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Washington Post
3 days ago
- Business
- Washington Post
Will Democrats rescue the national debt?
You're reading the Prompt 2025 newsletter. Sign up to get it in your inbox. House Republicans advanced a tax bill last week that an independent assessment says would increase deficits by upward of $3 trillion over the next decade. A shaky bond market seems to be signaling that investors would like lawmakers to take long-term debt concerns more seriously. But this behavior from Congress isn't new: The latest bill extends budget-busting tax cuts from Trump's first term, which were followed by a $1.9 trillion pandemic stimulus package under President Joe Biden. I spoke to our columnists Jim Geraghty and Catherine Rampell about the growing national debt and whether the politics around it might change. — Benjy Sarlin, assignment editor 💬 💬 💬 Benjy Sarlin How big a problem is the deficit in your eyes and how urgent a priority is reducing it? Jim Geraghty The deficit is a very big problem, and a country with responsible leadership would prioritize reducing it. Alas, the electorate shows just about zero interest in higher taxes, lower spending, entitlement reform or any other serious steps to address it, and politicians have responded to those incentives by largely ignoring the increasing debt. Catherine Rampell In the long run, the deficit is a huge problem. Our debts will have to be paid back at some point, in the form of higher taxes and/or lower spending. We've been able to skate these consequences thus far because the rest of the world is still willing to lend us money in huge sums. But at some point the chickens will come home to roost. The challenge is we don't know when that will happen, and it could be a long ways from now — which is why the public and politicians have been shrugging off warnings from the usual deficit worrywarts. Story continues below advertisement Advertisement Jim Republicans strongly object to higher spending when Democrats control the appropriations process. When they're running the show, not so much, as the 'Big Beautiful Bill' demonstrates. Catherine I sometimes think back to Jude Wanniski's two Santa Clauses analogy from the [1970s]. Republicans were the tax-cut Santa Claus (give out goodies to the public in the form of lower taxes). Democrats were the spending Santa Claus (give out goodies in the form of more generous government programs). Today, both parties are both Santa Clauses. Jim By the way, did you notice that Build Back Better and Big Beautiful Bill are both 'BBB'? It is fitting, because that's what America's credit rating is going to be, at this rate. Benjy Jim, you mentioned the electorate. Is it naive to think Democrats might run on cutting deficits in 2026 or 2028 if these issues persist? And, if so, what might a partisan Democratic plan to do that look like? Jim I'd love it if the Democrats became the debt-and-deficit focused party in 2028. I find that extremely unlikely, other than the usual pro forma talk that America's deficit and debt problems can be solved by raising taxes on the rich. Democrats' enthusiasm for raising taxes on 'the rich' has waned, or at least stalled, now that in many corners of America's wealthy, the Democrats are the party of the rich. Kamala Harris won 52 percent to 46 percent among those making $200,000 or more, according to the 2024 exit poll. Jim First, Democrats need candidates who are willing to spell out how deficit spending has resulted in inflation and spooked the bond markets. There's always going to be some other candidate who's willing to blame a more convenient villain — i.e., 'greedflation,' big corporations and 'Washington fat cats.' Catherine I think it's very unlikely Dems run on deficit reduction. Voters don't care about it. If anything they will hate (nearly) all of the measures required to actually reduce deficits. The last major party candidate I can remember putting forth a plausible budget plan that didn't massively increase deficits was Hillary Clinton in 2016. The net fiscal impact of her plans was pretty close to zero. And didn't seem to do her much good at the time, either. Jim If anything, the electorate punishes candidates who dare tell them they can't afford everything they want. Story continues below advertisement Advertisement Benjy This is the second presidency in a row where deficits seem to be creating some visible real-world headaches, not just scolding from budget wonks. How bad would that have to get before we saw a clear pivot toward some kind of emergency response from either or both parties? Catherine I think both parties have learned approximately zero lessons from major fiscal stimulus (in the form of both tax cuts and higher spending) from the past few years. The past few years obviously proved there are trade-offs we can't ignore — we can't just spend or tax-cut indefinitely without major unintended consequences. But lots of party operatives disagree with me. Jim Part of the problem for deficit hawks is that higher interest payments on the debt aren't very visible. It's just numbers on a page. If those lost billions upon billions looked like Godzilla, Americans would treat it like a crisis. Catherine Or, if those interest payments started crowding out our ability to pay for other government services Americans depend on (like Medicaid, Medicare, etc.). But we're not there yet because the rest of the world keeps lending to us. Story continues below advertisement Advertisement Benjy Let's get to Washington's favorite idea since before I was born: Bipartisan deficit talks. There were high-profile efforts in the Obama era to find a spending and revenue deal, but nothing since then. Is there any way both parties (perhaps post-Trump) could decide to take a shared political hit by making some deal on this together? Or is that just my inner Aaron Sorkin talking? Jim 'And then President Bartlet gave a stirring speech that brought Democrats and Republicans together …' I don't think that will happen until those long-discussed dire consequences kick in — and by then the only options remaining will be bad ones. Catherine There are some models for this kind of thing that have sort of worked on a smaller scale (like independent commissions to close military bases). But it's really hard to see it working now. The scale of the changes needed here — and the political pain that goes with them — are just orders of magnitude larger. Unfortunately, I think we will need to face an actual crisis — like a much more painful bond market revolt — before the parties try to fix anything, whether unilaterally or together. Jim Trump-era politics made it harder for bipartisan cooperation on relatively easy issues, and the debt was an issue that almost everyone preferred to ignore long before Trump came down that escalator. Story continues below advertisement Advertisement Benjy Since it seems up to Washington columnists to carry the deficit scold torch then, what would be the number one proposal you'd each bring to the table if they asked you how to find some real savings? Catherine The easiest thing would be to just do nothing on taxes right now — and let Trump's 2017 tax cuts expire as scheduled. For everyone, to be clear. (Biden and Dems wanted to extend the cuts to all but the very wealthiest.) Jim Means-test Social Security. (Jim dodges thrown fruits and vegetables.) A whole lot of retirees are wealthy and don't need the Treasury Department sending them checks. Of course, people believe their Social Security payments have been in a (Al Gore voice) 'lockbox' all their working years. Nah, the government spent that money as quickly as it came in.
Washington Post
20-05-2025
- Politics
- Washington Post
Should sports gambling still keep Pete Rose out of the Hall of Fame?
You're reading the Prompt 2025 newsletter. Sign up to get it in your inbox. Pete Rose didn't live to see himself removed from baseball's banned list. Neither did 'Shoeless' Joe Jackson. But Major League Baseball Commissioner Rob Manfred lifted the ban on both players last week, along with a slew of others, under pressure from President Donald Trump. Their reinstatement also means that a committee will now decide if they belong in the Hall of Fame. The rest of us have opinions, too — and that's why there are columnists! Joining me now are two of the very best on this topic, The Post's Sally Jenkins and Will Leitch. 💬 💬 💬 Matt Bai It probably seems odd to a lot of casual fans that we're still talking about betting like it's a mortal sin, even though you can't watch a ballgame now without being constantly assaulted by three-way parlays. Let me ask you both: What do we think is really going on here? Is the commissioner admitting that times have changed? Or does he just want to get Trump and the Rose family off his back and make it the sportswriters' problem? Will Leitch I think it's far more the latter. Rose's history with gambling had, in the wake of baseball's embrace of gambling revenue, become an inconvenience that MLB had tried to mostly whistle past. (MLB's statement when Rose died was unmistakably muted.) But Trump is a problem that had to be dealt with. I suspect MLB's decision was, essentially, 'give him this one thing and he'll leave us, and our antitrust exemption, alone.' It's basically NFL Commissioner Roger Goodell's strategy with Trump too: Appease him, and then get what you want when he's distracted. Matt Because we know that appeasing Trump always works. Sally Jenkins The fact that times have changed regarding fan betting has nothing at all to do with prohibiting players from gambling, which crooks the whole deal. So it seems to me he just wanted the president off his back, and to shift responsibility to the Hall of Fame committee members. If the change of attitude toward fan betting was part of his logic, it was totally illogical and incredibly dumb conflation. Story continues below advertisement Advertisement Matt Yeah, that's my sense as well. Betting on ballgames is still a bright-red line. But I imagine he's tired of having to explain why casinos can sponsor teams but Pete Rose can't get onto the Hall of Fame ballot. Will The thing that I find so strange about the statement itself is the notion that now 'permanent' bans end when you die. Sally Well, as John Dowd said to me, 'Reputation survives death.' The ability to inflict harm posthumously is real. This is an open invitation for players, managers and even umpires to ignore Rule 21. What Manfred has done is invite current players to bet on the games and still have hope to be inducted. Matt Let me ask the billion-dollar question: Should Pete Rose, or Shoeless Joe for that matter, be in the Hall? How would you vote? Sally I would vote a total NO on both counts. Shoeless Joe took $5,000 in 1919 — equivalent to almost $100,000 today — to throw games. Will MLB does have the advantage that we are two years away from anything being decided. I honestly think a lot of it will ride on what the political environment is in 2027, when the committee next meets. I mean, I just hope we're all still alive in 2027. At a certain level, I think the move to induct Rose and Jackson, as sort of soulless and craven as it is, makes a certain strategic sense. Matt Bleak, Will, very bleak. Will Give Trump what he's asking for. (It's worth noting that ESPN reported that Manfred indeed called Trump after he made his decision.) And then hope he gets distracted and moves on to something else. Then you get to do what you want. Sally By the way, Trump is a guy who lies through his teeth about his baseball prowess. Story continues below advertisement Advertisement Matt Sally, does it make any difference that Rose didn't actually bet against his own team? Or at least there's never been any allegation of that. He was still trying to win, as far as we know, which seems different to me than throwing a game, like Shoeless Joe might have done. Sally I think it makes no difference at all that Rose bet on his own team. Betting on your own team, especially as a player-manager, is, in a way, worse. You can influence lineups, pitchers, stats. You can influence all kinds of factors — for one thing, you're exercising inside knowledge and info. It's a dirtbag thing to do. It defrauds others. Will Also, if you were a gambler watching which Reds games Rose bet on, you definitely took note of the ones he did not. Sally TOTALLY. Story continues below advertisement Advertisement Matt All right, you guys are unforgiving on this, but let me try one other angle at magnanimity. Do we really want to judge Hall of Fame credentials by morality? I mean, if we're going to go into the Hall and start removing everybody who wasn't a great character, we'll need a much smaller building. Sally Right, the Ty Cobb argument. This isn't necessarily a moral issue — it's a gambling issue. You destroy the credibility of the game itself. Ty Cobb was a bad guy, but the problem with players and managers betting on the games is they compromise everything and everybody. Will I totally agree. I don't think Rose shouldn't be in the Hall because he was a jerk. (Though, I highly recommend Keith O'Brien's new biography of him for a full accounting of who Rose was.) He shouldn't be in the Hall because gambling is literally one rule that you cannot break. It's posted on the wall of every clubhouse in baseball — still. It is the fundamental rule of the sport — of any sport. Sally As my friend David Von Drehle says, it's a nihilistic suicide-homicide thing to do to the game. It really is. Gambling removes the idea that the outcome is unknown. Will Which is really the fundamental reason to watch sports in the first place. Story continues below advertisement Advertisement Matt Last question: How crazy are the odds I'd have to give you to bet that Rose does make the Hall? Three to one? Will I think it's more likely than that. I might put it at 50-50. Sally I also think it's 50-50. Will But again: Let's see where we all are in 2027. (Hopefully still here!) Sally Maybe by then, Will, another gambler's notebook could show up, with evidence he bet against his own team. This is a real hazard for the Hall, because you can't count on a word Rose ever said. He denied gambling. He denied gambling on the Reds. He denied corking bats. Matt Those are better odds than I'd give Republicans of still controlling the House by then.
Washington Post
13-05-2025
- Health
- Washington Post
House Republicans take on Medicaid
You're reading the Prompt 2025 newsletter. Sign up to get it in your inbox. On Sunday night, Republicans revealed their first draft of a 'big, beautiful bill' House leaders want to get to President Donald Trump's desk ASAP. Part of their plan to offset $4.5 trillion in extending tax breaks from Trump's first term includes $715 billion in cuts to spending on Medicaid and the Affordable Care Act over the next decade. The Congressional Budget Office estimates the plan will push about 8.6 million people off health insurance rolls. The cuts, though objectively large, do not make the deep structural changes to Medicaid that reform crusaders on the right would like. Where will Republicans land? I'm joined by my Post colleague Catherine Rampell and guest contributor Dominic Pino, a Thomas L. Rhodes journalism fellow at National Review Institute, to discuss the next steps. 💬 💬 💬 Laura McGann Dominic, as an advocate for Medicaid reform, I might think you'd be optimistic about this bill. But your piece today isn't so much. Why is that? Dominic Pino The first thing to note is that even under Republicans' current proposal (which is still subject to change), federal Medicaid spending would still increase by around $1.3 trillion over the next 10 years. The budget baseline assumes an increase of just over $2 trillion. Any increase less than that is called a 'cut' by budget-scoring standards, but in real life, we know there's a big difference between slowing a rate of increase and cutting. But I'm not optimistic because Republicans have an opportunity to make more long-lasting structural reforms to the way Medicaid's burden is shared between the federal government and state governments, and they don't seem willing to have that fight. It would be worthwhile to put Medicaid on a more fiscally sustainable trajectory and secure benefits for the most vulnerable, but the politics are too difficult. Laura Catherine, I assume you are also not feeling positive about the proposal, but for a different reason? Catherine Rampell Correct. Based on early estimates, this proposal is likely to cause millions more Americans to become uninsured (at least 8.6 million by 2034, per some early CBO estimates leaked by House Democrats). In practical terms, this means millions more people losing access to regular checkups, mammograms, inhalers, cancer treatments, etc., which is always a hardship. But the timing of this could also not be worse. If we're heading into a recession — which is not a fait accompli, but more likely than was the case a few months ago — we will be cutting Americans off from critical benefits precisely when they need them most. And potentially weakening an automatic stabilizer that normally kicks in to help turn the economy toward recovery. Story continues below advertisement Advertisement Laura Dominic, to your point about political fights: Even though the 'cuts' are more about bending the cost curve, at the end of the day, the numbers represent regular people, mostly in red states, in particular, losing their health insurance. How do Republicans resolve this? Dominic Medicaid is supposed to be an anti-poverty program, especially for pregnant women, poor children and people with disabilities. Policymakers should want enrollment to decline, because they should want people to become richer and stop needing the program. Unfortunately, Trump's signature economic policy, tariffs, is making this argument much harder for conservatives to make because it is making a recession and potentially rising unemployment more likely. Dominic A second reason enrollment should decline, though, is that many current enrollees are not actually eligible for the program. These are mostly not poor or disabled people, but able-bodied, working-age people who are covered under the ACA expansion. States have every incentive to look the other way on eligibility rules for the expansion population because the federal government reimburses them at a much higher rate than for people who are poor or disabled. This has led to the current situation in which about 700,000 poor or disabled people are on waiting lists while able-bodied ineligible people are enrolled. It's bad for them and bad for the budget. Catherine To be clear: The numbers I cited were not for declines in Medicaid enrollment alone, but rather increases in total uninsured population. So, they account for people who lose Medicaid potentially switching to other forms of insurance if they can (such as marketplace plans or employer-sponsored coverage). If the goal is to get people off of Medicaid and into other forms of insurance, we should be beefing up those other programs. Instead, the bill's draft language also does not renew enhanced premium subsidies for ACA plans. Trump's 'Marketplace Integrity and Affordability Proposed Rule' will also reduce ACA coverage Dominic I would also be skeptical of taking CBO estimates on this issue specifically as gospel. They missed big on the effects of Medicaid expansion under the ACA when it was passed. I'm not alleging bias here. It's a hard thing to estimate and well outside CBO's core competence of budgetary impacts. In addition, if states really want to keep more able-bodied people on Medicaid, they always have the option of raising more of their own money to cover the costs. It's supposed to be a joint federal-state program, and the federal share has been growing over time. Federal health-care costs are not sustainable and the deficit is already, as a share of gross domestic product, larger than during the Great Depression. Story continues below advertisement Advertisement Laura Being both optimistic and semi-realistic, where do you each hope the bill lands? Catherine Honestly, I'd like to see most of the expiring individual-side provisions of the Tax Cuts and Jobs Act sunset, as currently scheduled. But neither party has the stomach for that. (Even President Joe Biden wanted to extend most of the expiring individual-side tax cuts, despite unified Democratic opposition to their passage back in 2017.) Dominic It's hard to say because the Medicaid portion is only one part of many. If the GOP continues to keep Medicaid's structure mostly the same, entertains raising taxes on the rich, keeps most of the Inflation Reduction Act in place, removes or raises the SALT deduction cap, and generally refuses to make significant spending cuts even after blowout spending during the Biden years, they might find it easier to get Democratic votes than to wrangle their small majority on reconciliation. Kamala Harris basically promised to keep the Trump tax cuts for everyone making below $400,000 (which is 98 percent of taxpayers). Democrats would vote for that. Story continues below advertisement Advertisement Laura Any final thoughts on Medicaid? Catherine I would say I agree with Dominic that we have serious long-term deficit problems in this country and that there is never the political will to deal with them. But I don't think the solution involves purging millions from Medicaid so we can otherwise reduce taxes. The solution is in acknowledging we need higher taxes, and Medicare reform (so easy!) Dominic Medicaid is supposed to be an anti-poverty program. Medicaid enrollees are now twice as numerous as the number of people in poverty. Enrollment has tripled in the past 30 years. That isn't sustainable, and health resources are being less focused on those truly in need. If it doesn't get reformed now, it will need to be in the future. Story continues below advertisement Advertisement
Washington Post
05-05-2025
- Business
- Washington Post
Trump is warning about shortages. Will kids have toys this Christmas?
Warning: This graphic requires JavaScript. for the best experience. You're reading the Prompt 2025 newsletter. Sign up to get it in your inbox. Like many of our readers, I'm sure, I've been stocking up on various items that are made in China before the price rises. That seems to me a good metaphor for the odd period we're in: We know what's coming, but it hasn't arrived yet. President Donald Trump is preparing us for what it might look like, though, recently warning that 'maybe the children will have two dolls instead of 30 dolls.' Is this what the post-'Liberation Day' economy will look like come the holidays? And how will Americans react to empty shelves or price hikes for goods they expect to be cheap and plentiful? I spoke with my colleagues Philip Bump and Jim Geraghty about the politics of shortages. 💬 💬 💬 Megan McArdle In a recent piece for the Dispatch, John McCormack quotes a business owner who is waiting for equipment that will cost him [more than] twice what he thought he was paying: 'We're just hoping either the ship sinks or somebody comes to their senses before it hits the dock.' So: When will the tariff ship sink? And where is the pain likely to show up first, economically or politically? Philip Bump The answer appears to be 'imminently.' There are already reports of ports seeing far less traffic. It seems like a straightforward chain of repercussions: fewer goods and higher prices lead to more economic pain which leads to political pain — though it's still not clear how much of the latter will be borne by the president himself. Jim Geraghty I can't believe the administration is so nonchalant about the prospect of supply chain problems, at least so far. The supply chain shortage driven by the pandemic is not ancient history. I don't think it was a decisive factor in Biden's defeat, but I do think it added to the widespread perception among voters that the economy wasn't doing well, despite the low unemployment rate. You would think Trump and his team would want to do everything possible to minimize empty shelves or higher prices. But apparently … nah! Story continues below advertisement Advertisement Megan In Trump's first term, tariffs affected cars and washing machines, among other products; he doesn't seem to have paid much of a price for that. I assume this time will be different — but how different? Jim Where Trump might have a bit more leeway is that people feel inflation most intensely (and quickly) in things they purchase on a regular basis — groceries and gasoline come to mind. People know, generally, what they paid for those items last week, last month, etc. Things like toys, lumber and big-ticket electronics they buy less often, and thus I think memories will be fuzzier of what things used to cost. Philip It seems clear that the tariffs this time around will have a much bigger effect, to Jim's point, so we can probably assume that there will be more public pressure to ameliorate the problem. So the question is really: How insulated is Trump from negative feedback in general? So far, he seems to be strikingly insulated from it; it took a wobbly bond market for him to scale the tariffs back last month. It's not clear that there's otherwise a metric that might prompt him to reconsider. Megan Groceries and gasoline will be affected slowly, if at all though, right? It's going to be consumer electronics, clothes, bedding, etc. at first. Jim I talked about this in my last column. We'll see the first effects at America's ports — ships from China will stop coming in, which will mean less work for the truckers, etc. Things still feel relatively 'normal' in most shops compared to the beginning of the year, but we're going to see a ripple effect as the last of the ships from China get unloaded and their goods dispersed … Philip Yeah, it seems like there's going to be a lot of people online shopping who are suddenly like, wait, why is this twice as expensive? And then not buying. I'm sort of morbidly fascinated to see if surging prices prompts his base to lose faith in his presentations about the world — and then, if he actually changes his position to adjust to what they want to see. Megan The administration has seemed unbelievably inept at messaging —'Your kids don't need so many dolls.' Who in the administration can be a better messenger? Is such a thing possible? Jim Trump's 'Well maybe the children will have two dolls instead of 30' reminded me a great deal of Bernie Sanders's statement in 2015, 'You don't necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.' For all the differences in these two men's philosophies, they look at American store shelves with a lot of options as a problem that the government needs to step in and solve. Philip Although, in fairness, Sanders's argument wasn't 'We need fewer products because by importing those goods we are somehow having money stolen from our country.' Story continues below advertisement Advertisement Megan Why is the administration doing this in a way that will produce blowback? Philip It really seems as though Trump (with justification) has internalized the idea that there are no extended repercussions for his actions. Combine that with his apparent sense that this is a necessary shock to fix the system, and here we are. Jim There's been so much (deserved) attention on the tariffs that I think anything that happens on the economic front for the next year or so will be attributed to them, good or bad. The tariffs are indeed a huge deal, but there are other factors influencing the economy. Trump genuinely loves tariffs and thus he's completely comfortable with them being front and center. Megan Last question: If you were White House chief of staff, what would you do to minimize the political pain, other than the obvious step of rolling back the tariffs? Jim Every time there's a sign of progress on trade deals, the markets go up and presumably the damage done to everyone's 401(k)s and college savings accounts gets mitigated a bit. So I'd be talking up how close we are to a deal with our other large trading partners — Japan, South Korea, etc. Philip If I were his chief of staff, I might also gently suggest that he vet his commentary with people who exist within the middle class just to see how 'They don't need to have 250 pencils, they can have five' flies before rolling it out to Newsmax.
Washington Post
30-04-2025
- Business
- Washington Post
Why is the economy shrinking?
You're reading the Prompt 2025 newsletter. Sign up to get it in your inbox. Americans are fearful that President Donald Trump's hefty tariffs will cause a recession. The U.S. economy shrank in the first quarter by an annualized rate of 0.3 percent — the first negative growth in three years. What caused this downturn? And is this the start of a Trump recession? I'm joined by my fellow columnists Eduardo Porter and Natasha Sarin to break down what these numbers signal for the rest of 2025. 💬 💬 💬 Heather Long Why did the U.S. economy shrink in the first quarter? And how alarmed should we be? Eduardo Porter This is just arithmetic: To get gross domestic product, you subtract imports from the data on investment and consumption, which includes spending on both domestic products and imports. Businesses and consumers stocked up on imports — which was expected in anticipation of Trump's promised tariffs. Heather Okay, if we strip out the import craziness, how was the U.S. economy doing in Q1? Eduardo The underlying economic performance was pretty stable: consumer spending plus gross private fixed investment increased 3 percent in the first quarter, up from 2.9 percent in the previous quarter. This report is perhaps the last picture of an economy before getting walloped by Trump's barrage of unorthodox policymaking. Natasha Sarin Yeah, it's what I call the 'Before Times' print. The economy was pretty strong! Eduardo BTW, I share the general sense of alarm. It's just not in the Q1 data. Story continues below advertisement Advertisement Heather Is this -0.3 percent GDP in the first quarter the potential start of the Trump recession? Or should we ignore Q1 and focus on Q2 (and beyond)? Natasha I am wary of what is on the horizon for the economy, but I don't think the headline number here is that meaningful. Harvard economist Jason Furman has been focusing on what he's calling 'core GDP': the consumer spending and investment number. And it was at a pretty strong 3 percent in Q1. So I'd look to Q2, which will have more months of Trump's policy environment reflected in it. Eduardo Right. What isn't included in Q1 is the massive uncertainty, the plummeting consumer confidence and the shrinking 401(k) balances. Natasha And the tariffs! April 2! So-called Liberation Day. Eduardo Yeah! And the sticker shock from tariffs. Add that, and it spells recession. Of course, Trump would say this had 'NOTHING TO DO WITH TARIFFS.' If it's IN CAPS, it must be true. (He has also said he already cut 200 trade deals in a world of 195 countries.) Q2 is when we start to experience headspinning from Liberation Day. Natasha 💯. JP Morgan CEO Jamie Dimon now thinks that a recession is the best case outcome. It is wild that we are on the precipice of a man-made recession. Heather 'Man-made recession' is a good term, Natasha. Talk us through this: How exactly would a recession (or worse — stagflation) occur? How would we get from a mostly okay Q1 to a downturn? Natasha General Motors pulled its 2025 profit guidance this week citing the tariffs. They know what's coming. You get there by imposing the highest tariff rates in a century that are going to drive up inflation and cost consumers $5,000 annually in higher prices. Eduardo I think that a big part of the problem is that nobody really knows what's coming. Natasha It's just totally bonker bananas 🍌. Where are we going?! Are we near trading deals with India and Japan? That means less tariff revenue. But Stephen Miran, chair of the White House Council of Economic Advisers, says the tariffs are going to produce lots of revenue for deficit reduction. So that must mean they're staying high? It's a constant yo-yo that is impossible to plan around and is leading to investors being down on America, and with good reason. Story continues below advertisement Advertisement Heather I think the key to watch is jobs. For now, over 159 million Americans are still employed and getting paychecks. People are clearly nervous (over 70 percent expect a recession soon), and we are starting to see some layoffs. If that picks up, then people will really start to cut back on spending. And that's how we could easily end up in a recession. Eduardo Tariffs (reasonable tariffs) do not necessarily produce recessions. They just make the economy less efficient. I think the main cause for a recession in the coming months will be the massive uncertainty. Natasha In any given year, the chance of a recession is like 15 percent. We, in this chat, are talking about it like a foregone conclusion, but to be clear, it isn't. The odds have gone way up because of the policy uncertainty. Heather Let me ask it another way: Can we still avoid a recession? If Trump pulls back some more on tariffs, can we avoid the worst case? Eduardo Maybe. If Trump decides to pull all the tariffs back to where they were in December, we might just avoid a recession. He has to backtrack on the tariffs and promise never to touch economic policy again. Natasha The reality that is so devastating is Trump inherited a strong economy! He just had to watch it be strong and claim credit. Story continues below advertisement Advertisement Eduardo And we haven't talked about what happens if Trump really messes with the Fed … Heather Good point. I was glad to see the strong market reaction (we saw the same thing in late 2018 when Trump first threatened to fire Fed Chair Jerome H. Powell), and it looks like Trump backed down again. I think at this point Trump won't fire Powell. He's better off trying to blame Powell for any downturn. Natasha I hope you are right (not about blaming Powell of course). But I'm worried, because the same market discipline that we saw in the first Trump administration isn't governing here. Heather Last question: Trump loves tariffs. Do tariffs ever make sense in your view? Natasha Targeted tariffs in certain sectors. For national security, for supply chain resilience, sure. Broad based tariffs at the highest rate in a century that are pushing our allies straight into China's waiting arms? No, those don't ever make sense. Eduardo There is a role for targeted tariffs. But that has nothing to do with what is going on now. In Trump's worldview, tariffs are to punish an unfair world that has somehow brought misery to the U.S. Story continues below advertisement Advertisement Post Opinions wants to know: How has your economic outlook changed since the beginning of the Trump administration? Share your responses and they might be published as letters to the editor.
