Trump vs. Inflation: Can He Fix the US Economy? | 12.14.24

Summary

Morning Wire Podcast Summary: "Trump vs. Inflation: Can He Fix the US Economy?" | 12.14.24

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Introduction

In the December 14, 2024 episode of Morning Wire titled "Trump vs. Inflation: Can He Fix the US Economy?", host Daley Weyer and co-host John Bickley engage in an in-depth discussion with E.J. Antony, a Heritage Research Fellow. The episode explores the current economic challenges facing the United States, particularly focusing on inflation and the potential impact of President Trump's proposed economic policies.

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Current Economic Landscape

The episode kicks off with Georgia Howe highlighting concerns about excessive government spending and the Federal Reserve's interest rate cuts prior to the election, which have raised fears of escalating inflation [00:03]. Daley Weyer introduces E.J. Antony, who provides an expert analysis on the state of the economy as the nation approaches the 2025 elections [01:11].

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Assessing the State of the Economy

The discussion begins by addressing a recent statement from President Biden, who claimed he has handed President Trump "the strongest economy ever." E.J. Antony challenges this assertion, questioning the metrics used to define such economic strength [02:02].

E.J. Antony [02:02]: “There are fewer native born Americans with jobs today than there were in 2019, five years ago before the pandemic.”

Antony argues that current economic indicators, such as rising inflation rates and declining employment among native-born Americans, contradict Biden's claims. He emphasizes that government employment is surging, with over 23 million people employed by the government and the government planning to spend about $1.4 trillion to finance national debt in the coming year [02:02].

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Inflation Trends and Projections

Inflation remains a significant concern, with Antony stating that it is "reaccelerating" due to continued government spending and the Federal Reserve's pre-election interest rate cuts [04:09]. He likens government overspending to "drinking too much," where the negative effects, or "hangovers," manifest later [05:17].

E.J. Antony [04:09]: “We have been trending to about 3%. And we actually arrived there quite some time ago. And we have been stuck there at about 3%. And there's no sign that we're going any lower anytime soon.”

Antony warns that these inflationary pressures will likely intensify in 2025, posing a "ticking time bomb" for the economy. He criticizes both the Biden administration's fiscal policies and the Federal Reserve's monetary decisions as contributing factors to the rising prices that consumers face.

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Trump’s Economic Strategies: Energy and Deregulation

The conversation shifts to President Trump's proposed economic strategies to combat inflation, focusing on pro-energy policies and deregulation [05:17].

E.J. Antony [06:58]: “Regulation, however, is exactly that. It is a complete subtraction. It represents a loss of economic activity that's not being transferred from one person to another. It just vanishes.”

Antony highlights the significant impact of deregulation on economic growth, citing how business leaders during Trump's first term overwhelmingly favored deregulation over tax cuts as a more beneficial policy. He explains that reducing regulatory burdens can lead to increased economic activity, higher business profits, and greater take-home pay for workers.

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Impact of Deregulation on Industries

Deregulation, particularly in the manufacturing sector, is identified as a critical area where Trump's policies could have immediate effects [08:21].

E.J. Antony [08:21]: “Getting rid of that regulatory burden would be a tremendous boon for the American economy and for the American worker.”

Antony discusses how excessive regulations have driven manufacturing jobs overseas by increasing operational costs. By removing these regulatory barriers, domestic manufacturing can become more competitive, potentially reversing job losses and boosting the economy.

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Tariffs and Trade Policies

Antony defends Trump's approach to tariffs, framing them as part of a "carrot and stick" strategy to incentivize companies to bring production back to the U.S. while discouraging them from relocating overseas [09:54].

E.J. Antony [13:07]: “Tariffs are essentially causing foreigners to help pay America's tax liability instead of putting the entire burden on the American people.”

Addressing criticisms from Kamala Harris’s campaign, which labeled tariffs as a "direct tax on the American people," Antony counters by explaining that the majority of tariff costs are absorbed by overseas producers rather than American consumers. He uses data from Trump's first term to illustrate that only about 19 cents of each tariff dollar was paid by American consumers, while 81 cents were borne by foreign producers [11:23].

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New Policy Proposals

The episode features a discussion on a recent social media post by Trump, announcing expedited approvals and permits for companies investing over $1 billion in the U.S., bypassing environmental approvals [13:35].

E.J. Antony [13:35]: “All of a sudden you get rid of the deadweight loss and you can create an economic resurgence.”

Antony praises this proposal, emphasizing that reducing bureaucratic red tape will enable businesses to operate more efficiently and foster economic growth. He cites examples like Elon Musk’s SpaceX facing unnecessary regulatory hurdles as evidence of the detrimental effects of overregulation.

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Outlook for 2025 and Conclusion

Looking ahead to 2025, Antony expresses cautious optimism, attributing his positive outlook to the leadership at the helm [15:12].

E.J. Antony [15:12]: “I have a lot of confidence in leadership that they're going to be able to get us through.”

Despite acknowledging potential economic challenges such as resurging inflation and instability in the commercial real estate market, Antony believes that strategic policy interventions under Trump's administration can navigate the economy through turbulent times.

Daley Weyer wraps up the discussion by thanking E.J. Antony for his insights, concluding the episode with a comprehensive analysis of the economic strategies that could shape the U.S. economy in the upcoming year [15:56].

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Notable Quotes

• E.J. Antony [02:02]: “There are fewer native born Americans with jobs today than there were in 2019, five years ago before the pandemic.”
• E.J. Antony [04:09]: “We have been trending to about 3%. And we actually arrived there quite some time ago.”
• E.J. Antony [06:58]: “Regulation, however, is exactly that. It is a complete subtraction.”
• E.J. Antony [08:21]: “Getting rid of that regulatory burden would be a tremendous boon for the American economy and for the American worker.”
• E.J. Antony [13:07]: “Tariffs are essentially causing foreigners to help pay America's tax liability instead of putting the entire burden on the American people.”
• E.J. Antony [15:12]: “I have a lot of confidence in leadership that they're going to be able to get us through.”

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This episode of Morning Wire provides a thorough examination of the current economic challenges and potential solutions under President Trump's proposed policies. By addressing inflation, deregulation, and trade policies, the discussion offers listeners a nuanced perspective on how these factors interplay to shape the future of the U.S. economy.

Transcript

[Georgia Howe]

Excessive government spending and the Fed's interest rate cuts before the election have many concerned that inflation may be accelerating again. But will President Trump's pro energy and deregulation policies help the economy turn the corner?

[Daley Weyer]

In this episode, we speak to an economic expert who says he believes there's reason to be very bullish on the economy in Trump's second term. I'm Daley Weyer, editor in chief John Bickley with Georgia Howe. It's December 14th, and this is a Saturday edition of Morning Wire.

[Georgia Howe]

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[E.J. Antony]

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[Georgia Howe]

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[Daley Weyer]

Joining us now to discuss the state of the economy and how it's shaping up for 2025 is Heritage Research Fellow E.J. antony. E.J. first of all, thank you so much for coming on.

[E.J. Antony]

My pleasure. Thank you for having me.

[Daley Weyer]

We recently had an interesting statement from President Biden at a speech at the Brookings Institution. He says that he's handed Trump the strongest economy ever. Here's the moment.

[Joe Biden]

Don't take my word for it. Here's how Time magazine and other commentators describe the economy. I'm leaving my successor. And there's a number of these quotes. President Elect Trump is receiving the strongest economy in modern history, which is the envy of the world.

[Daley Weyer]

As we've documented here, the priority issue for voters this election was the economy. Obviously, there's lots of concerns about the state of the economy because of inflation. Do you agree with President Biden that this is the greatest economy ever?

[E.J. Antony]

Well, I would love to know by what metric he is using to determine that this is the greatest economy ever. I mean, look at inflation, for example. He is handing President Trump an economy with a higher inflation rate than it ever was at any point during Trump's first term. So this idea that somehow the economy is firing on all cylinders, I'm sorry, I just don't see the evidence for that. There are fewer native born Americans with jobs today than There were in 2019, five years ago before the pandemic. Again, by what metric Are we using to say that the economy is better now than it ever has been before? What's better now than it ever has been before is government employment. The number of people employed by the government, over 23 million government is growing at an exponential rate. We're going to spend about $1.4 trillion to finance the debt in the year ahead. I mean, that's the only metric I can see that shows the economy really growing at a brisk pace.

[Daley Weyer]

Quick follow up to that. You mentioned that the number of native born Americans with jobs has actually shrunk in the last four years. We heard some talking points during the campaign about immigrants being the only ones that actually benefited from the increase of jobs over the Biden administration. Is that correct?

[E.J. Antony]

Sure, there have been some native born Americans, for example, that have found work over the last several years. But on net meaning, if you consider the number of Americans who have also lost jobs, that exceeds the gains. So the number there is negative. That means that all of the net job creation we have seen over the last five years has gone to foreign born workers. So what's really sad is that the Biden administration has effectively turned the American labor market into a kind of temp agency for foreigners and for government bureaucrats because we've seen a disproportionate amount of job growth in the government sector. We've seen the economy actually lose full time jobs, not gain them. So we're gaining only part time jobs. And again, if you look at the demographics, the only people who are gaining jobs on net are foreign born workers.

[Daley Weyer]

Now as we said, inflation has been the leading economic headwind over the last few years. It still remains elevated. What is the latest on inflation?

[E.J. Antony]

The latest on inflation unfortunately, is that it is reaccelerating. And some of that has to do with the fact that the Biden administration continues to spend money we don't have. The Federal Reserve, in an act that I think is election interference, they took their foot off the brake and stomped back on the gas by cutting interest rates right before the election. These are all things that are going to contribute to higher prices. And we're only feeling some of the effect right now. Most of that inflationary impulse though is really going to play itself out in 2025. And frankly, I think they're handing Trump a bit of a ticking time bomb when it comes to inflation. And we have this notion that's fueled by the media and by Federal Reserve officials that we've been trending towards this target inflation rate of 2% per year. But that's simply not true. We haven't been trending there. We've been trending to about 3%. And we actually arrived there quite some time ago. And we have been stuck there at about 3%. And there's no sign that we're going any lower anytime soon.

[Daley Weyer]

You're projecting that in 2025 things could get actually worse. Can you unpack that more for us?

[E.J. Antony]

Well, unfortunately, when the government does a bad action, we don't feel all of the bad effects right away. It's very similar to if you drink too much. You know, you get that buzz first, but then the hangover only comes the next morning and we see the exact same thing with a lot of government overspending. You know, initially we didn't get to 9% inflation right away at the start of the Biden administration. We got there about a year and a half into his term. And the reason for that was that it takes time for all this government spending to slosh its way through the financial system. But eventually it does work its way through and it ends up creating higher prices for consumers. That's what we're seeing play out yet again as the Biden administration not only continues the runaway spending, but now again, we have this what I would think is election interference on the part of the Fed cutting interest rates hard and fast right before the election to, I think, try to produce a certain outcome which they obviously didn't get, but which will nonetheless produce some very bad effects for the American consumer next year. Now, on the other side of the equation, you have President Trump with a very pro America energy policy that should help reduce prices, because if you increase the supply of energy, you'll reduce the price. And when you reduce the price of energy, you reduce prices throughout the economy, since everything uses energy, all kinds of goods and services. So you have one thing from the Fed that's going to help push up prices. You have another thing coming out of this administration that will help push down prices. Which of those is going to win out at the end of the day is unclear.

[Daley Weyer]

What other actions can Trump take to combat this inflationary problem? So obviously, energy is a priority for him. That's the first thing that he always mentions when he's talking about solutions. What else can he do?

[E.J. Antony]

Deregulation would have a tremendous impact. And we actually saw that during the first Trump administration. There was an interesting gathering where he asked several hundred business leaders from everything from small to large businesses, what did you love most about my first term? By the way, you gotta appreciate how the president always phrases these things. What did you love most about me? But he gave them a choice. What was better, the tax cuts or the deregulation? Every single one of them said it was the deregulation that provided much more benefit. And it not only provides benefits to those business leaders and to those businesses, but also to the broader economy. The reason being that when the government taxes you, they take money from you, but that money's gonna get spent somewhere else. So it may be less efficient, but it's not a complet complete subtraction from the economy. Regulation, however, is exactly that. It is a complete subtraction. It represents a loss of economic activity that's not being transferred from one person to another. It just vanishes. And so that deregulation can have a tremendous impact on increasing economic activity, on increasing profits for businesses, and on increasing take home pay for workers. Again, all of which we saw during the first Trump administration. And it looks like they're really willing to go whole hog during their second term. So that's a reason to be very, very bullish.

[Daley Weyer]

Are there particular industries where deregulation will have an immediate impact?

[E.J. Antony]

Manufacturing is a big one. People don't realize that there is a tremendous regulatory burden on the manufacturing sector in this country. And it's a key reason why so much of our manufacturing has been shifted overseas, why there has been so much corporate inversion of our heavy industry. For a typical manufacturing worker, let's say they're making about $50,000 a year. It's not uncommon for the reg burden attached to that worker that the factory owner, let's say, is effectively paying that. That regulatory burden would be $60,000. In other words, it's even more than the person's wages. Now, you throw on a benefits package, let's say, of another 40 or $50,000 for that worker, and all of a sudden, what looks like a $50,000 worker to the rest of the world is actually about $150,000 in terms of total compensation costs for that factory owner. Conversely, you can send that job overseas and avoid most of that regulatory burden, avoid a lot of that benefits package, let's say. And you throw on top of that the fact that we tax manufactured goods at a lower rate when they come in from overseas than when they're made here at home. And all of a sudden it's a no brainer to send those jobs overseas. So again, getting rid of that regulatory burden would be a tremendous boon for the American economy and for the American worker.

[Daley Weyer]

Trump is also going to impose some tariffs, or at least is threatening to do that for overseas production. So do those things go hand in hand? Deregulation, plus the negative incentive of tariffs to bring more production into the U.S. i think so.

[E.J. Antony]

It's very much a carrot and stick approach. At the same time, we're not only going to provide you an incentive to move back, we're going to provide you a disincentive to stay overseas, or if you're already here, a disincentive to then move overseas. I think that's a great idea. And look, we have seen this play out in the past, in recent history. They did it during the first Trump administration, but we saw it in more distant history as well, and it produced exactly the same results. We forget that during America's golden age, when we saw our fastest rates of sustained economic growth, we didn't even have an income tax. The federal government fueled itself entirely, basically based on tariff revenue. And so this idea that somehow increasing tariffs or relatively high rates of taxes on imported goods is somehow going to crash the economy or cause runaway inflation. I'm sorry, Nothing could be further from the truth. Again, America's golden age had exactly those circumstances, high tariffs. Except we didn't have high inflation. We actually had slight deflation during that period of about a tenth of percent per year. So, again, there was no runaway inflation. There was no widespread unemployment. It really was America's golden age. And I think it's a key component to repeating that economic success.

[Daley Weyer]

Now, the Kamala Harris campaign repeatedly said that Trump is going to impose a tax on imported goods, characterizing the tariffs as a direct tax on the American people. Was that a fair assessment of how the tariffs actually play out in real life?

[E.J. Antony]

No, it wasn't. And it really demonstrates her complete economic illiteracy and also her ignorance of history. Again, just recent history, because under the first Trump administration, every dollar that was imposed of tariffs, only about 19 cents out of each of those dollars was actually paid American consumers. The other $0.81 about was paid for by overseas producers, like Chinese steel producers, for example. The reason being is that if they tried to pass the full cost of the tariff onto American consumers and American businesses in the form of higher prices, then American consumers and businesses would simply choose an alternative that would at that point have been cheaper. So maybe that was importing from another country, like Sweden and getting our steel from there, or maybe it was getting our steel from domestic producers here at home, whatever the case may be. So. So you have to always keep in mind what we like to call tax incidents, which tells us not who is actually literally paying the tax. But who is actually paying the tax? In other words, just because a Chinese company is writing the check to the treasury doesn't mean that they're ultimately the ones bearing the cost. Now in this case, they were again, it was about 81 cents on the dollar that they actually had to pay. But that's just one example of what would happen if we continue this policy. Now that stands in stark contrast to domestic taxes like the income tax or like a sales tax, where no matter where the tax incidence is either on the seller or the buyer, it's still falling on in American. And so the difference between tariffs here and any of those strictly domestic taxes is that the tariffs are essentially causing foreigners to help pay America's tax liability instead of putting the entire burden on the American people.

[Daley Weyer]

A question that's related to this. We just had a social media post from Trump in which he announced a new possible policy. I want to read this post to you and get get your reaction. Any person or company investing 1 billion or more in the United States of America will receive fully expedited approvals and permits, including, but in no way limited to all environmental approvals. Get ready to rock. This is from Trump. What do you think about this proposal?

[E.J. Antony]

I love it. I can't tell you how much I love it. People don't understand the amount of red tape, especially from these different government three letter agencies like the EPA that throw up roadblocks anywhere and everywhere and make all kinds of productive economic activity simply unviable because the regulatory burden is so tremendous. But again, if you can get rid of that, then all of a sudden you get rid of the deadweight loss and you can create an economic resurgence. It's difficult to overestimate just how many projects there are in this country, or I should say that there could be in this country, but for the regulations that get in the way of entrepreneurs and people who actually want to serve their fellow man. Because at the end of the day, that's how you make money in this country. You provide a good or service that people want and in exchange they're willing to pay you for it. But when government is gonna throw on this tremendous regulatory burden, it makes it impossible for people to do that. Elon Musk gave a couple of really good examples lately with his SpaceX program where the EPA and different other agencies threw up all these roadblocks, like making him conduct an ocean survey to try to determine whether or not if one of his rockets fell out of the sky, it might happen to land on a shark in the ocean. I mean, it sounds ridiculous, but those are the kinds of things that organizations like the EPA are forcing businesses to do. And if you're a small business, you can't afford to do those things, so you don't exist.

[Daley Weyer]

We're rapidly heading into 2025. Are you generally optimistic or pessimistic about the economy going into this new year?

[E.J. Antony]

I'm optimistic, but largely only because of the people that are going to be at the helm. The ship of state is going to go through some very, very turbulent waters in the year ahead. We have a lot of what I would call ticking time bombs within the economy. We talked about inflation resurging. That's one of them. The commercial real estate market is on very, very shaky territory, and that means that the small banking sector, which provides all of the commercial real estate loans, they're also looking at a lot of trouble coming down the pike. So again, we're facing a lot of economic headwinds, let me put it that way. But I have a lot of confidence in leadership that they're going to be able to get us through.

[Daley Weyer]

Great stuff. Thank you so much for talking with us.

[E.J. Antony]

My pleasure. Thank you for having me.

[Daley Weyer]

That was Heritage Foundation's E.J. antony, and this has been a Saturday edition of Morning Wireless.