a solved problem. Translation by computer was a joke, and [now it is]… pretty damn good…. This is a… productive technology… [with a large] short run macroeconomic impact…. This is driving a lot of business investment and it’s driving the stock market…
And, in addition, there are four more AI-related possibilities that Paul notes: First, this current boom may well be a useful boom from the perspective of the economy as a whole while being a money-losing bubble for investors and shareholders of companies that go all-in:
Paul Krugman: Another Talk With Martin Wolf: ‘Quite possibl[y]… [AI is] a genuine, productive, important technology and everybody who invests heavily in it loses their shirt…. The ‘90s investments… ended up with a lot of fibre optic cable in the ground that… was eventually useful…
Second, that not only do we not know how big the impact will be, we should not expect that we could know until we have a much better shape of what the mature technology will be, and how it will fit into the economy:
Paul Krugman: Another Talk With Martin Wolf: ‘It is so difficult to interpret the various studies. Most businesses report that they have not actually succeeded in making productive use of AI, but some have…. It’s all over the place… [with] businesses… telling their employees [they] must use AI… when they can’t actually figure out what good it does them… [a] liminal space where it’s all potential and hype…. So there’s no question this is… powerful… but we don’t know [how powerful] yet...
Paul Krugman: Another Talk With Martin Wolf: ‘The data centres probably depreciate quite fast… more like the companies that got over their skids on shale… [as it has] turned out that shale wells depreciate much faster than conventional… wells. And so… we may be just burning up real resources on stuff that won’t get used, especially if they’re kind of taking the wrong approach…
Here I disagree: Chips lose value (a) as they depreciate due to better chips coming on line and (b) as they burn out. The burning-out is very dependent on intensity of use—overclocking, and so forth—and will go way down once the data-center capital-stock rapid build-out slows. The depreciation speaks to the quasi-rents earned by their chips, not to their true economic utility. And the rest of the data center expenditures are very long-lasting indeed: shell, cooling, internal connections, power grid, and power generation support. Shale and tar-sands do not seem to me to be likely to be good analogies.
And, fourth and last, Paul raises a hobbyhorse of mine:
Paul Krugman: Another Talk With Martin Wolf: ‘The Chinese have been focusing on smaller models that are less comprehensive, that apparently can achieve about 90 per cent of the effectiveness of the big models at far lower cost. Aside from the inherent questions about AI, there’s also the question of are we doing AI wrong? That is, I think, a really interesting possibility…
“AI” as currently constituted is three things: (a) natural-language interface to structured and unstructured databases; (b) very big-data, very high-dimension, very flexible-function classification of items in structured databases; and (c) the roiling boil of linear algebra that is the training of enormous models on the largest unstructured database of text that can be accumulated.
These are three separate things. (a)—natural-language interface—is very valuable, but no longer requires an enormous model; it is, rather, something that can soon be run on smartphones. (b)—big-data high-dimension flexible-function classification—will have a growing number of discrete, valuable applications over time, of which the most impressive so far are the programming copilots. (c) is the crapshoot being pursued by those who want to build a Digital God, an AGI, an ASI. My reading is that this is almost surely a big waste of time and money. Without a structured database to serve as ground truth, hallucinations make the resulting products of very limited value, and their construction as the best possible emulation of a Typical Internet S***poster means that their excellences will be limited to their being engines of summarization, boilerplate, and ritual. (But I could be wrong.)
So I would flag the “cheap, small language models” point as definitely worth watching.
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Also the economy is fully cartelized and this unleashes a lot of bad behavior which is not easily measured but may contribute to something inarticulate which gets funneled into complaints about prices or affordability. Possibly the right framing is simply absent. We do have algorithmic price fixing now, but that's a symptom of a larger failure.
I think there is more to it than inflation. See this post https://open.substack.com/pub/americasundoing/p/it-works-if-you-work-it?utm_source=share&utm_medium=android&r=44xls9
The typical 30 year old does not have a path to any form of the good life now. This is a serious, systemic problem.
Also the economy is fully cartelized and this unleashes a lot of bad behavior which is not easily measured but may contribute to something inarticulate which gets funneled into complaints about prices or affordability. Possibly the right framing is simply absent. We do have algorithmic price fixing now, but that's a symptom of a larger failure.