Justin Wolfers: Tacos, Tariffs, and the Taquito Economy

Summary

Podcast Summary: To The Contrary with Charlie Sykes Episode: Justin Wolfers: Tacos, Tariffs, and the Taquito Economy
Release Date: June 3, 2025
Host: Charlie Sykes
Guest: Professor Justin Wolfers, Economist at the University of Michigan

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Introduction

In this engaging episode of To The Contrary, host Charlie Sykes welcomes Professor Justin Wolfers, a renowned economist from the University of Michigan and a prominent voice on cable television. The discussion delves deep into the tumultuous landscape of U.S. economic policies under President Donald Trump, particularly focusing on trade tariffs, constitutional implications, and the burgeoning national debt.

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Section 1: Trump's Tariff Policies – Tacos vs. Taquitos

The conversation kicks off with an analysis of the erratic nature of President Trump's tariff policies. Professor Wolfers introduces the metaphor of "tacos" to describe Trump's unpredictable and substantial tariff impositions:

Justin Wolfers [05:03]: "The two craziest things in my lifetime... a 145% tariff on China. [And] a 50% tariff on the European Union... effectively an embargo."

Wolfers critiques the sudden imposition and subsequent retraction of tariffs, highlighting their unprecedented scale compared to historical precedents like the Smoot-Hawley tariffs. He humorously distinguishes Trump's actions as more akin to "taquitos"—smaller, yet still significant—emphasizing their disruptive impact on international trade.

Justin Wolfers [07:38]: "We're still miles out there. So anyone who says Trump always chickens out is missing the fact that, no, he goes from here to here and then pulls back to here."

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Section 2: Constitutional Overreach and Trade Wars

Sykes and Wolfers explore the constitutional boundaries of tariff implementation, arguing that tariffs traditionally fall under the purview of Congress. However, President Trump has circumvented this by invoking the Emergency Powers Act.

Justin Wolfers [08:58]: "The Emergency Powers act gives the President a bunch of responsibilities when there's an emergency... the emergency that the President is using to impose a 50% reciprocal tariff... is bilateral trade deficits."

Wolfers questions the legitimacy of Trump's justification for tariffs, noting that bilateral trade deficits are common and not inherently emergencies warranting such drastic measures.

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Section 3: Impact on International Trade Relationships

The duo discusses the tangible effects of Trump's tariff strategies on U.S. trade relationships, using the example of American wine exports to Canada.

Justin Wolfers [24:34]: "Our exports a lot... when the President threatens to invade Canada, and it's down. And it stayed down, like, dramatically down."

Wolfers illustrates how threats of extreme measures can sour trade relations, leading to decreased exports even in sectors unaffected by tariffs, such as the wine industry.

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Section 4: Handling the President's Behavior and Its Economic Implications

The conversation shifts to the personal conduct of President Trump and its broader implications for economic policy. Sykes raises concerns about whether public figures should fear embarrassing the president, fearing potential reckless decisions.

Charlie Sykes [14:30]: "I think we ought to humiliate and embarrass Donald Trump any day of the week... he is prepared to break and destroy things in the service of his own narcissism."

Wolfers responds by emphasizing the importance of maintaining economic principles despite political challenges.

Justin Wolfers [17:00]: "Market forces are important... the role of the president is to be the referee, not the coach."

He criticizes Trump's approach of directing economic actors rather than facilitating fair competition, drawing parallels to central planning and its historical inefficacies.

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Section 5: National Debt and Fiscal Responsibility

A significant portion of the episode is dedicated to dissecting the national debt and the Republican Party's stance on fiscal responsibility. Wolfers provides a historical overview of fiscal policies, highlighting inconsistencies within the Republican Party regarding deficit management.

Justin Wolfers [30:28]: "Ronald Reagan... Bill Clinton returned the deficit back to surplus... Trump tax cuts blew out the deficit... Biden was probably the least fiscally conservative Democrat of my lifetime."

Wolfers argues that the notion of fiscal conservatism has become misaligned, asserting that genuine fiscal responsibility is often found within the Democratic Party rather than the Republicans.

Justin Wolfers [31:04]: "If you're a fiscal conservative, you're a Democrat."

He cautions against the perpetual increase in national debt, outlining the potential macroeconomic dangers of unsustainable borrowing.

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Section 6: Economic Rhetoric and Public Understanding

The discussion concludes with an analysis of how large numbers like millions, billions, and trillions are used in political rhetoric to obscure understanding. Wolfers offers practical analogies to help listeners grasp the magnitude of these figures.

Justin Wolfers [44:28]: "A million dollars is a briefcase full of $100 bills... a billion dollars is a school bus... a trillion dollars is when you go down to the big House, the football stadium."

He advises listeners to remain critical of inflated numbers used in political discourse, suggesting that such tactics are often employed to confuse rather than inform.

Justin Wolfers [44:04]: "Think about it: if they use words you don't understand, they mean for you to not understand."

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Conclusion

Throughout the episode, Charlie Sykes and Justin Wolfers provide a compelling critique of President Trump's economic policies, emphasizing the need for rational, principle-based decision-making in economic governance. They underscore the importance of understanding fiscal responsibility, the dangers of unconstitutional overreach, and the necessity of clear economic communication to foster informed public discourse.

As the podcast wraps up, Sykes expresses appreciation for Wolfers' insights, highlighting the value of informed economic analysis in navigating complex political landscapes.

Charlie Sykes [45:35]: "Thank you for coming on the podcast. I appreciate it very much."

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This episode serves as a vital resource for listeners seeking to comprehend the intricate dynamics of U.S. economic policies, the interplay between politics and economics, and the critical importance of fiscal responsibility in sustaining national prosperity.

Transcript

[Charlie Sykes]

Foreign. I'm Charlie Sykes. Welcome to the to the Contrary podcast, joined for the first time by the Professor Justin Wolfers, who is a professor of economics at the University of Michigan and a ubiquitous figure now on cable television. So, hey, happy to have you on the podcast, Justin.

[Justin Wolfers]

Charlie, I was expecting you to begin with. Go blue, especially given that it's good to see a bloke from Wisconsin wearing maize and blue like that. Thank you for that. I tip my. My hat to you, and I'm glad we're on the same team.

[Charlie Sykes]

A little bit of Midwestern solidarity here. You know, we were just talking before we started about how hard it is to do a podcast these days because the news cycle moves so incredibly, incredibly quickly. Right? I mean, within, like, five minutes. The tariffs are on. The tariffs are off. The tariffs are on. The tariffs are off. Quite. Court has done this. We really move from an economy by Donald Trump's whim to whiplash. It feels like hour by hour, we have a new economic policy. How do we keep up?

[Justin Wolfers]

We listen to the Charlie Sykes podcast, I believe. Look, it's actually tough times out there for a lot of people, Charlie, I'm sure you have friends who run businesses who are trying to figure out, is there a future for them. Sometimes it's their suppliers are from abroad, sometimes their customers are from abroad. My line of business, you'd think, you know, I'm a tenured professor at a public school, you'd think I'm insulated. But actually, a lot of the kids I teach come from abroad. It's a wonderful export industry. We get to export American values. But the president doesn't want to give them visas right now. So everywhere I look, I see worry. And I will say there's one exception, two exceptions, and it's you and I, mate. Bad economic times are good times for economists. People finally want to talk to us. And complicated political times are good times for political commentators.

[Charlie Sykes]

And so people, yeah, I'd be willing to trade it, though. I'll be honest with you. You know, people, I would be willing to trade it for a little bit of normalcy. So let's just get some over the weekend, you know, take a deep breath after the whiplash of the last couple of days. You know, where are we in terms of Donald Trump threatening the tariffs? I mean, on Friday? And I don't know whether this was in reaction to the whole taco thing. You know, Trump always chickens out that he decided he was gonna get real tough with China and raged about China breaking the deal, that we don't actually have with them. So, you know, are we on again, on again with the trade war markets, at least as you and I are speaking, seem to be kind of taking it in stride, maybe, because what, I mean, how seriously is the rest of the world going to be taking Donald Trump's threats from now on?

[Justin Wolfers]

Wow, there's just so much there. Let me start a place that's probably uncomfortable for you and I. Two blokes, economist, political commentator. The reaction to Tacko really looked a lot like toxic masculinity, didn't it? The guy feels threatened.

[Charlie Sykes]

Oh, yeah, absolutely.

[Justin Wolfers]

He makes himself big. He lets the rest of the world know he's the most important man in the world. Now, I don't like to do Trumpology because I'm an economist, but I can't help but be struck by the tenor of the language. So let's come back. Tacko is the accusation Trump always chickens out.

[Charlie Sykes]

Yeah.

[Justin Wolfers]

I actually think this is only half right. And so therefore I'd say Taquito instead. And it's just as important to understand why it's half wrong. So the half right is. Let me go back to the first trade actions Trump took after being elected was tariffs on Canada. I just want to remind you how crazy that is in November. Who thought, I know, let's get the Canadians. Tim Hortons is too good. Who dislikes Canadians.

[Charlie Sykes]

Who's in the emotions of animosity. Right. Building up between us and Canada, which nobody but south park seemed to have understood up until then.

[Justin Wolfers]

Yeah, it's. I love Canadians. Wonderful, friendly, inoffensive people, beautiful neighbors. I'm in Michigan. They're just around the corner. So he imposed. Crazy. Literally. That was the most insane moment of trade policy of my young life. Then at age 52 and was. I was 52 and a quarter way back then. Then he walks those back.

[Charlie Sykes]

Yeah.

[Justin Wolfers]

Then came Liberation Day. A couple of days, a couple of weeks later, we set a new record. Literally the craziest economic trade policy of my lifetime. Now, at age 52 and 3/8 the formula by which they decided which tariffs would go on who, the size of the tariffs and the sheer dishonesty in calling it reciprocal, when American tariffs rose to be 10 to 20 times higher than our trading partners was utter madness. And you saw Wall street tank. Seven days later, he walked back. So the two craziest things in my lifetime. Then came actually we forward a few weeks, and we might have actually gotten to the new craziest trade policy my lifetime, which is a 145% tariff on China.

[Charlie Sykes]

Mm.

[Justin Wolfers]

An embargo, basically on one of the most. One of the countries we're most tightly linked with. He did eventually walk that back. And honestly, we just got to. I think it was seven days ago now feels like 17 life lifetimes ago. A 50% tariff on the European Union, which, given that it's also a high wage nation, is effectively an embargo. We normally have embargoes against countries we're at war with. And he walked that back. So that's taco. Four insane things to do. Like, unthinkable. Charlie, you and I, in November of 24, thinking about the worst case scenarios, couldn't have contemplated these.

[Charlie Sykes]

That's true. Yeah. And we were accused of Trump derangement syndrome. Back then. We had no idea that's Trump.

[Justin Wolfers]

That's the sense in which he is a taka. The sense in which it's not true is think about where we are today. We have tariffs of 10% on every country around the world. We also have 25% tariffs on steel and aluminium and autos, and they're in the process of creating 25% tariffs, probably on semiconductors and pharmaceuticals. And so even though we've had all those walk backs, we still have the highest tariff rate the United States has had since the Smoot Hawley tariffs we.

[Charlie Sykes]

Have, which worked out so well for us.

[Justin Wolfers]

So well. Smoot and Hawley are often described as two of the great geniuses. No, they're not. We still have tariff rates literally 400, 500, 600% higher than what serious countries have.

[Charlie Sykes]

Mm.

[Justin Wolfers]

We're still miles out there. So anyone who says Trump always chickens out is missing the fact that, no, he goes from here to here and then pulls back to here. But this is still crazy. So that's why I think he's not a taco. He's a taquito, which is a little taco.

[Charlie Sykes]

Okay, so since we're on this particular theme, I want you to repeat your other analysis, which you floated out on cnn, okay. Where you wanted to replace the taco with a burrito. Am I right about that? Okay, so I'm gonna.

[Justin Wolfers]

So burritos are much more delicious.

[Charlie Sykes]

All right. What is the burrito?

[Justin Wolfers]

Well, Charlie, it's funny for an American to ask an Australian. It's a tortilla. You had rice and.

[Charlie Sykes]

Yeah. What did you mean? No.

[Justin Wolfers]

Sorry for messing with you, mate. So the important thing is where we are in the news cycle. So let me first explain that, which is you might be a little surprised that the president has been slapping tariffs on every country around the world. Given that Section 8 of the Constitution says very explicitly, very, very clearly that the responsibility for tariffs rests with the Congress and President Trump is not in Congress.

[Charlie Sykes]

Yeah. And Congress has passed little known fact, right?

[Justin Wolfers]

Little known fact. This Congress has passed less legislation than you and I have, Charlie. They have done nothing on tariffs. So you might be confused how we have all these tariffs given that it rests with Congress. Well, the President decided over the years, the Congress understands that Congress is not very good at being Congress, so sometimes it delegates responsibilities, including over tariffs. But the President decided that he would use the Emergency Powers Act. The Emergency Powers act gives the President a bunch of responsibilities when there's an emergency. Now, there's only two problems with using it for tariffs. One, it doesn't use the word tariff anywhere, not in one place. Two, the emergency that the President is using to impose a 50% reciprocal tariff on Lesotho or 145% on China is that we have bilateral trade deficits with each of these countries. So is that an emergency? Every country around the world has bilateral trade deficits. Every economist on the planet will tell you bilateral. That is one country to the other. Trade deficits irrelevant and not worth focusing on. Just the very quick version of that is I have a bilateral trade deficit with my barber, my hairdresser, actually. I don't go to a barber. See how fancy it is, which is I pay her and then I offer to talk about economics and she doesn't pay me. So I have more money going out than in. So therefore I have a trade deficit with her. But it's fine because other people buy stuff from me. So the emergency was we're bilateral trade deficits. One, who cares? Two, every other country in the world has them. Three, the United States has had them for every year of its existence. Two, there's no emergency. And so was it yesterday or the day before the court said this is unconstitutional. Okay. That's the background. Now, let me tell you what a burrito is. A burrito is someone who is burrito. B U R R I T O blatantly unconstitutionally rewriting the rules of international trade, obviously. And so we do have.

[Charlie Sykes]

Okay, that's brilliant. It's not quite as pithy as taco. I have to admit, I like it a lot. I'm gonna go with burrito, but I'm just telling you, I don't think it's going to have the memeability of taco. That's just saying it's all true.

[Justin Wolfers]

It's a heartier Serving always. You can stuff more into a burrito taco. Actually, it's a very important point. It's actually an analytic point. My friends remind me, tacos and burritos are quite different. Which is taco is about the choices the president makes. Yes, Burrito is. The current issue du jour is those choices may turn out to be unconstitutional.

[Charlie Sykes]

And then we'll find out whether or not we still have a Constitution. Because this was kind of the interesting thing about that court decision, because I think there were a lot of people who were, I think even a couple of days before I was saying, you know, how naive I was that I actually thought you needed congressional action to impose these kinds of massive new taxes that are gonna be paid by American consumers who knew that the President of the United States had uncheck imperial power to just pick and choose these winners and losers and impose these taxes. And then the court comes up and says, no, actually, by the way, we have these statutes, we have the constitutional provisions, and he is, in fact, exceeding it. And it was kind of a holy shit moment. So we actually have a court that says that the Constitution tells the president that he has limited powers. The question now, of course, is what will the appeals courts do? What will the Supreme Court do? Because, I mean, this is a big fucking deal, isn't it? This is a colossal decision in economic terms and in terms of trade, but also it's a colossal decision in terms of the constitutional order. Right. Whether or not, you know, we're going to do something about the burrito.

[Justin Wolfers]

Well, actually, Charlie, this is where I want to refer you, to the charro C H U R R O the courts have the ultimate responsibility to restore order. So those of us worried about the burrito are cheering for the churro because we don't trust the taco.

[Charlie Sykes]

Okay, I get that. Actually, it scares me that I actually understood that. So let's go back to the taco, because there was a very interesting debate and I had actually an awkward question about it. You know how that thing is when you ask something on cable television? The guy that came up with taco was on one of the panels and he said he was actually kind of nervous about it because he humiliating Donald Trump by saying that he's a chicken actually could goad him into doing something reckless. So there was a non zero chance that making fun of Donald Trump could actually goad him into pushing us into a second Great Depression. And the question is, so should we all be afraid to humiliate and embarrass Donald Trump? I Mean, what is your take now? My take on that was I think that we ought to humiliate and embarrass Donald Trump any. Any day of the week. I mean, I would go with that. On the other hand, there is some truth that it's dangerous because the man has no sense of responsibility. He is prepared to break and destroy things in the service of his own narcissism and his own vanity. So where do you come down on this?

[Justin Wolfers]

It sounds, Charlie, like you're worried about the tamale.

[Charlie Sykes]

Oh, no. Okay, no, great. I want to know. The tamale.

[Justin Wolfers]

A treasonous attempt to make Americans lose everything. I can't claim credit for this. My friends on social media.

[Charlie Sykes]

I can't believe the brilliance that we're getting on this podcast. This is.

[Justin Wolfers]

Yeah, no. By the way, the Mexican food in Australia is terrible. So it's amazing I even know what these words mean. Charlie, I think you ask a good question, so I can't answer all of it. What I can tell you is I'm going to take off a little chunk of it. I'm going to take a personal chunk and then say something. As an economist, so I can't tell your listeners what to do. But you and I are public intellectuals. Maybe, I don't know, we're speaking to the public.

[Charlie Sykes]

I speak to intellectuals.

[Justin Wolfers]

And what I want to do is teach people economics so they can understand and make their own choices. I occasionally will veer off and be a little crazier than that, but I think my responsibility is to tell truths, to tell hard truths, to look people in the eye and to be trustworthy. People pay me to be an economics professor, and I think that's the responsibility I owe them back. So that's most of what I'm going to do. So having said that, what can I say about what you just said as an economist? Look, the very premise of your question, should we worry about the President's feelings? Points to a problem with how he's running the economy.

[Charlie Sykes]

Yes.

[Justin Wolfers]

So there was a tradition, and you could call it Reagan, you can call it Milton Friedman. You can also just call it market oriented. And you can therefore go all the way to bringing in Bill Clinton where we view market forces. Markets are an amazing invention. I am probably to your left, Charlie, but I still think markets are an amazing invention that have created extraordinary riches. Markets are the reason that South Korea is rich and North Korea is poor. One has markets, the other doesn't. The material standard of well being. But it's more than material, right? This is why moms don't lose babies in childbirth as often. This is why people aren't hungry. This is why people in South Korea are taller than people in North Korea. This stuff really matters. Market forces are important. Okay, so therefore, what's the role of government? Basically, set the rules so you get a fair competition.

[Charlie Sykes]

Right.

[Justin Wolfers]

That then says the role of the president is to be the referee. It's not a perfect analogy, but it's pretty good. When we're talking about soccer, football, basketball, the player's job is not to manage the feelings of the referee. The player's job is to compete. And so I see sort of two big errors here. One Trump loves. Instead of just refereeing, calling straws, you know, writing down rules and letting people compete, he's calling Tim Cook. He says, hey, Tim. And he's calling CEOs, and he's calling the president of Harvard, and he's calling the chairman of law firms, and he's directing it all. He's no longer the referee. He thinks he's the coach now. The coach is the person who directs all the players on the field. Another word for the coach is the coach is the planner. They centrally plan what the players on the field do. You probably see where I'm heading here. Central planning is a different way of running an economy. That's what they chose in North Korea, and it didn't work out very well for them. So that aspect of what Trump is doing, I think is profoundly mistaken. Every time he says the first name of a CEO, he's saying, I'm the coach, not the referee. And that's a mistaken ideology, and it's one that the Republican Party fought against for decades.

[Charlie Sykes]

Okay, but in your analogy of the team, though, there's still a competition on the field that you can win and lose. Donald Trump wants to be. And I hate the Now, I hate talking about professional wrestling, but the guy who is the executive producer, this is who is going to be. And these are the rules. This is my decision, my whim. And I'm going to tell you in the end who takes a fall and who is the champion. And I think part of it is what we're getting at. It is so bizarre. What a bizarre moment we're in when we have to all walk around on eggshells being afraid of hurting the feelings of the president. That's not the way it's supposed to be. We're not supposed to be terrified of, oh, are we gonna make the emperor angry? Are we going to lose his favor? This is not the way in a Democratic Society you're supposed to operate, but frankly, that's it. And it's been internalized in sort of Washington. This is the way the Washington does, you know, does business. You know, of course you have to do this. You have to feed his ego. So let me give you a couple of questions.

[Justin Wolfers]

I think my therapist would say it's an extraordinary moment when I'm regarded as more psychologically stable than the president. Nicest. But I don't know if you've got a therapist, Charlie, but I think the same might be true for you too.

[Charlie Sykes]

Well, I'm really glad to be more psychologically stable than either Elon Musk or Donald Trump. But you know what? We could devote whole podcast to the topic of addled presidents. And let's be analytic, you know, what one, one would hope. And by the way, at some point I want to have a really interesting discussion of, you know, how our politics became so addled and so and so old is what are the, what are the, what is the incentive for addled addicted narcissists to, you know, run our world is. I mean, because there is an incentive structure, right? There is a reward structure that leads to the fact that, that we live in this particular universe. Okay, so do you think that he la, lashed out at China because he was worried about being accused of chickening out? You mentioned the toxic masculinity. Really interesting piece by Tim o' Brien from Bloomberg, who's been studying Trumpology from the very, very beginning. And he says this is a really, this cuts really deeply for Donald Trump because Donald Trump wants to be the biggest, baddest guy in the room. He admires John Gotti, the former mafia boss who never backed down, who always punched back harder, who gave everybod the distinct guy. He doesn't want to be thought as the guy who, you know, Marty McFly in back to the Future. He doesn't want to be the weakly. So anytime there's a suggestion that he's weak, he's going to lash out in some particular way. So it's a. Well, Brian says understand he's a dangerous guy. So is that what that whole China bleep was about? Or is there something else going on here? Or is he just simply addicted to the drama now of on off, on off, on off. It's like that, that's, that's where he's getting his thrills.

[Justin Wolfers]

So again, I'm going to try not to be a Trumpologist. I'm going to try and sound like an economist, but actually a really useful frame for Thinking about international trade is to think about our love lives. Okay, So I have a partner, her name's Betsy. I really like her. And one of the things we've discovered is that our life is better when we're together and cooperating than when we're single and not. And that's what international trade is, right? In many respects. You could think of Betsy and I's trading services. I cook dinner tonight. She will prepare the taxes. Right. And I think it's completely obvious to everyone that allowing Betsy and I to trade services backwards and forwards makes Betsy and I a whole lot better off. Now, what if I told you that our house was built on the U.S. canadian border and she was on one side of that border and I was on the other? It doesn't change the underlying reality that we're better off when we can cooperate together, that we produce more, that the pie is bigger, that our lives are richer, that I can bring my heritage and she can bring hers. And it's not the government forcing us into that household, by the way. It's that we choose. We found each other and we really, genuinely believe our lives are enriched as a result. Well, so it turns out our households all involve an element of international trade. The only question is whether there's literally a border down the middle or not. Then when you think about what does it mean to be a good trading partner, it's not that different than the question of what does it mean to be a good spouse. It means being open, communicating. It means trusting. It means understanding. This is not a once off means not trying to exploit. Today I could say to Betsy, you have to make me dinner or I'm going to throw the car keys in the fireplace. I could do that and she'd make me dinner. I got to tell you, the rest of my life would be a whole lot worse. And so the point is, we need to think in much more reciprocal terms. And that I could bully, I could become an abusive spouse. I could use violence. It's probably a horrifying metaphor, but it's one worth thinking about, which is those relationships sometimes do stay together, but they're not very satisfying. Both partners withdraw.

[Charlie Sykes]

And that partnership, when trust is broken, it's very hard to restore. And I guess that's one of the questions now on international trade is we have broken relationships that hadn't even been questioned up until recently. And I do wonder how easily that gets restored. I mean, the optimistic view is that trade is this giant machine and people will come back together again. Right, because the relationships are Important. The sex is good, and so we'll get past this. The more negative view is that markets adjust and people go in different places and America is just no longer a reliable ally or trading partner. What do you think?

[Justin Wolfers]

One of the most interesting data series I saw recently was American exports of wine to Canada. No one made American wine taste worse recently, and there's no particular tariffs on it, but that graph goes. We export a lot. A lot, a lot. Canada is one of our important wine markets. And then the President threatens to invade Canada, and it's down. And it stayed down, like, dramatically down. I got to try and find the data again. It's quite extraordinary.

[Charlie Sykes]

Yeah, well, maybe the question is whether the taste changes permanently or whether people come back.

[Justin Wolfers]

Right.

[Charlie Sykes]

Do you come back?

[Justin Wolfers]

We know what happened. Right? It turns out that the single worst way to begin a relationship with anyone is by threatening to invade their country. My friends in Canada were actually quite keen to resolve the trade issues, but they said, when you treat me like that, I cannot. I have dignity. And so that wine chart I just told you about is an expression of that dignity. I'm going to the store and I will get a slightly worse tasting wine because I want to send a message. So can we recover from this? Look, one answer is, hopefully in three and a half years, all of this will be behind us, and the next president will be a person of fine character from an institution. Right. The other thing that's happening is Congress is letting every part of this happen. Remember, responsibility for wars and for tariffs rest with Congress.

[Charlie Sykes]

Right.

[Justin Wolfers]

So it's the American Congress. So this has been happening in 435 congressional districts around the country. The Republican machine is meant to be what disciplines someone who wants to be king but refuses to. So if all of that is washed out in three and a half years, where are we at? So this is the optimistic side. It is still the case that the American people have shown that they are willing to elect a leader who will just tip the bucket on global commerce.

[Charlie Sykes]

Yeah, more than once he said all.

[Justin Wolfers]

This in the campaign. He said he was going to impose tariffs on the rest of the world. He said he was going. We had free trade agreements which we signed and passed through Congress with many of these countries, including Australia, Korea, Canada, Mexico, many of which the President himself negotiated. So who's to blame here? Look, you and I are gonna sit and bitch and moan about Trump, but actually it's all of us.

[Charlie Sykes]

Yeah.

[Justin Wolfers]

We elected the guy. And if we can't show the rest of the world that we're different and better. They should distrust us and will distrust us forever.

[Charlie Sykes]

David Frum's quote is always in 2016, the American people mix Quaaludes with tequila. And they could say afterwards, okay, you know, that was a mistake. You know, we will never, ever, ever do that again. But then when they do it in 2024 again, mix the Quaaludes with the tequila, the rest of the world goes, you know what? You have a real problem. You know, this, this is something that. That is not going away quickly. And that's kind of what the point you're making here is, that once you've done it once, you could brush it off. But this is a choice the American people, in the American political system have now made multiple times. Okay, so we talked a lot about trade. Let's just talk a little bit about the other big legislation that's pending in Congress right now. And I guess here's my economic question to you, because a lot of politicians will say in private, some will actually say it in public. You know, the debt really doesn't matter. The deficits don't matter. Now, Republicans and conservatives have been saying the opposite for years now, and there's a gap between, of course, what they say and what they do. But this bill, the big, beautiful bill, will explode the national deficit. Will explode the national debt. You even have. You have some pretty hardcore conservatives who have been arguing against it. But it really comes down to the questions, like, why should you. And I really care about all of this. And I say this as somebody that spent many, many, many years having many, many interviews with people like Paul Ryan and, believe it or not, Ron Johnson from Wisconsin about the coming debt crisis, the coming debt bomb, how terrible deficits were, and it hasn't hit yet. So you tell me whether debt matters and why we should worry about that.

[Justin Wolfers]

I definitely want to answer your question, but you held out some red meat for me that I just have to jump at for a moment.

[Charlie Sykes]

Oh, no. Oh, no.

[Justin Wolfers]

So there is a sense that many people have that the Republican Party is or was or should be or wishes it were, the party of fiscal responsibility. I was born in 1972. I'm not sure that's been true in my lifetime. So Ronald Reagan famously blew out the deficit. George Herbert Walker Bush, not quite as bad, but not great. Bill Clinton returned the deficit back to surplus. George W. Bush, the Bush tax cuts blew out the deficit. Barack Obama moved us back in the right direction and then got hit by the global financial crisis. Trump passed the Trump tax cuts and blew out the deficit. Biden was probably the least fiscally conservative Democrat of my lifetime. But then Trump has come back and he's blown out the deficit again. So there has not been a fiscally conservative Republican in my lifetime.

[Charlie Sykes]

I think that's fair.

[Justin Wolfers]

Can we just stop pretending? And we did have genuine fiscal conservatism under both Clinton and Obama. So just let's stop. Like, if you're a fiscal conservative, you're a Democrat. It's okay. There are other Democrats and you can talk to your friends about it, but the party of fiscal conservatism is the Democratic Party. Okay? The big beautiful bill. First of all, don't ever name your bill BBB after a debt ratings agency downgrade.

[Charlie Sykes]

Yeah, awkward.

[Justin Wolfers]

A little awkward. It's like a suggestion. Second, I was on, I don't watch a lot of tv, but like you, I was in a green room yesterday. And they make you watch TV for the guest who's in front of you. And the guest in front of me was a Republican Congressman. Cause they don't send the feedback. I don't even know who it was. But this bloke was on tv, he was saying, well, our bill pays for itself. Yeah, it's literally a lie. It's not a. It's not he said, she said. It's bullshit. The simple mathematics of it are that they're going to collect 4 trillion less in taxes and cut spending by about 1. So all you need to do to understand this is do the following arithmetic. One minus four equals minus three. That's it. Right? And we can quibble about the point, Watts, but it's still 1 minus 3. And maybe someone wants to say 0.5 minus 6. I don't really care. It's 1 minus 4. It's a negative number. And then he's like, we'll grow our way out of it.

[Charlie Sykes]

Yep, they've been saying that now for.

[Justin Wolfers]

Years, which is the lie they've been telling since Reagan. And we've tried it and we didn't and we can't. So look, Charlie, you wanted me to talk about economics and I love talking about economics, but as a person, the dishonesty gets to me. So I just want the listeners to understand there is literally not a debate that this increases the deficit. And you can take your favorite, I believe, more supply side stuff than most economists, but even that's not going to get you out of this. You actually have to revert to lying in order to believe otherwise. And by the way, it's not very hard if what you want to do is Reduce the deficit, you should cut spending or raise taxes. And if you don't do much cutting spending, you do a lot of lowering taxes, you're moving in the wrong direction. You're not getting it done. So that's just the background. Okay? Now, Charlie, I want to invite you to narrow down what part of the economics of this you want me to talk about, because I know I'm getting.

[Charlie Sykes]

So, okay, so why should we care about a massive national debt? Okay, so, yes, they're not fiscal conservatives. Yes, we're going to have a national, you know, so what. What will. What are the economic consequences of having a national debt of like 150% of GDP or 200% of GDP? Basically, I think the operating assumption is, well, let's continue to pay our bills. It's never going to become, you know, more than we can actually handle. So, you know, is there a moment at which the debt crushes everything, or do we grow ourselves out of it? I mean, and I think there's almost a bipartisan sense that, hey, yeah, okay, you know, it's a good rhetorical point, but it's never actually going to crimp our style, right?

[Justin Wolfers]

So it's a hard question, honestly. So, you know, fiscal hawks, these are the people who worry about this. You mentioned Paul Ryan, are worried that we get to a point we can't repay the debt. And they often. When debt was 30% of GDP, they said now. And when it got to 50%, they said now. And when it Got to 100%, they said now Japan's at 200% and still going, okay, so what I don't want you to take from that is Japan proves it doesn't matter. What it does say is it's really freaking hard to know, because as much as there's Japan, there's also Greece. So look, here's the bad thing that can happen. Everything's going okay, which is we borrow a lot of money, but we can repay it. And if everyone understand, believes we can repay it, they'll charge us low interest rates. And if everyone believes we will repay it and they charge us low interest rates, we can repay it. And that's a happy, virtuous cycle. What happens if they wake up one day and say, I'm not so sure you can pay right? The next day, what happens is the interest rate goes up. And if the interest rate goes up, actually, we may not be able to pay. And that's Greece, that's Argentina. That has happened to many countries in the history of the world. So there are Literally two equilibria. Wow, that sounded like fancy economics words. We can be in a virtuous cycle. Everyone thinks we can pay. They charge us low rates, we do pay. We can hit a vicious cycle. Everyone thinks we can't. They jack up the rates high enough and we can't. And it's a self fulfilling prophecy. That's sort of the real story for caution. So that's the macroeconomics of why we should care about it. There's another story that people often tell and I just want to tell it for completeness. The debt is an inheritance. We leave our children negative inheritance. So you're making your kids lives harder or your grandkids lives harder. Lots of people worry about that. They have a personal moral view about that. That's not an argument that worries me much because I realize we live in a world of economic growth and my kids are going to be much richer than me because the American economy on average grows 2% a year. So therefore average incomes when my kids are my age will be twice as high as they are right now. I'm actually leaving my kids a wonderful inheritance. I'm leaving them a road system, hopefully a stable system of laws and all sorts of things like that, a great education system. They're going to inherit all that as well as the national debt. I'm kind of okay with that. But now let me come back to. People often want an economist to say there's some wizardry in my economic models that tells you you should have my worries. I'm not going to do that. But I want to come back to something closer to common sense. But instead I'm going to call it microeconomics. The real question of government spending is for any dollar the government spends, whether it's on the military, whether it's on welfare, Social Security is do the benefits of this spending exceed the costs? There's nothing more important than that. So let's not look at the magnitudes. Let's look at what the government is and isn't doing. Let's get rid of the stuff where the costs are too high and let's do more of the stuff where the benefits are high. So let me give you a couple of examples. So going. Actually, let me go back a step. People worry that going into debt is a bad thing. Their mum taught them, their grandma taught them that, or there's a certain morality associated. But here's the analogy I want to give you Borrowing money, taking out a student loan to go to college in order to study hard, learn a lot and Launch a successful career is a fantastic investment. So borrowing money is great. Borrowing money to go to college, taking on student debt to go to college, enroll, never turn up to class, drink beer, and only watch football games is a recipe for, for having student loans that you can't repay when you later on are living a miserable existence on a low wage. And so whenever you think about debt, the question is, are you like the studious kid or are you like the frat boy?

[Charlie Sykes]

Yeah.

[Justin Wolfers]

So the question then is, are these good investments worth making? So we know every dollar we spend on early childhood education not only increases the well being and the income of those kids, but those kids go on to earn higher incomes and pay higher taxes. They go on to commit fewer crimes and therefore require fewer police resources. They go on to be less of a drain in the community in a number of ways. And in fact, the US Government, every dollar we spend, the US Government spends five fewer dollars on that person or gets in five more fewer dollars. So that's a really great investment. Let me give the opposite extreme a military parade. Are the dollars we're about to spend on a military parade worth going into debt for? Now, I've made the argument a little glib because I took two extremes. It all comes out in the hard and difficult middle. But that's the judgment I want listeners to be thinking about.

[Charlie Sykes]

Yeah, I mean, if you're borrowing money in order to go out to dinner and take trips, you may have a good lifestyle, but you don't have anything to show for it at the end of the day. All right, so speaking of debt. And part of this is trying to keep up with all of the flood of bullshit that's out there. And you've, I'm sure, seen some of this that, you know, people are talking about the cost of the tariffs and the economic, the downside of all of that. And you have people like Howard Lutnick who go on television. I hope that's like a triggering saying, well, look, Donald Trump just came back from the Middle east and he brought $10 trillion worth of investment. This has now become the big MAGA talking. Point is that Donald Trump, who is sort of in this orgy of corruption, is in the process though of bringing in these massive trillion dollar. Now the reality is $10 trillion is like what is a half the size of the entire US Economy or something like that. And the numbers make no sense. But you know, I think that there's a certain faith in the enumeracy of the American people that if you just throw out really, really large numbers that people will think you're doing well. So first of all, any thoughts, any insight into all of this massive new investment from the Middle east that Donald Trump is bringing with him, as well as getting free jets?

[Justin Wolfers]

Yes. So my favorite of this genre was yesterday, I think it is, the President said the American economy is hot. The king. Is it the king of Saudi Arabia? Yeah, the king of Saudi Arabia told me. And I thought to myself, is that where we're looking for approval these days?

[Charlie Sykes]

Yes.

[Justin Wolfers]

But okay, $14 trillion of investment coming to the United States. There's actually a page on the White House website where they list this. Yes, you add the numbers up. And last time I added it up, it added up to about four and a half trillion, which means nine and a half trillion is literally unaccounted for. Of course you can trust this president. He would never mislead you. But this is the same game we saw Doge play as well. And then you read through these things, and a bunch of them are things, in fact, that were commitments made 2, 3, 4, 5 years ago. So the 4.5 trillion is also not true. And so the reality is probably there's nothing there. But, Charlie, the deeper issue here is, remember we were talking before, one view of government is you're the referee so the players can compete. A different view, and this appears to be the President's is, he's the coach and he needs to go out and gather this money. And in some sense, it was how he ran the Trump Organization. Right? He had guys who'd come in and say, okay, go sell steaks. And some guy would run in and out and sell steak. Vodka, let's get vodka. How about the xfl? Right. I'll leave it to other people to judge whether it was a good way to run a Trump Organization.

[Charlie Sykes]

It's a horrible, notorious failure.

[Justin Wolfers]

It doesn't make any sense as a way to run the economy. And again, here I'm going to. I don't know whether I should or shouldn't, but I'm committing to the raw Republican values of we want to be the referee and let competition win. That is not how the Trump Organization was run. Charlie, you said something really interesting, so I want to take you up on it, which is, are they counting on the enumeracy of the American people? The answer is yes. And so I want to counter that right now by teaching your listeners the most important lesson in macroeconomics. It's a very simple word, which is there are three words out there that sound very similar Million, trillion. They're only one letter different. And you saw I just did them. Those fingers aren't very far apart. They're wildly different. Wildly different. And the problem is our minds, mine even as a macroeconomist and yours are not well wired to make sense of big numbers. It's really hard. So in my economics textbook, I actually have a nice little example, which is, let me hope I get this right. A million dollars is if you get a briefcase full of $100 bills, just a standard briefcase, that's a million. A billion dollars is when you get a school bus and you pack it full of briefcases because you can fit a thousand briefcases in a school bus. So a billion dollars is a school bus. A trillion dollars is when you go down to the big House, the football stadium here at Michigan, which, Charlie, I know you support the Wolverines, and you drive a whole lot of buses in as many as you can park. And you probably have to put a second or a third layer. You might have to put a second layer of buses in, and that's a trillion dollars, right? So anytime you hear someone say the word million, I want you to say briefcase. Anytime they say billion, I want you to say bus. And anytime you hear them say trillion t the big House, they're really different. Okay, now we understand, and I hope I've convinced your listeners, it's very hard for our minds to make sense of these differences, partly because we wouldn't be great to have a million dollars, right? So that's already beyond my comprehension, sort.

[Charlie Sykes]

Of big number, what we do.

[Justin Wolfers]

As social scientists, when I want to be honest, I understand that M, B and T sound the same. And so I reduce it to human and interpretable terms. I will say the tariffs will cost the typical American family $2,400 a year. Now you can make sense of $2,400 a year. So a simple rule of thumb is anytime anyone uses the word million or trillion, it's because they don't want you to understand. Like, politicians are very gifted communicators. What I just said is not news to anyone. So if they use words you don't understand, they understand that you don't understand and they mean for you to not understand. So then you as a listener should think to yourself, someone is trying to baffle me with bullshit. If they were trying to baffle me, is it because they've got good news to tell or because they're trying to hide the facts? So a simple rule of thumb for a citizen is anytime you hear the word million. Billion or trillion? Cross out the rest of the sentence and go back and write, you know, Howard Lutnick said some words that he hopes you don't understand. Now ask yourself why.

[Charlie Sykes]

I'm not sure that Howard Lutnick understands the words that he just said. However. However, I actually feel smarter having listened to you, Professor. So on that note, while I'm feeling smarter, I want to thank you for. Can we do this again sometime?

[Justin Wolfers]

Yeah, mate. I love cooking economics.

[Charlie Sykes]

I feel like I have a lot of ground to make up here.

[Justin Wolfers]

We do. We'll get there.

[Charlie Sykes]

We do. Thank you for coming on the podcast. I appreciate it very much.

[Justin Wolfers]

Thanks, brother.

[Charlie Sykes]

And thank you all for listening to this episode of to the Contrary podcast. You know why we do this? Why we do this three times a week? Because now more than ever it's so important to remember that we are not the crazy ones.

[Justin Wolfers]

Thank you, Sa.