Doing the Math on Trump’s Economic Impact — ft. Justin Wolfers

Justin Wolfers, professor of public policy and economics at the University of Michigan, joins the show to break down the GOP tax bill, weigh in on the economic toll of the ICE raids, and explain why tariff-driven inflation could be more damaging than typical inflationary pressures. Take a survey to let us know what you think about the show Subscribe to the Prof G Markets newsletter Order "The Algebra of Wealth" out now Subscribe to No Mercy / No Malice Follow Scott on InstagramFollow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:30Speaker 02

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• 1:01Speaker 03

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra. Because it's not just a superior-like beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

• 1:29Scott Galloway?

  Today's number 10. That's a percentage of survey respondents who said sleeping with a teddy bear is a turnoff. Ed, if Adam gave Sally three flowers and one stuffed animal and Kristen gave Sally five flowers and two stuffed animals, what does Sally have, Ed?

• 1:46Scott Galloway?

  Repeat that. She has cancer, Ed. Okay.

• 1:53Speaker 05

  Markets are bigger than us. What you have here is a structural change in the world's distribution. Cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it.

• 2:03Scott Galloway?

  Ah, welcome to Prop G Markets. Ed, how are you? That's a really dark joke.

• 2:09Ed Elson?

  I couldn't tell whether you actually wanted me to try to do the math there. Hence my pause. Yeah, the answer, the answer was clearly no.

• 2:16Scott Galloway?

  Nope, I did not. I'm not Tucker Carlson interviewing Ted Cruz and how many, what, what year was the Persian Empire?

• 2:22Ed Elson?

  What is the population of Latvia? Yeah.

• 2:25Scott Galloway?

  Yeah, I didn't get that. It's so indicative of our discourse that these guys don't want to have a thoughtful conversation around these things. They just want to embarrass each other for clicks. That's where we are.

• 2:36Ed Elson?

  I think a lot of people loved what Tucker did to Ted Cruz in that interview, but to me, it didn't say that Ted Cruz is an idiot or a fool, as a lot of people seem to think. To me, it just said Ted Cruz wasn't equipped to deal with Tucker Carlson and Tucker Carlson's mission was to engage in culture and Ted Cruz couldn't, couldn't handle that.

• 2:55Scott Galloway?

  It says, in my opinion, it's worse than that. It says our culture isn't interested in talking about solutions or having a discourse. It's interested in calling out and embarrassing their perceived enemies. And, and by the way, Ted Cruz does the same thing and he'll say stupid things. I mean, the one thing that did come out of it that I thought was scary that Tucker Carlson did call Ted Cruz out was he said, I feel I'm biblically mandated to protect Israel. And it's like, as somebody who's for Israel, that's not why we want you to be pro-Israel. That's a theocracy.

• 3:26Ed Elson?

  That was crazy.

• 3:27Scott Galloway?

  That's not, you know, a lot of books written a long time ago tell people to do very irrational things and hurt other people. That's not how you run a secular society. But anyways, what's going on with you, Ed?

• 3:39Ed Elson?

  Not much. I think we should get it. We have a big interview coming up, so we should just get it right into this interview with Justin Wolfers, who is kind of a legend from University of Michigan. So I'm gonna, I'm just gonna speedball us along here and let's get right into the episode.

• 3:54Scott Galloway?

  I like it.

• 3:54Ed Elson?

  Here is our conversation with Justin Wolfers, professor of public policy and economics at the University of Michigan. Justin, thank you for joining us for the very first time on Prop G Markets. A pleasure, mate.

• 4:08Ed Elson?

  So you have been a pretty vocal critic of the big beautiful bill. And I read somewhere that you called it a reverse Robin Hood. The bill was revised this week and we're going to get to that. But before that, I'd love if you could first just give us your views on the bill as originally written. What was wrong with it in your view? And what made you call it a reverse Robin Hood?

• 4:32Justin Wolfers?

  I'm not even going to come at the, the, the claim that I'm a critic. I was just describing it. And if I describe it, people come to their own views.

• 4:42Justin Wolfers?

  Look, you can think about, when I teach Econ 101, I teach a budget's three things. It's choices we make over time, choices we make across people, that's redistribution. And a budget's a statement of values. So over time, that's the stuff where we typically call it deficits and surpluses and words like that. Right now, the budget deficit is 6.4% of GDP. To describe that to your listeners, that's the highest that it's been outside of the global financial crisis and COVID. So if your basic logic is that what we should do is stash a bit of money away when times are good, so we can come out with a cash splash and help people when times are rough.

• 5:28Justin Wolfers?

  We're currently spending money as if they're rougher than in any but two recessions since 1950. So there's a whole debate going on on Capitol Hill. Will this next budget increase the deficit or decrease it? That's the wrong argument. The right argument's what's the right level? And the right level is if you think that the economy's kind of okay right now, then we should be a lot closer to a budget balance. Number two is we make choices across people. A budget, everyone puts money into the hat and then the government decides who gets what out of the hat, just like being at church. Um. In this budget, uh, by the time you count tax cuts, tax cuts are overwhelmingly

• 6:13Justin Wolfers?

  going to the wealthy, then you add in spending cuts, they're much smaller, but they're overwhelmingly targeting the programs that hurt the poor, uh, food stamps in particular and health insurance, Medicaid. And then you add in tariffs, tariffs are like a flat tax, but uh, low income people spend a larger share of their income than high income people. So that also takes a big whack out of proportionally out of the paycheck of of low income people. You add all that up and everyone, not only the poorest 10th, in fact, the poorest 80% of Americans, they're going to end up with fewer economic resources as a result of this. If you're between the 80th and the 90th

• 6:53Justin Wolfers?

  percentile, you come out bang on, no change. And if you're in the richest one 10th, you're the one who gets all of those dollars that the bottom 80% are throwing into the hat. The way I heard the story of Robin Hood, it was the exact opposite. He was going after the top 10th to go and help those at the bottom end. So just a very literal level, it's it's an anti Robin Hood.

• 7:15Ed Elson?

  Yeah, I saw that analysis that you did on how this bill would impact each income class in America, and I think it is the most important point. I'd love to hear just a little bit more about that analysis. How did you, how did you reach those conclusions? Um, what went into that analysis that brought that result?

• 7:36Justin Wolfers?

  The way it works in the US is the Congressional Budget Office, a nonpartisan, public sector organization, its job is to take any time there's a spending bill and cost it out. And they also have these sort of models that sort of say, if your family looks like this, if your income looks like this, uh, what sorts of programs would you get and so on. And so, you know, the the mathematics of that side of things is as simple as who gets food stamps. It's pretty clear that that's going to be low income folks, not high income folks. Separately, whenever we have tax bills, the Joint Committee on Taxation. Is meant to score them and it sort of looks at all of these things.

• 8:18Justin Wolfers?

  And you know, the biggest part of this tax bill is extending the Trump tax cuts. The Trump tax cuts were predominantly at high income families. So if we do it for another decade, it's once again going to help high income families. So that's what the Joint Committee on Taxation did. Let me say they're not only nonpartisan, historically, these groups were attacked by neither side of politics. They take turns at appointing who's in charge. And in fact, the guy in charge of the CBO, Phil Swagel, is a former Bush appointee. And so a moderate Republican. So I prefer to call these nonpartisan. There's been a silly game right now in Washington of Republicans suddenly pretending that these guys are twisting the truth.

• 9:01Justin Wolfers?

  The same sorts of analyses are also done all up and down Mass Ave, which is where the think tanks live. And so even the centre right think tanks are coming to very similar conclusions as the nonpartisan scorekeepers. We can start to hit the set of left think tanks and they say the same thing again. Everyone's singing from the same hymn book. And then the final part of this analysis, which is important, is the reconciliation bill. That's to say the budget that's been passed has nothing to do with tariffs. That's because of all this weird procedural stuff that people in Washington care a lot about. The tariffs are coming in through executive orders, so they're not part of the budget. But they're certainly part of our lives. And so the folks at the Yale Budget Lab looked at who pays tariffs.

• 9:44Justin Wolfers?

  And it really is as simple as who spends, how much of their income and how much of that is spent on imports versus other goods. You can only be so detailed, so they're probably not looking at steel and aluminium used by household. But nonetheless, it's a pretty good estimate. And what you find there, again, it's the simple logic of sales taxes. Sales taxes tend to hurt those who spend more of their money and a tariff is a form of a sales tax. So the only part of this I did was adding it up, addition. And that's where you get to this claim that the budget package, including tariffs as a whole, will hurt 80% of Americans and help the richest one tenth.

• 10:23Scott Galloway?

  The deficit, estimates are, I think the congressional, the CBO said two and three quarter trillion in addition to the deficit. Other nonpartisan agencies have said it's closer to four trillion.

• 10:36Scott Galloway?

  At what point, you know, we're not as, our debt to GDP isn't as great as Japan or the UK, but it's greater than most G7 countries. At what point do you think the deficits begin to matter? Because so far, I think you'd argue they haven't really. And the bond market is making some noises that they're worried about this. But I wouldn't describe it as, I mean, it's been, there have been spikes that have been pretty dramatic. But is this, in your mind, distinctive morality here? Just talking straight about the credit markets and when the deficits aren't a problem until they become a problem. Do you think this is the tipping point where our deficits might take our economy into sort

• 11:18Scott Galloway?

  of a very difficult downward spiral that's hard to snap out of?

• 11:22Justin Wolfers?

  So first of all, I just want to get the facts out there. The facts are that this budget has about $4 trillion in tax cuts and about $1 trillion in spending cuts. And so the rest is simple arithmetic. That then says that that's going to cost the budget about $3 trillion.

• 11:38Scott Galloway?

  And some of these spending cuts may never actually happen, right?

• 11:41Justin Wolfers?

  Yes, and it's worse than that again, which is a lot of the tax cuts, there's this gimmick that's worth, I'm going to talk about everything to the nearest trillion. This is how crazy it is. There's a gimmick, which is a lot of the tax cuts, tax cuts till the end of the Trump administration. And then the way they score it is that the law says, and then they go away. But we know exactly what happens in four years' time, which is they're going to say, well, we can't have a tax hike, therefore they're going to have to come back. And so there's another trillion or so in gimmicks right there. That's just an accounting gimmick. The Republican answer to this has been, yes, but the tax cuts will spur so much growth that in fact they pay for themselves. This is a lie on its face.

• 12:26Justin Wolfers?

  If you go to center-right independent scorers like the Tax Foundation, so no friend of Democrats. If you go to the Congressional Budget Office, if you go to the Penn Wharton Budget Model, also run by a former Bush appointee, they say maybe you'll get a quarter or a half a trillion back from increased economic growth. For your audience, we've seen this movie before, it just doesn't work. Reagan told this story, Bush told this story, Trump told the story in the first term. Here's this weird fact, if you cut taxes, you cut tax revenues, simple as that. There are offsets, they're relatively small. Anyone who tells you they pay for themselves is lying to you and almost certainly lying to themselves.

• 13:11Justin Wolfers?

  There's not a credible economist on planet Earth who believes these tax cuts pay for themselves. So if you run a deficit this big, what are the problems? I think the first problem is what happens if there's a new Covid, a new financial crisis, an oil price shock, a war. Something that causes the economy to go south, as it does, you know, with a one in seven chance every year. There's less of what economists call fiscal headroom, which is to say, it's harder to go out there and spend a bunch of money if your deficit is already really, really big. You might find it hard to raise the money, you might not think it's prudent. And so what that means is our ability to counter the next economic shock is substantially diminished.

• 13:52Justin Wolfers?

  That's not as drastic as you were describing, Scott, but to me, it's a really fricking big deal. So then you're asking, what happens to the debt? Of course, deficits accumulate and add to our national debt. The more money you borrow, the higher your interest payments. If you spend all your money on your house, on your mortgage repayments, there's less money to send your kid to college, to go out, to have fun. Same thing applies to governments. It's a little worse than that. The more you go into debt, the more others worry that you can't repay your debt, and therefore they jack up interest rates. That also happens when you get a second mortgage on your house.

• 14:36Justin Wolfers?

  A reasonable estimate from the Congressional Budget Office is every time we raise the debt to GDP ratio by one percentage point, interest rates go up by one fiftieth of a percentage point. That doesn't sound so bad. But on some of the current projections, we could be within a couple of decades raising the debt to GDP ratio by 25 to 50 percentage points, which would raise the interest rate we pay on our debt by half to 1%. Now, the thing is, when you owe a lot of money and your interest rate goes up by one percentage point, your mortgage payment goes up a lot. Folks at home will know that from thinking about their mortgage payments.

• 15:17Justin Wolfers?

  Well, when you owe thirty trillion dollars and your mortgage payment goes up by one percentage point, that adds to your spending by about three hundred billion dollars a year. Now, billions and trillions are really hard to keep track of, so let me come back and put it in a different perspective. The president is claiming that one of the most important things he's doing is raising revenue through tariffs. If he's successful, he'll raise about three hundred billion a year in tariffs. That's exactly how much the interest rate would go up if the interest rate we're charged on government debt were to rise by one percentage point. So it's a big chunk of change.

• 15:54Justin Wolfers?

  The more cataclysmic thing, and I know there's been a long answer, that you've been worried about there, Scott, is things in a country like Japan are okay, which is Japan keeps being able to repay its debt, therefore it's seen as safe, therefore everyone charges it a low interest rate, therefore it can repay its debt. That's what we call the good equilibrium. There's an unhappy equilibrium that exists out there as well, in which folks worry you can't repay your debt, so therefore they jack up your interest rate. Once they jack up your interest rate, now you can't repay your debt, and that becomes a self fulfilling prophecy. If you think that sounds like a fantasy, ask Greece about this, ask Argentina about this, this happens. And so that's the cataclysmic possibility.

• 16:36Justin Wolfers?

  I'm not sort of super worried about that right now, but this is, I think, the really important reason to always be a little bit worried about what's going on with your debt. Taking on student loan debt to go to college can be a good idea or a bad idea, in the same way national debt can be a good idea or a bad idea. If you take on forty thousand dollars worth of debt and turn up to the University of Michigan and never go to class and drink beer and go to football games, you've set yourself up to be repaying your student debt every week for the rest of your life, and it's going to be a somewhat miserable life because you'll also learn nothing at college and you haven't got, you're not going to be earning those high wages that most students go on to earn. That's a terrible reason for going into debt.

• 17:19Justin Wolfers?

  If you go into debt to come to the University of Michigan, take my class, take a lot of other classes, launch your career, and you're launching a career, economics graduates on average earn more than a million dollars more over the course of their lifetime than non-graduates, then that was a wonderful investment. You'll find it very easy to repay those debts. And so when you're thinking about government debt, the question is, is this more like spending on beer and Skittles, or is this more like investing in your education? So spending on a military parade, beer and Skittles, spending on early childhood education, it turns out that yields such enormous returns, it actually yields more in future taxes than it costs to do. So really, as much as we economists want to confuse people, I think

• 18:03Justin Wolfers?

  the most powerful thing is to think about it line by line, is this useful and worth repaying, or is this a waste of money?

• 18:11Scott Galloway?

  When I think about sane fiscal policy, at some point, there needs to be an adult in the room. And say there was, and one of the things that's really disappointing me about the Democratic Party is that I think they should come up with their own counterproposal to this tax bill. But nobody wants to have an adult conversation. And assuming that part of that adult conversation is that we need to raise revenues, which is Latin for raise taxes. Ideally, you want to tax it as the least taxing possible, right? You know, I think if you were to tax, all of a sudden come up with taxes on people making less than $50,000 a year, that would probably be pretty taxing on society.

• 18:53Scott Galloway?

  In your viewpoint, if you were advising the White House and said, okay, we've got to raise at least a trillion dollars in additional revenue right now, what taxation scheme or taxation policies do you think would be the least taxing on the economy and its citizenry?

• 19:11Justin Wolfers?

  So raising taxes is good because it raises revenue, and it's bad because it creates disincentives, right? If you want less of something, you tax it. When we tax income, we're taxing work, and so people are going to do less of it. And so then the question, when you're saying what's the least taxing, is who really needs or who would benefit from sharper incentives to work? And who wouldn't?

• 19:35Justin Wolfers?

  Pull back a lot. So the logic of the anti Robin Hood is there's an elite 10% out there. And if only we would reduce their taxes, that would unleash all sorts of creativity and they'd finally start working again. Those Silicon Valley entrepreneurs who don't work very hard, they'd suddenly work twice as hard because they get to keep an extra 10%. I've met those guys. They kind of seem to me like they work really hard and that money, you know, that if they get to keep another few percentage points, it's not going to make a big difference. So if I were to think about who needs a sharper incentive, I'd be pushing further down to the working middle class, particularly because some of these things interact with welfare programs and the like.

• 20:20Scott Galloway?

  Professor, can I just press pause there because I want to reinforce your point? I spoke in front of this congressional caucus and I said, I uploaded my tax form to GPT and I'm going to save somewhere between 400,000 and 1.2 million in taxes this year. And one of the Republicans weighed in and said, well, okay, stop being so self-hating and a populist. You're a productive citizen. You'll put that good money to work and we need people, we need to draw more people into the job creation machine that is small and medium sized business. We need to incentivize people to reinvest and start small business. And my response, and I have some, you know, this is anecdotal evidence, but I'm pretty confident

• 21:03Scott Galloway?

  in it. For the life of me, I know no entrepreneur, including myself, that has ever had any fucking idea what the tax rates are when we start a business. That is not what motivates us to start a business. There is, I do not see any correlation. I did not start when Trump cut taxes or Bush cut taxes, I did not think, okay, now I'm going to go be an entrepreneur. And if all of a sudden 1202 is done away with, and I don't get to take the first 10 million out tax free, that is not going to dissuade me from, from starting a business. I see no correlation between low tax rates. And an increased incentive to start small businesses. That is not why entrepreneurs start businesses. Anyway, excuse the interruption.

• 21:47Justin Wolfers?

  I want to now take your point and go a step further, which is you described one end of the income distribution. Let's come back because there is a group that talks about this. Mums and dads sitting around the kitchen table who are trying to decide, can we afford the childcare for, say, mum to go back into the workforce? Once I take on the cost of buying a car to get to and from work, the cost of childcare, taxes, any benefits I no longer qualify for. Lots of families there are discovering that work isn't worth it. That's the point about who needs these sharper incentives. It is actually, and I want to say actually more working class than middle class families.

• 22:24Ed Elson?

  I'd like to go over some of these revisions to the bill, which were released this week. So the revisions include this reduction to the SALT deduction cap, a slowdown on this clean energy credit crackdown. They want to sort of slow that down. So that would be sort of a semi win for the Democrats. But also more cuts to Medicaid, more spending cuts. From what I gather, none of it fixes any of what you just talked about. But I want to clarify if I'm wrong. And perhaps you can take us through what these revisions will actually do.

• 23:03Justin Wolfers?

  The Senate bill is 95% the same as the House bill. So we could spend our time talking about the 5% or we could really help people understand the 95% that overlaps. And so that's sort of the point, which is there's a bunch of people in Washington who are paid, who have to track this stuff line by line and day by day. And at a deep level, it matters. There's billions of dollars on the line. But the really important thing for folks at home is the stuff where there's trillions of dollars online. So Ed, my response to your question is, well, taking good fun, yawn, and let's go back and remember, blowing out the deficit, redistributing huge amounts from poor to rich,

• 23:47Justin Wolfers?

  fewer government services for folks who need them. Is this what people want?

• 23:53Ed Elson?

  We'll be right back. If you're enjoying the show so far, be sure to give Profiteam Markets a follow wherever you get your podcasts.

• 24:07Speaker 00

  Flowing ad budget on metrics that look great till the CFO sees them? That's bull spend and marketers are calling it out in Dashboard Confessions.

• 24:17Speaker 01

  I remember telling my boss, "It'll be good for the brand," when leads were slow. Yeah, it wasn't.

• 24:24Speaker 00

  Cut the bull spend. LinkedIn lets you target by company, job title, and more. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to LinkedIn.com/campaign. Terms and conditions apply.

• 24:38Speaker 02

  Energía baja, falta de concentración, nebla mental? You might be dehydrated. Gatorade Zero Powders han sido diseñados científicamente para ayudarte a mejorar el balance de hidratación en el cuerpo. Hechos con la mezcla número uno de electrolitos, sin colores ni sabores artificiales. Shop now online or at retailers nationwide. Gatorade: Hydrates Better Than Water. Is it in you? Signos de dehidratación leve y moderada. Consulta a tu médico si los síntomas persisten.

• 25:08Speaker 03

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an Ultra. Because it's not just a superior life beer. It's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch InBev. Michelob Ultra Beer, St. Louis, Missouri.

• 25:44Ed Elson?

  We're back with Profitey Markets. So these ICE raids were all over the news. We saw these riots in LA. Trump later decided to pause those raids.

• 25:55Ed Elson?

  Just from an economist's perspective, what has been your reaction to, one, the ICE raids, but also just the immigration conversation in general and the prospect of these mass deportations? Let's, you know, set aside what we think of the morality or the politics of it all. But let's look at it from an economics perspective. What do you make of it all?

• 26:17Justin Wolfers?

  No good economist ever sets aside morality.

• 26:21Justin Wolfers?

  There's no point in raising GDP if you do it in a way that makes people miserable or that's immoral. So I just want to say I'm never ever going to put that aside. Yeah. Having said that, and as an immigrant myself, I want to get all the cards on the table. That's good. I was testing you.

• 26:41Justin Wolfers?

  If I may, Ed, I just want to spend a moment teaching how to think about the economics of immigration, because I think it gives a useful insight. So imagine my child, my oldest is now 15, but let's go back 15 years. There was a day young Matilda was born, one more person in the United States. On that same day, another child entered the United States from another country, maybe without papers. They're both going to grow up. They're both children. They're both going to go to school. They're both going to work. They're both going to produce stuff. They're also both going to consume stuff. So I don't know

• 27:23Justin Wolfers?

  who you want to call this other kid. Let's call it Jose, right? So Matilda and Jose. Matilda and Jose are both going to live noble lives. They're both going to live productive lives and they're both going to be consumers. In the language of economics, they're both going to be demand and supply. So this tells me, if you're against Jose, I don't understand why you're not also against Matilda. If you think that Jose has adverse economic consequences and he's coming for your job, so is Matilda and she's an American. So the point is, once you realize the starting point, and this is a very human starting point, an immigrant

• 28:03Justin Wolfers?

  is a person, but so is a natural born American. This is not a moral statement. This is, they both have the same role in our economics. They buy stuff and they sell stuff. So when people talk about really adverse consequences of immigration, it's almost always because they're thinking about Jose works, but they don't realize that Jose also buys stuff.

• 28:27Justin Wolfers?

  And they think about Matilda as having done both. So they're not understanding immigrants are both demand and supply. The implication of all of this is actually pretty straightforward. It says you can have a country that has a lot of people and it's pretty successful. That's what the United States is, just like you could have a country that doesn't have very many people and is very successful. That's what Australia is.

• 28:49Justin Wolfers?

  So to a first order, and I understand I haven't taken everything into account yet, but to a first order, immigration is neither a huge threat nor a huge boom to the United States.

• 29:03Justin Wolfers?

  So now we can start to get into the complications and I can go into as many complications as you want, Ed, it's a question of how long you want me to yammer for. So let's say Jose came into the country at age 20. The thing is, Matilda, my daughter, went through the public education system and got $20,000 a year worth of tax subsidies for 20 years to be a fully educated adult. If Jose came in at age 20, we didn't pay any of that. So therefore, the fiscal, fiscally, Matilda is worse for the American people than Jose.

• 29:39Justin Wolfers?

  If Jose came into the country at age 65, that's when people start to draw on public, on a lot of our social services.

• 29:47Justin Wolfers?

  Then that's when you start to be really expensive, right? And so that would be more fiscally costly than someone, Matilda, if she'd gone all the way through life, spending a lot on taxes and so on, right? Now, one more thing, if Jose doesn't have papers, he'll go through his life actually paying social security taxes. About half of all immigrants actually pay social security taxes on fake numbers. But you can't get paid social security on a fake number. So he will have done all the spending and get nothing out. And therefore, he's in fact subsidizing the social security of the rest of us.

• 30:22Scott Galloway?

  Just along the lines of the immigration, I was fascinated. Milton Friedman once said something and it kind of fits to what you're talking about. I don't think Democrats or Republicans have a problem with ICE showing up to prisons and taking convicted criminals and deporting them. I think pretty much that's bipartisan support. But when you see them raiding Home Depots and schools and churches, you think, well, that's kind of telling that people who have jobs and are working and going to church and school are those really the people we want to kick out. And it reminds me of what Milton Friedman said maybe 30, 40, 50 years ago. He said, "The dirty secret of immigration is while a lot of Americans will say that immigration is the secret to our

• 31:01Scott Galloway?

  success," he said, "the most profitable part of immigration is illegal immigration." And it got me thinking, okay, to your point, these folks come in, they pay taxes, but they don't collect social services. They're actually less inclined to call the police or have the police called on them. They commit crimes at a lower rate than domestic citizens. And when the work dries up, there's this flexible workforce that melts back to Latin America or Central America, that this is the most profitable, flexible workforce in history, that this is, it's not immigrate, not only does immigration make us stronger, but illegal immigration, there's a reason we have ignored it for so long, and that

• 31:46Scott Galloway?

  is it is exceptionally profitable.

• 31:49Ed Elson?

  And why it was advocated for by the Republicans. I mean, to be clear, I'm not advocating for it, but this was, this was kind of a lot of Reagan's idea, too.

• 31:58Justin Wolfers?

  So there's so many moral issues when it comes to folks who work without papers. So I find it hard to be either for or against. Let me actually just, I want to pick up on one interesting part of the economics of all of this. The ICE raids now mean that the employer of undocumented workers can threaten them even more. I'm going to pay you $2 an hour, or I'm calling ICE.

• 32:30Justin Wolfers?

  That means, of course, now these folks are actually an even greater competitive threat to working class natives.

• 32:41Justin Wolfers?

  So if there were no ICE, they wouldn't be able to undercut working class natives.

• 32:49Justin Wolfers?

  The threat of ICE gives the employer greater bargaining power against one set of low-income workers, illegal immigrants, but not against another. And so the enhancement of ICE raids and the like may end up really hurting American natives.

• 33:08Ed Elson?

  I don't think any of what we're saying is something to be celebrated, though. And I get that we're sort of moving away from the economics of it, but what we're kind of describing is a more profitable class of citizen because it's treated as a subclass of citizen, i.e. not a citizen. And we're saying, oh, it's great. I just don't love the argument of illegal immigration is great because we don't have to pay them their social security and give them the same rights as every other American.

• 33:36Justin Wolfers?

  I found everything Scott said fascinating and didn't want to be drawn into agreeing. Even as much of what Scott said may be empirically true, the moral issues involved are pretty profound.

• 33:49Ed Elson?

  The trouble is the argument that is being made, and the reason we're making this point is to debunk the argument on why illegal immigration is so bad. It's destroying our economy. No, it's not destroying our economy. That's not the problem here because of all the reasons we just described. But yeah, I did want to get your reaction to whether or not you agree with it because I know my position. I don't want to sit as a subclass of American who doesn't get their social security because they're an illegal immigrant.

• 34:20Justin Wolfers?

  There are two really important moral arguments that also both deserve respect. So if someone's here without papers, their founding act as an American was to break the law. That seems important.

• 34:33Ed Elson?

  Yeah.

• 34:33Justin Wolfers?

  If someone has been raised here since age three...

• 34:38Justin Wolfers?

  The idea that they're founding actors in America and was to break the law is absurd.

• 34:42Ed Elson?

  Yeah, it's an important distinction. I assume that you think tariffs are bad for our economy. If you want to qualify that, go ahead. So I'm just going to assume that you think it's bad. The only other argument then for tariffs has been that it is a negotiating tactic to make deals. From my understanding, we don't have any deals. And if we do have a deal, it doesn't mean anything and it is purely symbolic. That is my view on our current deal situation. So I'll ask from from your side of things. Am I correct in that assessment? Or is there something that maybe we've achieved that I'm overlooking?

• 35:23Justin Wolfers?

  Let me start with your assumption. You said, I assume that you think tariffs are bad. Doesn't matter what I think on that, because even if I thought they were good, chaotic tariffs set at absurd rates that change every second or third day are bad. You could be pro tariff and still think that the way that they've been implemented is absurd on its face. And that you've increased business uncertainty to levels higher than seen during COVID, which is an extraordinary achievement and one that really ought to be applauded. No, it shouldn't. So I don't even need to win the argument whether tariffs are good

• 36:06Justin Wolfers?

  or bad. These tariffs and the way they've gone about them are terrible. Okay, so then there's the question, well, even what role might they play? Might they play a role as a negotiating tactic in order to get leverage? When President Trump wants leverage over President Xi of China, he could first of all impose a 145% tariff on Americans who import stuff from China, and then meet with President Xi. Or he could just meet with President Xi and say, by the way, I have the ability to raise tariffs to 145%. Which one of those gives you more leverage? I think they're identical. The only thing that's

• 36:48Justin Wolfers?

  different is that in the path that Trump chose, he implemented chaotic tariffs that have hurt Americans enormously.

• 36:57Justin Wolfers?

  Second thing when you're thinking about leverage. Leverage is a lot easier to think about if you think what we're doing is tariffing China. But we're not. We're putting a tariff on Americans who buy goods from China. And I think the mental model lots of people have in the back of their mind is, you know, we send them soybeans and they send us iPhones. But that's not the reality. The reality is that trade is a lot in intermediate inputs. That in order for an iPhone to get built, an idea goes over there and then we get chips from over here and then this tiny screws go in in China and so on. Once you realize that, then you start to look at what we actually import from China. What we import is a tremendous amount of equipment.

• 37:41Justin Wolfers?

  Tradesmen, for instance, a lot of their tools are coming from China. Some are coming from Germany still. And so putting a tariff on China actually turns out to be a tariff on the inputs that American businesses need. And if that's the case, then what we're doing is we're making it so that every business in the world can get access to low cost inputs from China, except America. Where as of now, the tariff rate's 30%. So Americans and only American businesses have to pay a 30% upcharge on inputs. How does this link back to leverage? Saying I could put a tariff on China isn't much leverage if the leverage is I could destroy the standing of American business.

• 38:23Justin Wolfers?

  You know, I could punch my people in the face is not really a great way to get a deal from someone else, particularly someone else who'd be just as happy to punch your people in the face. So let's go back. In reality, what Trump announced on Liberation Day was a bunch of tariffs and he was telling us how he was going to spend the money. So he wanted tariffs. Over the ensuing seven days, what happened was everyone called the White House. Markets tanked all around the world. Every business called the White House and said, this is crazy. The formula they used to set the tariffs was revealed as absurd and the poor penguins on the herd in McDonald Islands were left wondering what they'd done wrong.

• 39:00Ed Elson?

  I always forget about the penguins.

• 39:04Justin Wolfers?

  Well, the White House doesn't, which is important. So what subsequently happened was Trump changed. That was his off-ramp. He wanted tariffs. It exploded. So he said, I'm just kidding. I don't want tariffs. I want bargaining power.

• 39:22Justin Wolfers?

  So then he says, I can get 90 days, I'm going to negotiate with everyone. So as of 48 hours ago, it was definitely the case that he had negotiated zero deals. The two ones we're talking about were what happened with China. So what happened with China was Trump put special tariffs on China, China retaliated, Trump retaliated and on and on they went until tariffs hit 125 and 145% respectively, which is basically an embargo. So they had a meeting about six weeks ago in Geneva where they said, this is crazy. And so the outcome of that meeting was a pause on the retaliatory tariffs for 90 days. That's a movie we've seen before. And a framework for future discussions that might lead to future agreements.

• 40:07Ed Elson?

  That sounds like not a deal to me.

• 40:08Justin Wolfers?

  Correct. Then what happened was Trump stopped giving visas to Chinese students, put export controls on American AI chips. The Chinese slow walked export licenses for rare earth minerals. So they each thought that they weren't getting on. So then they had another meeting, this time in London. And the end of that meeting, they agreed that the old agreement was still their new agreement. So they agreed to agree that they previously agreed and what they agreed, they still agreed. So it's still not a deal.

• 40:43Justin Wolfers?

  England was, sorry, the United Kingdom was the other deal. There was a big fanfare in which Trump said, we've got 10% tariffs, put that in 96 point font.

• 40:53Justin Wolfers?

  So there's no deal in that. What there was was in 6.50 little asterisks. That little asterisk said, we'll give you a few carve outs and you'll give us a few carve outs. But the bottom of page, one of that agreement said, this is not a legally binding deal. Now, yesterday at the G7, Keir Starmer and President Trump claimed that they'd signed a deal.

• 41:14Justin Wolfers?

  They haven't released the text of the deal.

• 41:17Justin Wolfers?

  I'll let you decide what that means. But the president did institute an executive order which does say that the Brits can now send 100,000 cars into the United States at a lower tariff rate. And that's that's literally happening. By the way, which cars do we import from the United Kingdom? Rolls Royces, Bentleys, Jaguars, Aston Martins and Land Rovers. But there is a handout for the middle class. Actually, the upper middle class minis, which in fact are very expensive car. Oh, yeah. So we've got a little bit of welfare for the Mar-a-Lago parking lot built into that. But we still haven't said that's the only thing. Steel and aluminium were the key parts of that deal. But the executive order from the White House yesterday said we're still going to work that out.

• 42:02Justin Wolfers?

  So you either count that as one deal, zero or point two of a deal.

• 42:08Justin Wolfers?

  We're still a long way from 90 in 90 days.

• 42:12Justin Wolfers?

  Stay with us.

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• 43:56Ed Elson?

  We're back with Prof G Markets. I have predicted on this podcast that because of the tariffs, we are going to see inflation, but it's going to come probably in the fall or by Christmas at the latest. And the reason I've been saying that is because I've been seeing all this stuff from Scott Besson, who's pointing to these recent CPI reports, specifically the one in April where inflation came down. And he's saying, look, tariffs don't raise prices. And I keep on trying to make the point that they wouldn't have raised prices by now. But that seems to not be something that anyone is really arguing. I mean, it's a very simple point that I feel like needs to be made and clarified if it's true.

• 44:40Ed Elson?

  So I'd like to get your view on this. Would you agree with my thesis that inflation is coming because of tariffs, but is going to come sometime in the fall?

• 44:48Justin Wolfers?

  Yes, and okay. So first of all, we all got in really bad habits during the pandemic for thinking about how business cycles play out. Because basically the pandemic, we shut down and all the economic indicators went south two weeks later. And so we're used to the idea, something happens, we see it the next day. And apart from 2020, 2021, that's not how economies work. It's always a slow burn. And in fact, we're going to be talking about this for months to come. And I'm sorry to say that to you. Now, we do actually have some indicators. There's a fellow at Harvard Business School, Alberto Cavallo, who collects his own data from department stores online. And he has daily data on what's going on.

• 45:30Justin Wolfers?

  And so what you do see is some movement, particularly in goods that come from China upward. The movement so far is relatively small, but it's started. How much longer could this take? If you look at historical episodes of inflation, how long does it take higher costs to feed through into higher prices? You're absolutely right, Ed, to say historical episodes say it should take months.

• 45:51Justin Wolfers?

  Now, you might say maybe this time should be faster because the tariffs were sort of announced well ahead of time and everyone's had ever since November 2024 to get prepared for this. On the flip side, if I were running a business right now, I would find it very hard to know how much to raise my prices by because tariffs appear to be changing every day and I just don't know what to do and maybe I'd be frozen in place. But I actually want to make a more subtle point, if I may. The extent of inflation coming from the tariffs will be smaller than many people expect, but more painful. Let me take those two points in turn. The smaller, we import about one sixth of GDP and let's say tariffs would be, just to make the math easier, 24%, so

• 46:35Justin Wolfers?

  one sixth of 24% is 4%. That would suggest that in the long run, the price level will be 4% higher.

• 46:43Justin Wolfers?

  So that could play out over a couple of years. So that could be 2% per year. That's your point. It'd play out slowly. It might be quicker, it might be slower, who knows? And these are all just round numbers, right? But that's nothing like what we saw during COVID when inflation went from 2% to 9%, right? It's annoying and it's frustrating. Now, here's the important point. Even if the inflation is relatively smaller, it's much more painful. Look, so here's what normally happens during an inflation. Prices rise. Because prices of everything rise, that includes prices of the stuff that I make. So that means my wage may not have risen yet, but and my boss is selling what I make

• 47:25Justin Wolfers?

  at a higher price. My boss is super profitable. My boss understands they're making a lot of money out of me. My boss has a lot of extra cash. My boss now will offer me a pay rise. So prices rise and then wages rise to catch up. And in fact, our standard way of thinking about economics says if prices rise by 10%, wages will rise to catch up in most cases, right? What's annoying therefore is sometimes prices rise and it takes a year or two for your wage to catch up. And that's a lot of the pain that people felt during the pandemic. Yes. But mostly people's purchasing power is caught up.

• 48:00Justin Wolfers?

  Here's the thing. If tariffs rise, your boss's costs rose, so therefore they raise their prices.

• 48:09Justin Wolfers?

  But there's no money left over from the boss. He doesn't have a bigger pot of gold left. What you're making is not making more money from. There's no reason for your boss to offer you a pay raise at this point. So prices rise and wages never catch up. So now what I want you to do is come back and realise what happened during Covid was prices rose by seven percent and most people caught up by within a year or two. Here we're talking about prices rising by four percent, but you never catch up. And all of a sudden you see how this could be 20 times more painful. So the problem here is not so much the inflation part, but it's that the inflation won't lead to offsetting wage rises.

• 48:52Justin Wolfers?

  And so therefore it's what we economists would call a cut in real wages. The point here is that a tariff fuelled inflation is different than our standard ways of thinking about inflation. Different and more painful.

• 49:03Ed Elson?

  Have tariffs ever been a good idea? And that is, is there any historical precedent or argument as to why they work? And why they are good for an economy?

• 49:15Justin Wolfers?

  The most important idea in all of economics is not competition, but cooperation. If I work with someone else, if we split the tasks so that you can do the ones you're good at and I can do the ones I'm good at, then between us, we can produce more. That's cooperation, right? That explains why my life as someone with a romantic partner is better than when I'm living alone. My partner, she's terrific. We do lots of things together. We raise kids together, we go out together. But also like she does the taxes, I'm terrible at taxes and I look after the wifi. She's terrible at technology. And by each specialising in the tasks we're best at, we produce more together. That's the idea of cooperation.

• 49:59Ed Elson?

  Yes.

• 50:00Justin Wolfers?

  Now you can take my household and let's take my house and put it on the US Canadian border. So now she sleeps on the Canadian side and I sleep on the American side. Now we're still cooperating, but now we call it international trade. It's still just as beneficial, even if there's an invisible line going through the middle of my house. But if we were to impose tariffs, then all of a sudden that reallocation of tasks means we'd have to trade back and forward. And those tariffs, which are a tax, would prevent us from doing that. So then my life would be a lot more like being a single bloke. I'd eat the crappy meals that I cook. I would have to do the tasks that I'm terrible at, like doing my own taxes. I wouldn't be able to specialise in what I'm good at.

• 50:42Justin Wolfers?

  So the general idea is tariffs are a tax on trade. Trade is a way we cooperate. The president, of course, doesn't think that way because he thinks instead, as many people do about competition.

• 50:55Justin Wolfers?

  So I'm talking about how do we grow the pie? He's saying, no, the pie is a fixed slice. How do I get my slice a little bigger? But that whole point of economics is growing the pie. The underlying ideas are all about that. Okay, so when might tariffs be a good idea? So in the early years of the United States, the federal government did not have many taxing powers. The income tax belonged to the states.

• 51:19Justin Wolfers?

  So the only way they could raise money was tariffs. Raising money through tariffs to fund an army is probably better than having no army.

• 51:29Justin Wolfers?

  Giving the federal government powers to have more efficient forms of taxation is of course much better than having tariffs, which is ultimately what the United States decided.

• 51:41Justin Wolfers?

  There are obviously cases of national security where you would want to produce stuff domestically, right? I mean the following metaphorically, but we should make our own bombs rather than having Russia make bombs and we buy them. Because as soon as we need them, they'd stop selling them to us. That's a totally coherent argument. The problem is how far it gets taken. So there are periods of time in American history where US watchmakers demanded tariffs because they argued that watches were essential to national security. And in fact, there's a stream of this argument through republican thought right now. The argument is we need to re-industrialise. We need to make stuff in America.

• 52:23Justin Wolfers?

  We need to make it so that we can defend ourselves in order to defend our national security. This is an argument, we need anything to prop up manufacturing because it's the only industry that matters for national security. I think this argument's totally upside down. So why do we want tariffs on leather saddles? We're not going into battle on horses. So there are small segments of manufacturing where this might make sense, but large segments where it doesn't. And more to the point, if you wanted to have the best fighting force in the world, I have a feeling that what you really want is research on machine learning and artificial intelligence and video monitoring and all these things that are services, not manufacturing.

• 53:06Ed Elson?

  Exactly.

• 53:07Justin Wolfers?

  But I do think that there's a reasonable, you know, I want to come back. There's a reasonable national security argument. You just want to be thoughtful about how far you take it.

• 53:15Ed Elson?

  I'm glad that you mentioned that point about expanding the pie and the fact that Trump believes that the pie is a fixed size, which that's, I mean, when I was learning economics in college, that was sort of the fundamental learning from taking a macroeconomics class is that contrary to what you might believe based on taking algebra, actually, when it comes to economics, it's all about expanding the global pie. And in other words, economics is not a zero sum game. And I think that's the thing that is so frustrating to watch in terms of Trump's policy is it's not, it's not just with tariffs or economic policy. He seems to view every single interaction in daily life as a zero sum game.

• 53:56Ed Elson?

  There has to be a winner and there has to be a loser and you can bet your ass that I am not going to be the loser in any situation. I'm going to be the winner. And it's, it's, it's a very simple point, but to me, it explains most of his behavior and most of his policy. And I'm glad that we have a renowned economist on here telling us, no, actually it's not a zero sum game.

• 54:19Justin Wolfers?

  Imagine running a sex life that way.

• 54:23Ed Elson?

  I'm sure he views it that way.

• 54:25Justin Wolfers?

  And I'm sure he's been divorced several times.

• 54:28Ed Elson?

  Yeah, exactly. But before we wrap up, I'd love to just hear a little bit more about your career journey. And I'm just going to go over some of the highlights on your resume here. One of the most stacked resumes we've had on the podcast. Professor of economics at University of Michigan, senior fellow at the Peterson Institute, senior fellow at Brookings, regular contributor to the New York Times and the Wall Street Journal. You've written two popular economics textbooks. I see one of them behind you there in your background. I think many who are listening to this podcast might be interested in economics and interested in what you do. What would be your advice to them? And at a more basic

• 55:07Ed Elson?

  level, what sort of drew you to economics? Why is this exciting to you? And why is it worthwhile?

• 55:15Justin Wolfers?

  I was a teenager in Australia in the late 1980s. And we had our equivalent of the 1980, 81 recession in Australia. We had it in 1989, 90, where we dragged inflation down by having a recession. And my high school economics teacher had us remember what the unemployment numbers were, so we could say it out loud on the test. And I had a feeling and an understanding right there. And then those weren't numbers, that they were people. And the numbers were staggeringly large. But every one of those numbers was just every one in a number like 10 million is still a story. And it's a story of someone losing self esteem, self respect,

• 55:55Justin Wolfers?

  a sense of identity, if they become unemployed, if their family finding it harder to make do, if their kids worried that they've got the ugly sneakers on the playground.

• 56:07Justin Wolfers?

  And those stories really mattered to me. And the thing I love about economics is that we get to make that sort of pain a little bit less rare. I think we do.

• 56:19Justin Wolfers?

  The profession does incredibly important work. I want to make a different pitch to your audience, though. I've veered a little in the last few years to become something more of an economics educator. Sometimes it's about talking about the big social issues, which we've done today. Should we have tariffs? How should we run the economy? What should the tax bill be? But it's also the case that microeconomics has taught me a framework for seeing the world that allows me to see it more clearly, I believe. And there's not a day that goes by when I don't use that framework, whether it's thinking about how many children to have, whether to get married, whether to buy a new car, whether to buy a house, how many years of education to have, and on and on and on it goes. It's an unbelievably helpful framework for clear-eyed thinking.

• 57:05Justin Wolfers?

  And so when I teach, instead I teach through that. I want to tell you, I'm not here just to tell you how to run a better society. I think you can use these tools to organize a more productive, fruitful and joyful life. And hopefully you'll discover that this is not just an economics professor full of puff, but that's actually the truth when you read a little more and learn a little more.

• 57:28Ed Elson?

  Justin Wolfers is a professor of public policy and economics at the University of Michigan. He's also a senior fellow with Brookings Institution and the Peterson Institute for International Economics. Professor Wolfers, this was great. I'm so glad we got you on and I hope you join us again soon.

• 57:43Justin Wolfers?

  It's a great pleasure and I look forward to continuing the conversation.

• 57:46Scott Galloway?

  Justin, very much enjoyed this. I need to get back to abusing my illegal immigrant employees.

• 57:54Scott Galloway?

  By the way, you made me feel defensive, you Brooklyn sandaled douche, Ed. I'm trying to figure out the root cause. This is the root cause. That those nice, let me play identity politics, which you and Brooklyn are fond of. Those nice white men who own businesses, who control the government, have decided to turn a blind eye to illegal immigration because they've been making a shit ton of money off of it.

• 58:16Justin Wolfers?

  That I agree with, Scott.

• 58:17Scott Galloway?

  Take that, Justin agrees with me, Ed.

• 58:25Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Mia Silverio is our research lead, Isabella Kinsall is our research associate, Dan Shalan is our associate producer, Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Property Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.