changegonnacome

The record on this is poor - you protect an industry and shield it from global competition….and like tenured government employee…they become fat, lazy and complacent…domestic consumers pay more and get a poorer product relative to what they could have bought absent tariffs. Bessent has called their plan a re-privatization of the US economy….when you take a step back and think about it….what your doing with tariffs is governmentizing the US economy…putting domestic producers behind artificial walls such that they DONT have to compete in a fully private market. The ‘tell’ on some of this nonsense talk re: non-trade barriers….is this administrations focus on sales taxes in other jurisdictions…and using them as some kind of reciprocal yardstick measure…when everybody knows that sales taxes in Europe, for example, fall on domestic and international producers equally. Making them non-discriminatory re:imports. Crazy stuff.

I think the math is way worse than this….cause I think you need to think about it in terms of incremental GDP growth (above trend) per dollar of deficit spending above 3%. Then layer on real versus nominal. If you take the kinda boilerplate ~2% real figure as the US’s kind of potential growth….what you see is that the deficit spending isn’t really stimulating growth above trend much at all….which is to say the deficit spending has terrible IRR’s…we are borrowing 4% of GDP above normal (3% deficit being normal) to achieve what? 50-75bps of incremental GDP growth above trend line….the math is just horrible on this stimulus spending.

I think the left is in the process of ditching the bananas culture war DEI trans stuff…maybe two or four years won’t be enough to do it.….but they are slowly uniting I think around more traditional leftist dogma….which will be cat nip to voters who come out of a billionaire led economic experiment that drove up prices of everyday things Americans buy, drove up unemployment and drove down GDP growth. I hope I’m wrong but the real cost to this strategy will that….cause right then and there things go to hell in a hand basket. So Trump & crew better have the backbone to either ditch this plan or drive it home with incredible precision and speed.

as @Spekulatius says - DOGE, so far, is a budgetary sideshow...the numbers just aren't truly meaningful in the context of total federal spend........Congress is the body that needs to act here on spendin (not the President). Now I can be kind and construct an argument that perhaps DOGE is creating some austerity movement inside the congressional republican party but I haven't quite seen the rank and file get DOGE religion....look at the CR that just got passed not a dime of change....likewise tariffs may bring in billions....but again....whats done by executive action can be undone by the next executive (as Trump did to Biden EO's). The political timeline is such that the tariff downsides wont have time to be met by tariff upsides. Mark my words the democratic party will run on removing tariffs to reduce prices and I think that will be a winning strategy in years to come......people like cheap flatscreen TVs etc.! As I've said above - Trump, ever the gambler, is engaged in a high risk, high reward strategy...I understand the promised land...but mark my words if it fails (recession/deficit blow out/unemployment) I firmly believe he's likely handed the country over to a populist movement of the left..........AOC etc etc. war against billionaires & business.....and then we are truly screwed IMO....so my quibble with Trump is most likely because of vain glory he's attempting to do in four years....what is really an eight year project....that hubris has an unacceptably high probability of catastrophe....which I've already defined as a reactionary populist left getting their hands on the wheels.

Or should I also say - he gets what I'm saying but is ultimately lying to the relatively poor people who voted for him to fix inflation and get their real wages/purchasing power to rise......what Bessent/Trump isn't telling them is that the tariff price increases come straight away.....and if they're lucky the pharma plant in their neighbourhood where they are all gonna get $150k a year jobs is at best 36 months away (if ever). My issue with Trump 2.0 as it pertains to his economic plan - is he's trading a good economy.......for a theoretical but wholly uncertain 'great' economy.....the plan is radical make no mistake about it.....I sincerely hope it works.....but to me its implementation is too risky & timeline for success too long for a normal political cycle...I've no doubt through his impulsiveness and recklessness he'll also manage to mess up the plan that smart people (like Bessent) have given him......it really risks IMO a tax & spend far left congress & President coming to power in the next cycle which will tip over the fiscal apple cart completely. Beautiful thing is we'll find out in a couple of years......my guess.......unemployment will up, inflation will be up, growth will be down & the trade deficit will shrink (but mainly because American's consumption i.e. living standards have gone down) and for all the talk of fiscal deficits my guess it won't be even 100bps smaller than it today....and a pretty could possibility it'll be higher due to increased medicaid, SNAP & unemployment assistance payments required to paper over the damage tariffs are going to cause to the economy.

Cause he doesn’t get what I just said - and completely overestimates the power of tariffs to effect immediate positive change relative to the negative immediate change …..take for example pharmaceuticals….you slap a 25% tariff on pharma imports from the EU….ok….Pfizer has billions of capex overseas in an Ireland factory producing drug XYZ, they’re trained up a workforce on whatever complex method is used, let’s pretend it’s a biologic…they’ve also had that plant certified by the FDA & the European Medicines Agencies such that the drug can be sold into the EU and USA… approvals that took years to get….the capex has been amortized nicely already on the plant…it probably has an operating expense (all in) that is 30% cheaper than the USA…it’s a literal cash machine….25% tariffs, who cares….this plant is not shutting down and appearing in Massachusetts next year….what is showing up however are price rises for Medicare, Medicaid and general insurers…and not a single US job has been created. The only thing created is drug price inflation for US consumers.

I listened to a couple of Bessent's pre-Trump interviews when he was at Soros and then at his own hedge fund. He was much more impressive then I guess cause he didn't have to lie or lets call it obfuscate the truth What I hear now is a guy struggling to not say the quiet part out loud - that the tariff plan may be part of grand one about the re-industrialization of the USA, driving up the real 'take home' wages of the bottom 50% via tariff funded tax cuts & strengthened labour bargaining vs. capital......but Step One of that plan (tariffs) clearly involves driving up the price of a tonne of goods Joe Sixpack buys (ironically from an adminstration that was elected because of inflation).....Step two....the hope of course is that just down the street from Joe Sixpack a new autoplant/pharma plant will open up and he can get a 20% wage increase and he ends up, all things being equal, better off....what nobody has explained adequately is that even if this ends up being successful....there is clearly going to be a 12,18,24 month gap between Step One and Two where Joe Sixpack's standard of living drops....thats a long time in politics and life....and the more unpopular the Trump policies become....the more companies will consider the tariff regime temporary and so less likely they'll be to re-orientate their supply chains around a temporary measure. This will most certainly be the case with more regulated industrious like pharma/medtech where it takes time and considerable capital and authorizations to stand up a plant.

Armchair psychology is a tough gig - but this guy I think hits on what everybody kinda knows re: Trump. Narcissism gets thrown around too much and this person is right too distinguish between the people with narcissistic traits (we all know them) and those who truly have narcissistic personality disorders (like Trump) who are much much rarer birds. For those that haven't come across a true narcissist I think you might be shocked by the difference between the two - I know Trump cause I worked for a Trump type. We called him 'Captain Chaos' cause as this person pointed out he wasn't really goal oriented but rather his vacuous personality drove all action and decision making. The best heuristic of a true narcissistic personality disorder person - I learned - is that he or she is the VICTIM or HERO of every story they tell. Thats it. That's how you spot them. Every time Trump speaks these are the two stories he tells consistently, repeatedly and without fail.

Well I guess the argument goes that software businesses have winner takes most dynamics...asset light as you said....zero marginal cost products get to be near impossible to compete against.......folks like microsoft, salesforces and various other enterprise providers end up with entrenched positions where they face basically no or limited competitive threats (or they organize into two or three player oligopolies. I guess the internet businesses of Web 2.0 where the product was 'free' and companies won through ads, scale and network effects exacerbated that in the B2C space....the product has close to a zero marginal cost and the network effect is near impossible re-replicate....... The argument against all this is that AI is likely to make creating new software trivial....and agenic AI is likely to upend the ad supported web 2.0 paradigm that gave us Facebook, Google etc.....but I'm way out of my wheelhouse in this space to know how true that might be.....but as my graph shows there's something like 5% of excess profit margins being captured by the corporate sector today versus the past when the mean was closer to ~9%

To add to the evidence pile one need only look at record high corporate margins......there was a time when margins reverting to trend was like the surest data set in all of finance...they'd rise and fallback as each wave of competition came in to erode them...the fact they've been this elevated for this long with no mean reversion tells you that there are large monopolists and oligopolists in the economy extracting excess profits that otherwise would have historically, in a competitive market, resulted in a consumer surplus.....instead of a consumer surplus.....we got American oligarchs. I mean look at the data set - and you realize how unusual it is for the corporate sector to achieve a margin above 10% over time....then you come to the GFC followed by C19....and first 10%+ becomes the norm.....and now 14% margins appear to be the new floor. The concertation in the S&P and the concentration of wealth in the US should come as no surprise when you realize what an unusual period we are living through. https://fred.stlouisfed.org/graph/?g=1p35Y

Fully aware of that - which is what makes this tariff experiment which is impacting the stock market creating a potential negative wealth effect - so self defeating.......if the Top 10% reduce their consumption cause they feel a little poorer, while at the same time the Federal government is implementing austerity.....well we know what that is. But in regard to your middle class comments...wealth inequality has certainly blown out.....but I still think you'll find as regards earned INCOME tax.....that marginal increases in income tax aimed at the middle class drive the highest quantum of tax revenue. I do think however that based on budgetary math in the first place....the US will likely need to put a federal consumption/sales tax in place in time.....Donald is already driving towards that with his Tariff's - its just the federal sales tax wont show up on your receipt and it will fall on foreign produced goods.

Yes and No.......Yes in that you should probably have a more progressive tax system at the extreme higher end......a good start might be to remove the immediate expense deductibility for say private jets that was in Trump's first TCJA for example....these UHNW breaks do nothing for social solidarity. No - because there's simply not quite enough rich people and too many poor people for it to make a real difference. You should still do it from an equity and fairness point of view. In the same way that I firmly believe DOGE is not going to meaningfully change the budgetary math but thats not to say that it still shouldn't be done. The reality always of fiscal budgetary math for most countries....is if you want meaningful amounts of revenues raised......you need to shoot for the middle class.....cause like Jesse James said before re:banks and why he robbed them......"thats where the money is"

Curious if could expand on this? Not quite sure what you mean.

Im with you both on the bottom 50% doing better - Bessent is also correct in saying the current development model with all the economic returns accruing to the top 10% is an unstable equilibrium…let them eat cake doesn’t work out well in the end….ask the Queen of France. The grand plan may work in theory but in practice you’ve got some serious potential timing /implementation mismatches….for example….higher prices on imports but the tax cuts don’t work out….or maybe they do….but the retaliatory tariffs from other countries hurt existing exporting US industry before the theoretical tariff protected ones get to be scaled up. Big picture however is quite simple - a tariff is a tax….if you want less of something (production/consumption) you tax it….this plan at its heart is trading productivity growth & efficiency which equates to broad GDP growth for something akin to tariff welfare payments to the bottom 50%. The real implementation issues are huge (1) it takes time for the above, years (2) it only works if you shrink the federal & state budgets to free up the space….the problem with this is that IMO this plan requires a MAGA controlled WH, Senate, House for more than four years to get it fully implemented such that the benefits of re-shoring can be felt by Joe Sixpack….the timing mismatches, the dislocations just don’t allow you to land the airplane in a country with an election cycle & margins like the US….. Joe 401k who starts hurting & Joe Sixpack who doesn’t quite understand why he lost his job at Jim Beam…is going to be voting the MAGA’s out at the mid-terms & then at the next Presidential (& don’t forget so much of this plan relies on the Presidents executive authority re:tariffs) This whole thing will turn out to be a highly disruptive but ultimately failed economic experiment…the US political system just doesn’t allow for something as radical as this to get completed in its entirety such that all the costs and benefits can fully flow through to the underlying voter as the theory suggests it might.

Something old and something new below- "The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they're fine." David Kelly, JP Morgan Chief Economist, 2025 Ronald Reagan, Former President and GOP Conservative Hero 1987 on tarrifs: Big picture - I'm with Reagan. On the macro - the market is sniffing out trouble.....the re-privatization of the US as Bessent says is inherently rocky....you really are trying to transition a significant portion of the workforce from one sector to another while also chopping off the flow of cheap labor at the bottom of the labor pyramid...the reason it is a pyramid is BECAUSE of immigration....without it , due to demographics it starts looking like an inverted pyramid..a bunch of old people collecting cheques supprted by a smaller and smaller base of workers......if that weren't enough....that they are also embarking on a kind of import substitution strategy via tariff's is quite novel. I can see the grand vision (kind of): - shrinking immigration twinned with import substitution for domestically produced goods should see the bottom quartile or bottom half's bargaining power increase resulting in real wages increases in this segment (big Q is whether real wages can outpace tariff price increases on the basket of goods this group consumers) - tax cuts, Bessent would argue, will see tariff revenue re-distributed to folks feeling the pain of said tariffs related price increases....tax cuts plus increased bargaining power on real wages.....might see "main street' win for the first time in a couple of decades - the re-privatisation of the US will see Government workers off the the Treasury payrolll transferred into this re-industrialization wave that will require more private sector workers...such that the deficit shrinks - Rates - the above will come with economic weakness in the short term perhaps creating the backdrop to allow Powell to cut short term rates.......the fiscal budget deficit shrinking or on a more sustainable path plus changes to bank holding rules - will allow for long term treasuries to fall The plan has merit - i think the issue with it.....is (1) for all the talk of fiscal spending discipline I'll believe it when I see it - this is Pork barrel DC....not too mention medicare & social security (the untouchables) are on a predetermined unstoppable climb (2) all this tariff revenue talk assumes that other countries don't have agency - as Reagan said we are very likely to see very very damaging retaliatory escalations here.....net net you may end up with higher prices & given the puts/takes a static industrialized base.....higher prices, domestic producers protected from competition and so less efficient leading to lower overall aggregate consumption.......this is how this experiment goes wrong. Trump is rolling the dice on a plan which to my mind is quite contrary to free market ideals.......the target of this plan is bottom 50% of Americans......put another way the stock market is a secondary or tertiary measure fo the success of this plan.