The Morning Rant: Guest Edition [Pete Bog]

After Congress passed the wildly misnamed “Inflation Reduction Act” in August of 2022 I wrote a series of posts explaining why widespread inflation was inevitable. I bring that up for two reasons, first I was right and second the comments on those threads revealed a high level of economic understanding of the topic.

Recently I have been watching the financial media fantasize about the impacts of Trump’s tariff policy. Per the pundits, the new tariff regime will have devastating consequences on the economy, employment and the almost certain onset of “stagflation”, the simultaneous combination of slow or no economic growth and high inflation. I’ve been scratching my head over that one and I’d like to solicit the Horde’s thoughts, whether informed or otherwise.

Here is a snapshot of the current economic situation in the US. For years, including Trump’s first term, the Government deficit has been exploding. In 2025, we are on track to spend about $2.5 trillion more the Government takes. Much of that is paid through the Fed “printing” money and expanding the supply of dollars. That is the reason we have been suffering from inflation for the last several years, and it continues despite the constant redefining of statistical measures to claim inflation is only about 2.5%. Everyone in the real world knows this is Bull. Despite this, the economy has remained surprisingly strong until the last few months as growth has slowed.

The new tariffs will not have the impact prophesized by the media. It is true that the tariffs will cause economic shock as prices adjust to reflect the cost of importing goods to the US. That will be most keenly felt in the mountain of stuff that comes in from China, particularly consumer goods. That shock will be painful, but it seems that it is largely a one-time adjustment, and people will certainly change their consumption to reflect the new pricing. Much of the impact of tariffs will be borne by the Chinese manufacturers because the different tariff rates between countries will result in the production of those goods moving to the spots that can profitably put the goods in our market at the lowest price. This will include US manufacturers over time. Exactly the effect the tariffs are intended to induce.

The other factor that the media is missing entirely is the rapidly increasing impact of Artificial Intelligence on productivity and employment. Even relatively slow to adopt industries such as real estate are seeing massive changes from AI and it is only beginning.

So where is the stagflation?

posted by Open Blogger at 11:00 AM

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