I was on a rare vacation (most of my travel is work related) and my wife and I decided to join this company. Tivoli’s haunted house Just for fun (on my last visit the wax museum was closed to be renovated into something new). Well, it wasn’t scary at all. But it got me thinking. What’s scary? Here is my answer:
“Trump’s 2nd term economic policy”
Consider a few policy proposals.
“It is literally impossible for tariffs to completely replace income taxes. To replace income taxes, tariff rates would have to be incredibly high on a small base of imports, and as tax rates rise, the base itself shrinks as revenue declines, making Trump’s 2 trillion “You won’t be able to achieve your dollar goals.”
And I didn’t even consider it…
good discussion here About how Trump’s policies will make the inflation/output balance a real nightmare.
For reference, the U.S. trade balance defined using NIPA data is as follows:
Figure 1: U.S. net exports as a percentage of GDP (blue), NBER defines recession dates from peak to trough in gray. Source: BEA 2024Q1 2nd release and author calculations.
And in terms of policy uncertainty (conservatives used to blame slowing investment and growth):
Figure 2: Economic policy uncertainty (blue, left scale), trade policy uncertainty (tan, right scale). NBER defines recession dates as gray, from peak to trough. Source: FRED, policyuncertainty.com via NBER.
