1) Trumponomics and Inflation: An Economics 101 Tutorial

It seems the whole world and the entire media are hyperventilating over Trump tariffs and their inflationary impact. We even continue to hear The New York Times and many economists like Mark Zandi of Moody's make the contradictory case that Trump's tariffs are inflationary and so are his tax cuts. Hello!! Tax cuts and tax increases can't both cause inflation. 

Inflation is too many dollars chasing too few goods, so anything that increases money puts pressure on consumer prices and anything that increases the supply of goods produced, reduces inflationary pressures. More eggs means lower egg prices. Hard stop. This isn't that complicated. 

So we thought we would review the Trump agenda and assess the impact of these policies on prices:
 

Admittedly, some of these Trump policies will have a small impact on prices and others (tariffs) a major impact. So it's hard to weigh the overall impact on prices. Our best guess is that if Trump tariffs are offset by dollar-for-dollar reductions in income taxes (as he says he will do), the overall effect on prices will be close to neutral, and the overall economic impact mostly positive.

2) Inflation By President

We don't normally like to repeat ourselves in the HOTLINE, so longtime readers with sharp memories may want to skip this item. 

The most fail-safe way to forecast inflation under Trump would be to examine the inflation we saw when he was president the first time. We know our friends in the media are now slapping their palms on their forehead saying: why didn't we think of that?

The chart below shows inflation rates since 2017. Trump's average inflation rate was slightly BELOW the 2% rate the Fed targets.
 

It's instructive, though not statistically significant, that inflation generally went up under presidents who rapidly increased the federal budget, taxes, and regulations - i.e. Nixon, Carter, and Biden - and inflation fell and prosperity returned when the budget was cut and regulatory costs fell: i.e., Reagan, Clinton and Trump. 

No one has ever explained to us why Trump 2.0 will cause inflation when Trump 1.0 didn't.

3) Bessent Takes Over CFPB and Hits the Brakes

Here's some fantastic news.  After firing hyper-regulator Rohit Chopra over the weekend, President Trump gave Treasury Secretary Scott Bessent another hat and made him acting director of the CFPB.

Bessent immediately issued an agency-wide email that said:

In order to promote consistency with the goals of the administration, effective immediately, unless expressly approved by the acting director or required by law, all employees, contractors and other personnel of the Bureau are directed:

• Not to approve or issue any proposed or final rules or formal or informal guidance
   
• To suspend the effective dates of all final rules that have been issued or published but that have not yet become effective
   
• Not to commence, take additional investigative activities related to, or settle enforcement actions
   
• Not to issue public communications of any type, including publication of research papers
   
• Not to approve or execute any material agreements, including related to employee matters or contractors
   
• Not to make or approve filings or appearances by the Bureau in any litigation, other than to seek a pause in proceedings.

This is all music to our ears, but what would really bring a smile to our faces would be if Trump would close the damn thing down entirely. Consumers did fine for 200 years without CFPB snoops. 

That didn't take long.

Justin Trudeau, Canada's Prime Minister, responded to the new Trump tariff threats with a $1.3 billion (Canadian) border plan that won at least a 30-day reprieve from President Trump.
 

Now, Trumponomics may be coming to our northern neighbor. Conservative Leader Pierre Poilievre says if he wins elections later this year, he will implement a seven-point plan to ease government regulations.  

He wants to repeal restrictions on trucking companies, allow doctors, nurses, and engineers to work anywhere in Canada, and award a "free trade bonus" to provinces that drop what the Montreal Economic Institute estimates are 245 barriers to free trade across provincial boundaries.  

"Let's knock them down and let's be a truly free-trading economy ourselves," Poilievre says.

Alberta Premier Danielle Smith is promoting "drill baby drill" and wants to build multiple oil and gas pipelines along with LNG terminals on each coast (projects that are hamstrung by Trudeau's environmental extremism).

Canada's financial newspaper, The National Post, reports: "Canada could more than reverse all the damage Trump's protectionism will have on the economy by getting rid of its own internal protectionism."
 

UP's Tax Cut Victory Alliance is fighting to make the Trump tax cuts permanent. If Congress fails, twice as many family-owned businesses and farms will be hit with the death tax. But this may not raise any money at all.

New research from the American Family Defense Foundation finds that every dollar in death tax revenue is so economically destructive that it reduces nearly five dollars in revenue from other taxes:
 

CLARIFICATION: Yesterday we ran a version of the NAEP test scores chart that needs clarification. The labeling called the 10th percentile scores "poorest students" when "worst students" would have been a better choice. It was not a chart of reading scores by poverty status. Dave Trabert of the Kansas Policy Institute flagged the issue for us and we have posted an update on our website.

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