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- [00:00]
Charlie Zak
Foreign. Welcome back to the to the Contrary podcast. Believe it or not, there was once a time, not that long ago, maybe like five minutes ago, no, a little bit longer, when Republicans and conservatives said they believed in free markets, fiscal responsibility, and were opposed to government picking the winners and losers of the economy. And that, my friends, now seems like a distant memory because Donald Trump has unilaterally imposed hundreds of billions of dollars in new taxes, and he picks winners and losers through fear and favor. And after insisting over and over and over again that American businesses and consumers would not pay the tariffs, that China and other foreign countries would eat them, Donald Trump is now attacking companies like Walmart for saying, yeah, the tariffs are, in fact going to lead to higher prices. And so the leader of the formerly Free Market Party is also now lecturing Americans about the number of dollars and the number of pencils they need and criticizing companies for wanting to make a profit. Meanwhile, Elon Musk's Doge spectacularly failed to find deep cuts in government spending. And congressional Republicans seem poised to pass a budget that will blow a 4 to 5 trillion dollars hole in the national debt while doing pretty much nothing little to actually grow the economy. Last week, Moody's downgraded America's perfect credit score and once again cited the profound unseriousness of attempts to rein it in. And one of the people who has been consistently and intelligently writing and talking about this for years is our guest today, Jessica Riedel, who is. Can I just read your bio? First of all, hello to a fellow cheesehead, Jessica.
- [01:53]
Jessica Riedel
Go Packers.
- [01:55]
Charlie Zak
Yeah, we go way back in, in Wisconsin politics and unfortunately know some of the same people. So I have a question to ask you about them. Yeah, I know. Well, just to give your credentials here, you're a senior fellow at the Manhattan Institute where you focus on budget, tax and economic policy. You worked in the United States Senate. You, you spent a decade at the Heritage foundation as lead research fellow on federal budget and spending. And Washingtonian magazine named you as one of the 500 most influential policy professionals in Washington, D.C. including one of the 26 most influential within economic policy in recent years. But let me just read some of the headlines of your recent writing for People going, okay, she comes from that world. The 10 worst Republican budget gimmicks. Trump's tariffs are incoherent and destructive. Congressional Republicans might set off the debt bomb. Or how about this one? I'm a conservative economist. Here are six reasons Trump's plans won't work. Despite faux fanfare and outrage, Doge hasn't even scratched the federal budget monster. And then in the Atlantic a couple of weeks ago, the actual math behind Doge's cuts, which did not add up. So, Jessica, I guess the first question is, did you change or did they change?
- [03:17]
Jessica Riedel
Well, to paraphrase Ronald Reagan, I did not leave the Republican Party. The Republican Party left me. I was a good down the line Republicans for many years. In fact, when I was in college in Wisconsin, I was the state chairman of the College Republicans. I worked for Republican presidential candidates, Republican senators. The problem, of course, is if you're a traditional conservative Reaganite who believes in low taxes, deficit reduction, free trade, free markets and strong defense, and opposing the Soviet Union, you have seen the Republican Party become the opposite of what you used to stand for. It is a populist big government party that is big spending, big tariffs, big tariffs, no free markets. It's very much supporting the Soviet Union essentially in Ukraine. And I don't know what happened to the party I used to support, but it's distressing. It's left me homeless.
- [04:23]
Charlie Zak
You know, I mean, it's one thing on the social issues, you know, to see what's happened to the party, but on the economics, you know, I remember right after Donald Trump was elected in 2016, I was talking to George Will about all of this and we were thinking, you know, what happened to that economically conservative party party. And, you know, he said something along the lines of, it turns out we were a much smaller band of brothers and sisters than we thought we were. That maybe that, that belief in free markets and freedom and, you know, restraint in government was, was, was really sort of, you know, like a very, very thin pie crust over something very, very different. Because to watch the Republican President, United States impose these massive new tariffs, these massive new taxes, and then lecturing Americans about the number of dolls and pencils they have, and then attacking companies like Walmart for daring to suggest that, you know, taxes lead to higher prices. You know, it strikes me as like, how did the Republican Party nominate and elect a neo Marxist president? Which is a little extreme, but that's not the kind of rhetoric you ever would have expected from a Mitt Romney, Ronald Reagan, even the Bushes.
- [05:34]
Jessica Riedel
You know, I think during the Tea Party era, there was this view that, wow, Republicans have really become free market spending cut libertarians. And it turns out that, as I believe Tom Massie said later, the voters weren't libertarians. They were just voting for the craziest bastard they could find. And you know, Paul, I think what happened was Paul Ryan took the free market spending, cut deficit reduction rhetoric seriously, and charged up the Hill on this stuff and turned around to find no army behind him. When Trump was elected in 2016, a poll by Gallup showed that only 10% of Republicans believed in Social Security reform and only 15% of Republicans believe believed in Medicare reform. So ultimately, what Trump exploited was that the Republicans, their fiscal conservatism was very specific. It was don't give bailouts to Wall street, don't do Obamacare, don't give money to foreign aid. It wasn't at all about the programs they like. And Trump not only exploited that, but he has since made the Republican Party even more populist by chasing out the free marketers and bringing in more populists. And ultimately, I think, you know, we're kind of left without a free market party these days.
- [07:00]
Charlie Zak
No, it does feel that way. So let's talk about your most recent piece on Doge, because I think that this is, you know, before we move on to other things in American politics, the defenestration of Elon Musk is rather extraordinary. We have a big story in Politico about how he's really not very visible anymore. Trump isn't talking about him anymore. He's kind of absent. Not to suggest that he has not done a lot of damage or is still not influential. But let's just talk about the Doge cuts, because that seemed to dominate the news for months. You had him posing on the stage with the chainsaw and everything. And every day we got, you know, news stories of the various cuts. So he promised in the beginning that he was going to eliminate $2 trillion of the $7 trillion federal budget. In the end, you have a sense of how much he actually saved.
- [07:55]
Jessica Riedel
Thus far, it has been about 2 to $3 billion a month, which is per month, 1 35th of 1% of the federal budget. Originally it was going to be 2 trillion, then 1 trillion, then $150 billion. I've gone through not only the Doge wall receipts of, but also the monthly treasury statements on how much we spent. And the only real change we've seen is that public health spending has dropped about $1 billion a month from 8 billion to 7 billion. That's NIH, CDC and foreign aid has dropped from about 2 1/2 billion a month to 1 1/2 billion a month. Ultimately, Doge is, you know, maybe going to, by the time it's done, save far less than 1% of federal spending. And I think the reason it failed is because it went for government spending cut theater 75% of all the budget goes to Social Security, Medicare, Medicaid, defense, veterans and interest. But instead of going where the money is, Doge focused on political pro subscriptions. DEI contracts, government workers, foreigners, immigrants. Those are, those are shiny objects that really excite maga. But that's not where the money is. And ultimately going for the headlines instead of doing the real work is why it's government spending cut theater.
- [09:26]
Charlie Zak
Well, you wrote something very interesting in your Atlantic article. You know, having said that, that his evaluated as an attempt to cut government spending Doge was holding wholly unserious. But you conclude none of this is to say the Doge has failed. Musk might not have followed through on his unfocused and evolving promises to eliminate payment errors, balance the entire budget and implement regulatory reform, but he has successfully given the White House cover to purge and intimidate the civil Service, helped Congress justify exorbitant tax cuts, rewarded MAGA voters with revenge against their perceived enemies, and granted himself the ability to access sensitive government data and possibly ensure his company's continued government contracts. Sure, annual budget deficits remain on track to double over the next decade, but if you thought the Doge was really about cutting costs, you were never in on the joke. So there is real he did accomplish a lot of things, but it wasn't about cutting the budget.
- [10:27]
Jessica Riedel
It wasn't about cutting the budget. And that's why I don't think Doge is seen as a failure on the right. I mean, of course budget deficits are still on track to double over the next decade from 1.8 trillion to 4 trillion. But Congress has much fewer distractions cutting taxes. In fact, I read an interview with a prominent Republican senator today who said that we can afford to cut taxes by $5 trillion because of all the great work Doge is doing. Of course, Doge isn't. Doge is ultimately probably going to lose money when you take into account the fired IRS agents not being able to collect revenue. But it gave Republicans this talking point that now we can cut taxes. It's really just kind of a distraction and cover for doing what they were going to do anyway.
- [11:17]
Charlie Zak
Well, speaking of cutting taxes, on Friday, Moody's became the correct me if I'm wrong on this, the last of the major credit agencies to downgrade the credit of the United States. And so give me your sense. I mean, others have done this in the past, but they seem very pointed in pointing the finger and saying this has been a consistent failure by both parties to control the deficit and the debt. And Then they seem to target both DOGE and this, this one big beautiful budget bill, suggesting that this was not going to fix the problem, it was going to make it worse. So does it matter? Give me your take on the decision by Moody's to downgrade the credit rating.
- [12:00]
Jessica Riedel
Yeah, the ratings agencies did a downgrade around 2010, 2011, but that was more of a temporary downgrade because the deficit had soared so much during the Great Recession and with the Obama stimulus. And once the deficit kind of moved out of that rough patch, they restored our AAA credit rating. What's happening now is worse because it's not based on temporary factors. It's based on structural budget deficits that, as I mentioned earlier, are on pace to double again over the next decade and Congress's inability to strike a deal to reduce deficits or really even stop growing them with big tax cuts and spending hikes. So I don't see the path for what's going to reverse the downgrade because I don't see Congress changing its behavior. And ultimately this is very dangerous for the federal government because interest costs are going to bury us and interest rates are going to bury us. I did a big thread today on X about how right now the 10 year bond is at 4.5%. We have a federal budget that's basically based on the idea that interest rates can Never rise above 4% ever again without a debt crisis. If our bond, if our bond gets downgraded, the risk premium goes up. Companies who borrow money want more protection against the default risk and that ends up costing hundreds of billions of dollars in interest payments. Interest is, I mean, interest in 2023 surpassed Medicaid, in 2024 surpassed defense, and this year is surpassing Medicare to become the second biggest item in the budget after Social Security. This downgrade is not going to help.
- [13:52]
Charlie Zak
Okay, so the downgrade actually matters. But let's talk about this because there's a school of thought that says the deficits don't matter. Nobody cares about deficits. You and I have been hearing warnings about the debt crisis. The debt crisis is imminent. The debt crisis is looming. It hasn't come yet. So talk to me about that, about this is a real threat. Because I think that most Americans and certainly most policymakers are thinking that's a problem I don't need to worry about because it's in the distant future. So you know what's going to happen. How will we know it's here? I guess is what I'm right.
- [14:29]
Jessica Riedel
Well, we've heard warnings of a debt crisis before. But the warnings, if you go back and read the Social Security trustees report, the Medicare trustees report, it's not that a debt crisis was imminent in the 1990s and 2000s. It wasn't. The debt was about 40% of G. The warning was now's the time to fix the budget. Now is the time to fix Social Security and Medicare while the baby boomers were young enough to absorb the savings. And what they had said at the time is, if you don't fix it, then in the 2000s and 2000s, when all the baby boomers have retired into Social Security and Medicare, that's when you're going to see the crisis. Well, that's where we are right now. The deficits 1.8 trillion. But really the number that matters is the debt as a share of the economy. Think of it like your mortgage as a share of your income. The debt as a share of was 106% of the economy at the end of World War II. Thankfully, it dropped to about 40% of the economy until 2008, when it since spiked back to 100. That's the danger. We've gone from 40% of the economy to 100%, and over the next 30 years, it could go to 2 to 300% of the economy. Other countries in the world don't have debt going nearly that high. You know, Europe has debt crises in Greece and elsewhere, when the debt's 130, 150%, when you're going to 2 or 300% of the economy, what you're going to see is the bond market can't supply that much lending at plausible interest rates. And that's when you get the debt and interest spiral. And that's why I'm watching interest rates closely. Because when interest rates start to rise because they can't supply the debt, you get the spiral. I'm not saying that we're going to have a debt crisis next year, but it could be 10 years, it could be five years, it could be 20 years. Either way, the univers, the economists at the University of Pennsylvania tried to project out the debt over the next 30 years. I'm sorry, the economy over the next 30 years. They couldn't even project out a functioning economy under the current debt projections. So something is going to happen during the next five, 10, 20 years. We just don't know when unless we fix it.
- [16:57]
Charlie Zak
So if you were to, you know, say this to one of your old colleagues, you know, a Republican senator or Republican congressman, wouldn't they say something like, well, yes, but you know what? We can grow ourselves out of this, right? That, the, that, that, that. Yes, there's the numerator and the denominator. And if we just grow the economy fast enough and big enough, then this won't be that big a problem. Isn't that the, isn't that the go to answer?
- [17:27]
Jessica Riedel
That is the go to answer. I brief members of Congress, I brief Republican members of Congress all the time. And the answer is we'll just grow our way out of it. Yeah, well, first off, even if we did grow the economy faster, it would only save a few hundred billion dollars a year out of deficits in the trillions. In part because while faster economic growth increases revenues, it also automatically increases Social Security payments, which are based on wages. It increases Medicare payments, which are based on health care consumption that rises with income and growth also generally raises interest rates and which makes the interest cost bigger on the debt. So you do get some savings, but only a couple hundred billion. But the bigger problem with saying we're going to do this with economic growth is I'm not really sure how you see. Economic growth is the product of productivity growth and the growth of the labor force. When the economy was growing so well in the 50s, 60s and 70s, it was mostly because of women, more women entering the workforce and the boomers entering the workforce. Well, right now the labor force is on course to stagnant and begin declining a decade from now due to low fertility, retiring baby boomers and immigration restrictions.
- [18:48]
Charlie Zak
Immigration.
- [18:50]
Jessica Riedel
So if the labor force isn't growing well, you would need productivity growth to double to meet the gd the expectations of the Republicans in Congress. I don't think we can necessarily assume productivity will double.
- [19:05]
Charlie Zak
You know, I actually understood that as a non economist. In fact, I remember a few years ago back here in Wisconsin, I heard a presentation about what you need to grow an economy in a healthy way. And one of the key things was population growth. And this was, I think part of this was this is why we need immigrants, why we encourage immigration. It does seem that people in the administration on the right understand the need to get the birth rate up. Right? I mean that they are trying to encourage that. But you know, does the math add up? Can, can you raise the birth rate enough to compensate for a dramatic loss of, say, you know, immigrants just to simply population people paying into these programs?
- [19:48]
Jessica Riedel
Not, not at all. I mean, because even if you can increase the birth rate, those individuals aren't going to enter the workforce for 20 years. They're, they're not going to produce their peak productivity years for 40 or 50 years. So it's, you need the birth rate to rise over the long term, but in the short term you have the deportations, the wall. And I know, I know immigration is a big cultural touchstone for a lot of people. But if you look at it from a pure economic perspective, mass deportations, which will actually reduce the size of the labor force force, is going to hurt the economy because again, if the labor force isn't growing now, you need productivity to double. I don't think you can assume that. I see a lot of Republicans who say we want to grow the economy like we did in the 50s, 60s and 70s. Okay, you're going to have to give us the labor force population growth of the 50s, 60s and 70s. They don't want to do that.
- [20:50]
Charlie Zak
Well, of course, this raises also the question of international trade and the tariffs. Interestingly enough, conservative Republicans have been anti tariff for a very long time. Ronald Reagan was actually very, very eloquent about why this was not a good idea. And now it appears to be at the very, very heart of conservative populist economics. I just want to back up a bit though, because we know where the political and the political. I think juice behind the tariffs came from. This sense that globalization hollowed out the American economy, that it contributed to the deindustrialization of the American economy. I remember years before Trump came on the stage, I remember speaking at a group and it was. I'm trying to remember what it was. I want to say lathe operators, but it was something slightly different. And one of the themes was that how China was stealing all of the jobs. So I guess the first question is, was neoliberalism and globalization a success or a failure that led us to this moment we're in right now? I'm sorry, that's a big question.
- [22:06]
Jessica Riedel
It's a qualified success. When I say qualified success. We want all of the benefits of globalization. We want low inflation, we want to go to the store and see tons of products on the shelves. And we want good jobs in America. And the jobs we have added in export industries, the agriculture sector has done very well. Export sectors, technology, software, so many sectors have done well. There was an estimate about 10 years ago, I believe, by the Federal Reserve that said that globalization has raised family incomes by about 10,000 doll. And when people talk about manufacturing job loss, well, we have lost manufacturing jobs, but it's not because of free trade or nafta. It's because of productivity growth. The manufacturing job loss goes way before NAFTA. It starts in the late 1970s, early 80s because we were able to become more productive. We were able to bring computing technology into, into manufacturing. That would have happened even without China and nafta. That was just, that's something a productive economy can do. Now I say qualified success because obviously it produced a political backlash. People didn't see the low prices, the higher incomes as the result of globalization, but they did see the factory that closed down the street.
- [23:43]
Charlie Zak
They did.
- [23:43]
Jessica Riedel
And I think we could have done a better job in this economy of taking care of the people who lost their jobs, taking care of the people whose factories had closed. Not turning our back on globalization, but taking into account the fact that the economy doing better doesn't necessarily mean that that 55 year old with a high school diploma who worked In a factory 30 years is better. Perhaps if we had done a better job taking care of the individuals, we could have avoided some of the backlash.
- [24:15]
Charlie Zak
Well, I mean, but it's not simply an argument marketing issue because as you, you're a Midwesterner, you know, as you drive through Michigan, if you drive through Ohio or Wisconsin, you'll, you'll drive through towns that used to be thriving, you know, Midwestern middle class communities that are just, I mean, ghost towns, I mean where they, they have been hollowed out, where the, the factories, the businesses that used to be there on Main street are gone. And you could certainly make a plausible case that, yeah, globalization lifted the overall economy, but it had a devastating impact in particular areas, which by the way, you can now see on the electoral map.
- [24:59]
Jessica Riedel
Absolutely. And you know, manufacturing has, the loss of manufacturing jobs has absolutely hurt a lot of towns in the upper Midwest. I'm from Appleton, Wisconsin. We've lost manufacturing jobs. Kaukana has lost manufacturing jobs, which is kind of near Appleton. Menasha, which is near Appleton, has lost manufacturing jobs. Although in the south, manufacturing jobs have jumped. So a lot of it too has been a redistribution from the north to the south of manufacturing jobs. Which again is no consolation to the people who lived in Kaukauna, Wisconsin all their life and didn't move to the south to take advantage because their roots are up here. And so, you know, I think again, the challenge is we want the benefits of globalization. We want low prices, we want wide selection of items at Walmart, we want rising incomes, we want export jobs. We're going to have to deal with some of the redistributive contact aspects of globalization. But I think going backwards on it and building a wall around the country is not the answer. I think that's only gonna. You can't go back to that, especially again when productivity was driving the manufacturing job loss more than globalization.
- [26:17]
Charlie Zak
Well, you wrote this piece a couple of weeks ago. A few weeks ago, Trump's tariffs are incoherent and destructive. So let's talk about this. You know, Donald Trump has this, you know, this grand plan. What do you mean? Why are they incoherent and destructive? I mean, I know the answer, but I want to hear much more intelligent answer answer than I would get.
- [26:36]
Jessica Riedel
Well, I don't really know what the tariffs are meant to accomplish if they're meant to bring home manufacturing jobs. Remember, Howard Lutnick said we're going to have American fingers putting the, the screws in the, in the iPhones. Of course, no one's volunteered for that job. If they're meant to bring back manufacturing, then why is Trump constantly turning the dials and then saying, well, actually, this was the art of the deal. We're doing this for global trade concessions. Well, ultimately, we haven't really gotten any global trade concessions. We are not bringing back manufacturing jobs because that's not really how tariffs work. And businesses don't have the certainty about where trade policy is going. So you're not bringing back manufacturing, but you're also not really getting any better trade deals either, because other countries haven't made major concessions. Similarly, Trump has said we're gonna get rid of imports, but we're also gonna raise enough tariff revenue to get rid of the income tax.
- [27:42]
Charlie Zak
Oh, yeah.
- [27:42]
Jessica Riedel
Well, not only is that mathematically impossible, but these two ideas contradict each other. If there is no imports to tax, then how are you gonna raise all the money through tariffs. And ultimately, we're raising almost no money so far from the tariffs on the net. And so ultimately, we're hurting the economy, we're hurting manufacturing, which is the industry. We're supposed to be sacrificing everyone else to help. We're not raising much money. We're creating uncertainty. I just don't know what they're even meant to accomplish right now.
- [28:16]
Charlie Zak
So do you get the sense, though, that he's blinking? It was just last week that he backed off with the 145% tariff on China. I don't know. You follow this more closely than I do. I was not able to find anything that China really gave up. So is Trump blinking? And also, he announced over the weekend that having promised 90 deals in 90 days, that he was just going to be sending out strongly worded letters because he doesn't have Time to actually do the things, gonna tell people what their tariffs are. So what is the state of play, do you think?
- [28:50]
Jessica Riedel
The, the big win we had is that when we lowered some of our tariffs, China lowered some of their retaliatory tariffs. But yeah, both of both sides, tariffs are still higher than they were before we started. So ultimately, we've got nothing. I will say, of course Trump blinked. It was at the moment when the stock market had dropped 20%, the bond market was starting to panic, the economy actually shrank in the first quarter. That's when Trump announced the 90 day pause. And of course, we know how Trump does this. It's the same thing with Canada and Mexico. He finds some very minor concession he can point to that was no big deal and that we could have gotten in five minutes anyway and says, aha, this was my victory all along. This is what I wanted. I'm declaring victory. But the state of play right now is, I think, a certain degree of policy paralysis in regards to the negotiations. Scott Besant and Howard Lutnick are always saying, we're going to work out all these deals. But when they're interviewed on the Sunday morning shows and they're asked what deals have been made so far, we're told, well, we're just beginning discussions. So I'm not really sure that the Trump administration has the competence, the attention span or the interest of getting into these weeds. And we may just end up with Trump kind of turning the dials like a madman over the next four years. Raising tariffs up or down, depending on his mood or depending on the trade deficit, is.
- [30:26]
Charlie Zak
No, I think that that's, that is very plausible. So what did you make of his comments, which I thought were rather extraordinary, that, that, well, you know, maybe people don't need $30, they only need $2. You don't need 250 pencils, you only need five pencils. I mean, I'm trying to imagine if Barack Obama would have said something like that or Kamala Harris would have said something like that. Basically, the, you know, sitting here in Washington, I have decided exactly how much you people out there need to live with. And of course, being lectured by Donald Trump, this avatar of excess, being lectured on our need to cut back and live with more austerity. Not even Jimmy Carter in the cardigan would have gone after dolls. So what was your reaction when you heard that?
- [31:15]
Jessica Riedel
Very similar to you. The gall, essentially. But it's interesting Bernie Sanders had said things like this.
- [31:22]
Charlie Zak
I know he had. Literally.
- [31:23]
Jessica Riedel
Conservatives for years have made fun of Bernie Sanders for saying we have too many options. We shouldn't have so many options at stores. And again, coming from Donald Trump, you know, again, the avid, as you said, the avatar of X us, you know, basically saying, let them eat cake to everyone else. You know, I have all of these mansions and billions of dollars, but your kid can only have two dolls. But it's interesting because Trump's entire political brand has been, I may be a jerk, but I'm the deal maker that's going to make you rich. And it's very odd to see him going from the, you know, the avatar of excess who's going to make. I'm going to make you rich. As rich as I am to, you know, economic growth isn't that important. You don't need to have these things. He sounds like Bernie Sanders, and that's so different from his brand. And I think ultimately that's part of the reason he caved when the stock market was going, because Donald Trump doesn't know how to sell sacrifice. Democrats are used to selling sacrifice. Trump sells excess. And the idea that he was going to have to sell sacrifice and a declining stock market and rising prices, I don't think it works for his brand. And as bad as he is on policy, he's got a pretty effective political antenna to realize this isn't going to work for his brand. And that's why, I think that's why it was the stock market and the bond market that eventually got his attention.
- [33:01]
Charlie Zak
So I think this is a really important point. I mean, to grossly simplify it. I mean, his appeal in the campaign is basically safety, prosperity and revenge. I'm gonna keep you safe. I'm going to make you all rich. You're all going to get benefit from this golden age. And this was very, very much. Okay, I want to get to the budget in just a moment. But his attack on Walmart over The weekend, Walmart CFO came out and said, look, you know, 30%, you know, tariffs on China. Yeah, it's gonna make things more expensive. There's a story out now, you know, that does. No target is also being slammed and people are going to see it. And President puts out, Trump puts out this, this, this, this bleat. Attacking Walmart for saying this. Don't you dare, because I want you to. His phrase, eat the tariffs. You know, eat the tariffs. It used to be eat the rich, now it's eat the terrorists.
- [33:58]
Jessica Riedel
I was personally very confused by this because Trump's been telling me for half a year that China pays the tariffs.
- [34:07]
Charlie Zak
Yes.
- [34:07]
Jessica Riedel
And that none of the Americans are going to pay anything. So why would Walmart need to eat a tariff if, if they don't raise prices if China eats the whole thing? Well, obviously that's not how the economy works. Of course consumers pay the tariffs. And, you know, asking Walmart and Target to shave their pretty modest profit margins. Walmart's profit last quarter was 2.7%. They don't have massive profit margins to eat tariffs. And even if they did, why, why would a business do that? As a favor to a politician. So now you have Donald Trump sounding like Elizabeth Warren talking about greedflation. The reason prices are rising is because Walmart's greedy, Target's greedy. Amazon was going to be greedy, but he threatened them out of it. And this is another area where it's horseshoe theory in action. Trump is talking like Bernie Sanders and Elizabeth Warren. The populist MAGA base is eating it up. And free market Reaganites like me are just baffled.
- [35:19]
Charlie Zak
It is baffled. Okay, let's switch. And this would be even just as baffling. You know, Congressional Republicans working on this reconciliation bill, I just assume at some point they're going to get the deal done, because they always do. What do moderate Republicans do? They cave in. They, they can't afford to lose any of us. This, this, some version of this is going to pass. It's going to be messy, but they're going to. You wrote a few weeks ago, Congressional Republicans might set off the debt bomb. We talked about the debt bomb a little bit earlier. But this is their big, beautiful bill. How will they set off the debt bomb?
- [35:56]
Jessica Riedel
The cost of this bill is enormous. If you take away the fake expiration dates in the bill, and we know they're fake because they're currently canceling the expiration dates for this December right now. So if you take away the fake expiration dates, the tax cuts are $6.2 trillion over 10 years. To put that in context, that is bigger than the 2017 tax cuts. The 2020 CARES act, pandemic, Biden's 2021American Rescue Plan, stimulus and the Inflation Reduction act combined. It's bigger than all four of those combined. This would be the most expensive piece of legislation since the 1960s. And we're doing it at a time where the deficit's already 1.8 trillion. If they pass this, I think the deficit probably exceeds $4 trillion a decade from now, even under peace and prosperity. And I had mentioned earlier that the bond market and interest rates are the canary in the coal mine. That's where we're going to see a debt crisis begin. And we're seeing the bond market already starting to panic. The 10 year is at 4.5%. The 30 year is over 5%. Again, anything over 4%, you're looking at eventually a debt spiral. The fact that the bond market is starting to cry uncle, we've been downgraded, you would think cooler heads will prevail. But as you mentioned, the moderate deficit hawk Republicans main role is to be very disappointed in the deficit impact of a bill right before they vote for it.
- [37:45]
Charlie Zak
Right. Okay. So when you, when you explain that just the way you did to me, when you explain that to Republicans on Capitol Hill, what is their reaction? Because in theory they are Republicans, because this is exactly the thing they don't want to do. So what do they say to you?
- [38:06]
Jessica Riedel
I have this conversation with Republicans every day. They say two things. Number one, spending is the problem. To which I say, great, where is the spending cuts? Oh no, no, don't worry about taxes. Spending is the problem. Which would matter if they actually did anything on spending. I don't think the spending cuts in this bill are gonna pass at all. The second thing they make is, as you suggested earlier, we're going to grow our way out of this. Yeah, we're going to double or triple the economic growth rates and we're going to grow 4 or 5%. Of course, there's nothing in this bill that would create economic growth that fast. Most of the bill is just keeping tax cuts tax policy where they are today. Except the pro growth stuff like business expensing is just temporary and they're adding things like no tax on tips, no tax on overtime that don't really provide growth. But that's what they tell you. They say spending is the problem and we'll grow our way out of it. Even though they actually have no blueprint to cut spending and no plan to increase growth.
- [39:13]
Charlie Zak
Okay, so there is a certain political logic in all of this. I'm not disagreeing with anything you're saying, but in Trump's mind he's thinking, okay, I can get away with the tariffs and the increased costs and all of this deficit because I'm giving away goodies to key constituencies. Like no taxes on tips does not grow the economy. But look, I mean, it's going to be nice if you give on tips, if you want to. Don't they want to make interest payments on car loans tax deductible, which is okay, that's kind of a giveaway, you know, tax free overtime. So it's a little bit like Banana Republic economics. Why here's a goodie for you is a goodie for you.
- [40:00]
Jessica Riedel
Is a goodie for you buying off every interest. It's buying off voters.
- [40:05]
Charlie Zak
And they will all expire right before the next election. So if you don't vote for me, you don't keep your goody. And he wants people to focus on their goody as opposed to the macro issue, which may not be politically stupid.
- [40:17]
Jessica Riedel
And this, this is what works. This is. I mean, look, I care about the deficit. Almost nobody else does.
- [40:25]
Charlie Zak
Right.
- [40:25]
Jessica Riedel
The reality is this isn't the 80s and 90s anymore where the voters were concerned about deficits and lawmakers were expected to show how they would pay for their policies. Today, voters want Santa Claus. They want someone to just give them a handout. And Republicans will just shrug it off and say, oh, we'll just cut waste, fraud, and abuse and we'll pay for the whole thing.
- [40:47]
Charlie Zak
They've been saying that.
- [40:48]
Jessica Riedel
For the Democrats who say, we can increase spending as much as you want and we'll just tax the rich, the thing is a, not only do the numbers not add up, but the pot. Those savings policies never come, but that's ultimately where they're at politically. And it works because we're the voters and we're to blame. And we, we don't care either. We want the government to play Santa Claus.
- [41:14]
Charlie Zak
So you wrote a piece, the 10 worst Republican budget gimmicks. I assume that some of them are still in. All of them are still in. What's your favorite budget gimmick?
- [41:22]
Jessica Riedel
I mean, one of my favorites is the current policy baseline where Republicans pass a tax cut and they keep the cost down by saying it's only gonna last for a couple years. Don't worry, we're not blowing up the deficit. It's only gonna pass for a couple few years. And then at the end, when a few years are up, they just get rid of the expiration date and say, don't worry, the rest of the cost is free. Because it's. We're not changing tax policy. We're just. We're just extending current policies, which means those big extensions are never accounted for. They're not account.
- [41:59]
Charlie Zak
So you're saying that. Okay, so when we're Talking about a 4 to 5 trillion dollars increase in the debt, are you saying it could be much, much bigger if we assume that 6.2 trillion.
- [42:11]
Jessica Riedel
If, if you get rid of the expiration dates, which Republicans say are fake Anyway, it's really $6.2 trillion over 10 years.
- [42:22]
Charlie Zak
So is there anyone on Capitol Hill and either party that, in your view is talking sense, actually wants to solve these problems that we've been discussing?
- [42:34]
Jessica Riedel
Again, I think we have a lot of deficit hawks. I'm putting air quotes, deficit hawks who will give a lot of speeches on the House floor. They'll give a lot of press conferences, and then they'll go vote for the bills. And so I don't want to. I don't want to point out any individuals until I see them vote no on one of these bills. I mean, I know Chip Roy has been very vocal. Thomas Massie has been very vocal. I talk to these. It's frustrating because I talk to these Republicans every day, every week, and they know it's unsustainable, and they know it's not affordable, and they know it's irresponsible. But what they tell me is it's the politics. If I vote no, my career is over. So I'm just gonna hope that I'm not in office when the bill comes. I think you have a lot of lawmakers who get it, but they just don't have the courage to actually stand up. They don't want to risk their career on this.
- [43:35]
Charlie Zak
It's a little bit like, you know, telling people, hey, by the way, do you know that the sun will explode in 6 billion years? And they'll say, well, that's not my problem, is I'll be dead by then. The reaction is often the same. Hey, we're gonna have this massive debt explosion. We might not be able to pay all the Social Security, you know, obligations in 2035. And they're thinking, hey, maybe I'll be dead by then, or maybe I'll be out of office. Right? I mean, it's like, wait, this is, this is a little bit sooner. And 2035 is not as far away as 6 billion years.
- [44:02]
Jessica Riedel
Is it just if you're, if you're retiring into Social Security today, you're going to be in your mid-70s when the Social Security trust fund goes belly up. This, this is going to be you if you're retired today. It's coming.
- [44:18]
Charlie Zak
Well. And that, I think, will you want to talk about a debt crisis, that will be a political crisis. And, you know, you know, talk about when that crunch comes. Jessica Riedel, thank you so much for all of your time. Jessica is at the Manhattan Institute, and you can read her stuff. Well, pretty much everywhere, because you are prolific. You are on social media. You have written hundreds of studies. So we'll look for you in the Atlantic and Manhattan Institute. And again, thank you so much for your time, Jessica. I appreciate it very much. Always a treat to talk with a fellow cheesehead.
- [44:49]
Jessica Riedel
Go Packers. Go Brewers. Go Badgers.
- [44:53]
Charlie Zak
And thank you all for listening to this episode of to the Contrary podcast. I'm Charlie Zak. You know why we do this? Because now more than ever, and probably for the next four years, it is absolutely crucial that we remind ourselves that we are not crazy.