Truth-Telling About Trump's Tariff & Immigration Policy Is too Hot for Jackson Hole...
…even though Adam Posen wishes otherwise. Economic—like geophysical, biological, archeological, and many other sciences—truth-telling has become a partisan political act in America...
…even though Adam Posen wishes otherwise. Economic—like geophysical, biological, archeological, and many other sciences—truth-telling has become a partisan political act in America. Federal Reserve Chair Jay Powell will in all likelihood continue to be silent on the potential economic fallout of Trump's policies. Bullied into not wanting to appear partisan, he will nevertheless be partisan—and so neglect his obligation to educate the public about the choices they face. While Powell may choose discretion, others are sounding the alarm. Adam Posen of the Peterson Institute argues that the Fed must prepare markets for a possible post-election pivot, even if it ruffles political feathers. But where are the Republican economists in this debate? After all, in a world where stating basic economic truths is seen as taking a highly partisan side, can we afford for so few to speak up?…
On the one hand, Jay Powell would definitely be dodging his job to inform the American people and financial markets about the state of the economy and the policy choices we face. He would be remiss if he were not to spend some time in his Jackson Hole speech talking about the likely macroeconomic consequences of Donald Trump's plans to lose more trade wars and deport more than 5% of America's current labor force. Trump tariffs and mass deportation, taken together, would be the largest adverse supply shock ever inflicted on the American economy. They would in all likelihood generate a combination of inflaition and depression America has never before seen. Our macroeconomic troubles would dwarf anything we saw in the 1970s or at any other time.
On the other hand there are six Supreme Court justices eager to be on Team Republican, with at least three eager to back whatever claims Trump makes about the "unitary executive", no matter how outlandish. How the other three Republican justices will come down is anyone’s guess. Nobody outside can judge how they will come down—save to note that they were a group eager to say that Roe vs. Wade was “settled law” and that they see themselves as “umpire[s]… calling balls or streets” before confirmation, and also eager to reverse Roe v. Wade at first opportunity. Against such a legal background, maintaining the Federal Reserve’s independence during a Trump administration might will be very difficult. So there is an argument for Powell, letting Trump bully him into staying quiet about the likely macroeonomic consequences of a Trump presidency.
But while Powell will almost surely stay quiet, no such Trump bullying applies to Peterson Institute head Adam Posen, who has a very sharp and nice column on this this morning—even if the Financial Times did give him the absurd subhead of “without seeking to influence the election, the Fed chair must remind the public of some basic economic truths”. That subhead is an oxymoron. Things have reached the stage where you cannot speak basic economic truths without it being a political intervention against the Republican Party in the United States. This should not surprise you. After all, things have reached the stage, for you cannot speak. Stating basic truths about geophysics and geochemistry or human biology, or, indeed, about geology are today a political intervention against America's Republican Party in its current complexion.
Adam:
Adam Posen: What Jay Powell should say at Jackson Hole: ‘He should make it clear that the Fed’s monetary policy stance could reverse after the election…. Powell has already, bravely and rightly, made statements about the supply side benefits of migration. He should reiterate the stagflationary effects of mass deportation and point out that the vast majority of tariffs are paid for by US purchasers, and therefore will stoke inflation… [plus] do the usual central banker talk about the unsustainability of the current fiscal trajectory.
Central bankers around the world often find themselves in the position of having to provide public reality checks, even in the midst of contentious elections. The fact that this is now necessary for the Fed shows the extent to which the political debate around economic policy in the US has degenerated…. The Fed needs to start laying the groundwork for a possible pivot now. Leaving the change in forecast to a November surprise, or more likely waiting until the federal budget passes Congress in March or April of next year, will set markets and households up for a shock… <https://www.ft.com/content/b2941304-c3cd-491b-8fad-94be7296f958>
It is certainly the case that, as John Maynard Keynes said during World War II, “whatever we can do, we can afford”. But it is equally—perhaps more so—that we cannot afford what we cannot do. Breaking our productive international value chains and removing substantial and key parts of our labor force will not make us richer, and cannot be accompanied by higher wages.
It would be nice if I heard more Republican economist voices willing to make this point. And yet I do not. Perhaps this is simply the cacophony of the modern age. But if any are speaking out, they have no reach. Effective—if dodgy—internet search engine <http://perplexity.ai>, asked “what prominent republican economists have come out against Trump's "mass deportation" plans?”, only came up with George Mason’s Michael Clemens. It quoted him observing that the effect of mass deportation on the “demand for all workers overwhelms the reduction in the supply of foreign workers”, leaving the typical citizen worker worse off. But even though <http://perplexity.ai> thinks Michael is a Republican, I would be somewhat surprised to learn that he is in fact one—yes, George Mason professors are more likely to be Republican than your standard academic economist, but development economists are much less so.
So where are all you guys?
References:
Clemens, Michael A. 2024. “Trump's proposed mass deportations would backfire on US workers”. Peterson Institute for International Economics. March 6. <https://www.piie.com/blogs/realtime-economics/2024/trumps-proposed-mass-deportations-would-backfire-us-workers>.
DeLong, J. Bradford. 2024. “The Threat of Trumpflation and a Fed War”. Project Syndicate. May 22. <https://www.project-syndicate.org/commentary/trump-inflation-fed-war-would-be-economically-financially-disastrous-by-j-bradford-delong-2024-05>.
DeLong, J. Bradford. 2024. “Federal Debt”. Milken Review. April 29. <https://www.milkenreview.org/articles/federal-debt?IssueID=53>.
Keynes, John Maynard. 1942. "BBC Radio Address, April 2, 1942." The Listener. April 2. <https://jwmason.org/anything-we-can-do-we-can-afford>.
Posen, Adam. 2024. "What Jay Powell Should Say at Jackson Hole." Financial Times, August 21. <https://www.ft.com/content/b2941304-c3cd-491b-8fad-94be7296f958>.
So your theory of mind for Powell is that he thinks that if he avoids criticizing Trump, he'll be left alone to manage inflation as he sees fit? Well maybe he really does think that, but it's not the way I'd bet; I'd be more inclined to say something useful while I still had the freedom of action to do so.
Re: Mass Deportation
Why doesn't anyone shout from the screen tops about the Census Dept projection of the loss of 100million by 2100 if all foreign born immigration was stopped. I will have grand children alive in that year.