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**MARCH 5, 2025**
On the Prospect website
The State of Donald Trump's Union Is Permanent Culture War
[link removed]
Propose economic fixes? He'd rather refight battles with Biden. BY HAROLD MEYERSON
Elon Musk's Next Potential Self-Enrichment [link removed]
His Starlink internet service could benefit from a proposed Republican fire sale of the government's wireless spectrum. BY DAVID DAYEN
The Case for a Shadow Cabinet [link removed]
High-energy progressives can provide a compelling daily account of everything going wrong and coordinate opposition to the Trump-Musk nightmare. BY KENNY STANCIL
Kuttner on TAP
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**** The Trump Depression
Donald Trump is on track to be the first president to deliberately
engineer a severe depression.
In assessing how past presidents dealt with catastrophic downturns, you might give Herbert Hoover an F, Franklin Roosevelt an A, and Barack Obama a C-. But no other president has gone out of his way to
**create** a collapse.
There are several distinct elements of the coming Trump depression, all cutting in the same direction, all interacting with each other, all needless.
The first is Trump's entirely gratuitous tariff war. Economists are divided on just how much the tariffs on Canada, Mexico, and China will increase inflation, but there is no doubt they will raise consumer and producer prices somewhat. Jared Bernstein has an excellent explainer piece on this [link removed].
Exacerbating the impact of tariffs on Canada and Mexico is the integrated nature of North American production since NAFTA. The Wall Street Journal recently ran
a piece [link removed] explaining how a humble car part, a piston, makes six different border crossings as it goes through several stages of production in the U.S., Canada, and Mexico.
Quite apart from whether this process makes sense, how on Earth do you levy tariffs on each border crossing without slowing down the production chain? It is as if Trump wants to artificially recreate the supply chain crisis of the COVID years.
The tariffs will have several other knock-on effects. They will produce retaliation by Canada and Mexico, which in turn will depress GDP growth. Even a modest uptick in prices will spook the bond market and the Federal Reserve, raising interest rates.
That in turn will spook the stock market. The Dow is down almost 1,400 points in the last two days. A falling stock market feeds on itself, and more is likely to come.
All of this will be bad for
consumer confidence, which had already been plummeting. The Conference Board's Consumer Confidence Index for February, released last week, fell for the third straight month [link removed], marking the largest monthly decline since August 2021.
And when consumers are in a pessimistic mood about the economy, they reduce their spending. Consumer spending in the U.S. dropped 0.2 percent in January-the first monthly decline since March 2023. Spending probably fell even more in February.
What has gotten less attention is the risk of a general implosion in demand, as the result of several other Trump-Musk policies. Trump is about to get a bitter lesson in Keynesian economics, in reverse.
[link removed]
The cuts in government spending and the layoffs of government
employees not only have a direct impact on total demand. Across the economy, institutions from universities to research labs to government contractors have prudently reduced planned outlays because they have no idea whether anticipated government support will materialize.
This is Keynes's famed multiplier, but in the wrong direction. It artificially recreates what occurred after the stock market collapse of October 1929, as layoffs led to more layoffs and the economy went into free fall.
Which raises the question: What in the hell does Trump think he is accomplishing?
I'm guessing that the tariff part of Trump's wreckage is a pure case of Trump's impulsivity and irrational fondness for tariffs. I'm also guessing that there have been frantic back-channel conversations between White House aides and Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, who understand the risks even if Trump doesn't.
Yesterday afternoon, all too predictably, Lutnick told
Fox Business [link removed]: "Both the Mexicans and the Canadians were on the phone with me all day today trying to show that they'll do better, and the president's listening, because you know he's very, very fair and very reasonable. So I think he's going to work something out with them." Good luck with that.
The problem is that it's easier to engineer a crisis of consumer and investor confidence and aggregate demand than it is to undo it. Even if Trump were to come up with some face-saving pretext for once again suspending the tariffs, investors and consumers know that Trump is capable of reversing today's policies on a whim yet again.
Pathetically, Lutnick has talked about revising government indicators of GDP [link removed]. Sorry, but you can tinker with
how you measure GDP, but that doesn't change reality. Even harder to reverse will be the Keynesian multiplier effects of all of the Musk-ordered layoffs and cuts in public spending.
A related key question is whether Trump has any master plan for the economy here, or whether he is just batshit crazy. The evidence is that Trump's effort to destroy the government reflects a certain malign consistency, but that his effort to destroy the economy is based on sheer ignorance and impulsivity.
His economic policy is internally inconsistent, and totally at odds with his political need to tame inflation. He is on track to have the kind of stagflation that did in Jimmy Carter, only far worse-and self-inflicted.
Live by bullshit, perish by bullshit.
Trump has the power to issue commands in the domains that he controls, but he can't command the stock market to levitate, or prices to moderate, or consumers to feel confident, or people who have just been laid off to go out and
shop.
In a couple of weeks, the budget talks will reach the point of an increasingly likely government shutdown [link removed]. Closing the government will be even more of a hit to total demand and consumer and investor confidence.
In agreeing to reopen the government, Democrats are in a good position to demand that Trump reopen the
**whole**government, starting with the parts that Musk has illegally shut down. In the meantime, this engineered crisis is entirely Trump's.
~ ROBERT KUTTNER
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