Why am I opening an economics piece with Soviet history from roughly 90 years ago? Well, suppressing a completed finding for political purposes — as Stalin did — is an explicit violation of the rules that govern America’s official statistics. Or it was, until three weeks ago. Then something changed. Under the new rules put forth by the Trump administration, that kind of suppression is fine.

Venezuela gives us a more modern version. The economic crisis there was so severe that, in 2021, the State Department estimated a third of the population lacked regular access to good food. As that crisis deepened, Maduro’s government simply stopped publishing inflation statistics. Prices kept rising, families kept struggling, people stayed hungry — but the government stopped measuring it and stopped admitting it. Three weeks ago, I would have told you that the American government couldn’t suppress economic data like this. But under the new rules that the administration just put forward, the White House can direct its political operatives to kill uncomfortable numbers.

Or take Brazil under Bolsonaro, who found a subtler variation. During COVID, the government moved its daily data release until after the evening news, then pulled cumulative deaths and cases from public view. Nobody had to falsify anything. The numbers just got harder to find. Three weeks ago the United States had a policy that protected the free flow of scientific information and barred political meddling in how Census Bureau findings are presented. Today, it doesn’t.

To be clear: I’m not (yet) saying that our government is cooking the statistical books. Instead, I’m saying that it took the necessary steps to make that legal, and possible. In recent weeks, the Trump administration quietly rewrote the rules that kept political interference out of our economic statistics. And almost nobody noticed. This rewrite explicitly made it possible for the Stalin-Maduro-Bolsanaro playbook to be used in the United States. It doesn’t apply to all statistics, but it does apply to everything published by the Census Bureau and the Bureau of Economic Analysis.

You might remember that a few weeks ago I spent some time showing you the problems with a recent Census Bureau report — unsigned, un-authored, no methods, and claiming that 24,000 non-citizens had fraudulently voted in the 2020 election.

I showed you why that report was statistical nonsense. Today I’m going to show you something worse. Just after that report came out, the Commerce Department scrapped its ban on political interference in science.

This happened very quietly

On August 19, the Commerce Department posted a new directive called “Scientific Integrity” — note the scare quotes. It’s DAO 216-23, whatever that means. They posted this directive very quietly. There was no press release, no announcement, and no press conference. For the first time in his life, Howard Lutnick was quiet. The new version just appeared online.

To analyze the changes, I actually had to go to the Wayback Machine to find the prior version of this policy, because it had been wiped from the Commerce website. There’s something pretty bleak about a country’s rules about scientific integrity surviving only because a volunteer internet archive grabbed a copy.

You hopefully can tell I think this is a big deal. And the government’s secrecy about it mostly succeeded. As far as I can tell, the only mainstream reporter who caught it was NPR’s Hansi Lo Wang, who found the change and reported that former Census officials were alarmed. Well, I’m alarmed too.

Commerce matters because Commerce contains the Census Bureau and the Bureau of Economic Analysis. The Census Bureau tells us who lives in America, where they live, what they earn, whether poverty is rising, which communities need schools and hospitals, and how congressional representation gets divvied up. The Bureau of Economic Analysis gives us GDP, consumer spending, household income, business investment—the basic scorecard for how the economy is doing.

Fortunately, not all of America’s numbers come out of Commerce. The Bureau of Labor Statistics produces the jobs and inflation and unemployment numbers we talk about all the time, and that sits over in the Labor Department. So it’s not affected by all this nonsense. Or at least not yet.

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Ten mentions → no mentions

I put the old January 2025 policy up next to the August 2026 replacement and counted the phrases that do the work of protecting government scientists from political pressure.

The term “inappropriate influence” got 10 mentions in the old directive. Each of those mentions was trying to figure out how we can avoid it. Inappropriate influence gets zero mentions in the new directive. No longer is this something to be avoided.

“Political interference” gets four mentions in the old scheme. Again, the policy was about trying to avoid political interference. Now that term gets zero mentions. Political interference was outlawed. Now it’s not.

“Reprisal,” “differing scientific opinion,” “free flow of scientific information.” All those phrases are gone — along with their protections.

This isn’t a word game. The old policy, the 2025 one, was defining scientific integrity and giving us the rules needed to protect it. Scientific integrity needs honesty and objectivity.

The new policy keeps honesty. Keeps objectivity. Adds transparency and peer review— fine, good. And it deletes “protection from inappropriate influence,” along with every rule that made that principle real.

Apparently influence that is “inappropriate” is now appropriate.

Steel-manning the new approach

Let me build the best argument I can for the government’s new policy direction.

A government scientist who fabricates data is a serious problem. If someone makes up evidence, falsifies a result, or plagiarizes, they should be investigated and disciplined. The new directive takes that seriously. It defines fabrication, falsification, and plagiarism. It sets deadlines for investigations, requires corrections, and allows punishments up to termination. On rogue scientists, it genuinely breaks new ground.

But there are two ways government science gets corrupted. A rogue scientist can cook the books. Or a rogue politician can order the scientist to cook them.

The new rules go hard after the first and say nothing about the second.

Under these rules, a political appointee can tell expert statisticians which questions to investigate, steer them toward the data that gives a preferred answer, pick friendly reviewers, bury a report, rewrite the headline, strip out the uncertainty, and stamp the seal of the U.S. government on that document. That gives a savvy political operative plenty of ways to turn statistics into propaganda.

The previous policy — correctly!!!! — treated all of that as a scientific integrity problem. It prohibited political interference in the funding, design, proposal, conduct, review, evaluation, reporting, and use of science. It said findings could not be suppressed, delayed, or altered for political purposes. It said Department officials—including public affairs officers—could not alter scientific findings, direct scientists to alter them, or demand a presentation that compromised their objectivity. And it required the clearance process to forbid censorship, unreasonable delay, and suppression of results that could legally be shared. It encouraged scientists to talk to reporters directly rather than through political flunkies, and it gave them a formal way to put a differing scientific opinion in writing.

We’ve already seen the new regime at work. That Census voting report was opaque, unsigned, politically explosive, and mostly wrong. Yet it went out with the Census Bureau’s name and logo on it. It was prepared by partisan operatives rather than by statisticians. I told you at the time why that was wrong — but every part of the process that led the Census Bureau to be forced to publish propaganda is now permissible.

That report was patient zero.

Reporting your boss to your boss’s boss, who is also your boss

Here’s the part that decides whether any of the remaining rules mean anything.

The old policy required someone be employed full-time to make sure none of this went wrong. That person was a full-time career “Scientific Integrity Official.” That’s a senior post, held by someone who stays across administrations, whose job is to protect the evidence and the people producing it. The role required serious scientific credentials and political independence, because you can’t do the job without them. That person could gather information, review complaints, oversee corrections, coordinate with lawyers, and report on whether Commerce was actually protecting scientific integrity.

The whole design put distance between political power and the person judging whether political power had leaned on the numbers.

The new system closes that distance. The Scientific Integrity Officer now needs only to be, quote, “a senior department employee.” No career requirement. No scientific credentials. No political independence. The job of judging whether a finding met the department’s standards can now go to a partisan operative who knows exactly what the President wants and nothing at all about statistics.

That officer reports to the Deputy Secretary of Commerce. If nobody is appointed, the Deputy Secretary or their designee does the job.

The current Deputy Secretary is a bloke by the name of Paul Dabbar. He’s a political appointee. He serves Howard Lutnick. Lutnick serves the President.

So imagine a career statistician at Census. She’s worked there for twelve years, and she’s good at her job. Takes it seriously. New management comes in, and she’s worried they don’t take her commitment to the truth as seriously as she does. She feels like they’re political. One day, management tells her to drop the error rate from the summary of a document she’s working on. That obscures important information from her findings. Of course, she objects.

Under the old rules, she would have written this down, put it on the record, and sent it to an independent official with credentials. Now, her complaint travels up a political chain of demand.

It’s like reporting your boss to your boss’s boss, who is also your boss, and who hired your boss specifically to get the answer you’re complaining about being forced to produce.

This isn’t a Commerce quirk, either. The President’s executive order tells agencies to put scientific integrity enforcement under, quote, “a senior appointee.” That’s code for “one of our people.” Commerce is just following orders. It’s now “our people” over expertise.

The missing report

There’s one more change, and it’s about making all of this harder for you and me to see.

The old policy required Commerce to publish an annual scientific integrity report: how many complaints were filed, how many investigations happened, how many appeals were pending, where the resource gaps were, and what the department did about it, including summaries of closed cases. You could read it and judge for yourself whether these folks were telling you the truth.

The new policy requires operating units to send confidential semi-annual reports to the Scientific Integrity Officer.

The old rule was: tell the public when scientific integrity breaks down and show what we did about it. The new rule is: send a confidential memo upstairs twice a year. It is not a reduction in paperwork. It is a reduction, indeed elimination, of transparency and accountability. Now political hacks can force government statisticians to concoct propaganda day in and day out, and the broader public never gets to see the report that says it’s happening.

And, unfortunately, the Census Bureau doesn’t have its own stronger system waiting underneath. It has a scientific integrity page promising professional standards and quality, integrity, and credibility—all lovely words—with no detailed ban on political influence, no independent integrity official, no public complaint system, and no right for a statistician to put dissent on the record. These new Commerce Department rules are the Census Bureau’s rules.

One guardrail still standing, with an asterisk

Now for the good news. Sort of.

In 2018, Congress passed the Foundations for Evidence-Based Policymaking Act, which requires federal statistical agencies to be independent and trustworthy, and the Office of Management and Budget issued binding regulations under it—5 CFR Part 1321. People mostly just call it Trust Regulation.

It applies to both the Census Bureau and the Bureau of Economic Analysis. It says their statistics must be impartial and free from undue influence. It gives those agencies authority over their own methods and release schedules. And it bars the Commerce Department from editing statistical releases except in a few narrow cases. That may well be the foundation for future lawsuits.

Here’s the asterisk. A rule only matters if the people inside the administration enforce it. And we can only be confident they’re enforcing it if people outside the government can see when they don’t.

This new policy just deleted the report that would have shown us.

What we’re losing

I know this feels like it’s in the weeds. At one level, I’m telling you that a few sentences were quietly removed from a departmental directive that almost no American will ever read.

But I know my platypals are smarter than that. That we all instinctively understand the value of truth. That stats beat propaganda. And a new rule allowing propaganda doesn’t just appear for no reason.

A government that distorts the record on inflation does not make prices fall. Redefining poverty does not make anyone less poor. Mismeasuring growth does not make a single family richer. Reality doesn’t read rosy government propaganda—and if you can’t see reality, you can’t fix it.

We lose the ability to check the government’s story about the country. We lose the career experts who were supposed to be protected when they objected. We lose the annual accounting that would have told us it happened.

And we lose it the way these things always go: quietly, in a document nobody announced, that only survived because a volunteer archive took a screenshot.

Honestly, in the short run, it’s hardly bad at all.

And, in the long run, worse than almost anyone is saying.

First, we’ll start with the history, so you know how two countries that spent sixty years building one economy ended up taxing each other. Then the arithmetic, which is small. Then we’ll talk about car doors. Trust me — that part is important. Finally, we’ll look at what it means to pull an economy apart.

Sixty years of building one North American economy

Start in 1965, with the U.S.-Canada Auto Pact. The idea was that cars and car parts could cross the border duty-free. That way, both sides could build one auto industry that’s bigger and more productive than either could manage alone. It worked.

In 1989, the two countries signed a full free trade agreement. In 1994, they brought Mexico in, and that became NAFTA — negotiated under President Bush, pushed through Congress by President Clinton. Most goods, no tariffs, and a promise of deep integration. The promise mattered as much as the tariff schedule. Businesses will make thirty-year investments if you tell them the rules will still be there in thirty years.

In 2020, the first Trump administration tore NAFTA up.

Then, the president discovered he had nothing to replace it with. So the next part happened quietly. He sticky-taped the old thing back together, gave it a new name, and hoped nobody would look too closely. The new name was the USMCA — or CUSMA, if you’re Canadian and you like to put your own country first.

Then the second Trump administration arrived, looked at the U.S.-Canada free trade agreement, asked which idiot negotiated this, and demanded the whole thing be renegotiated.

It was negotiated by President Trump.

Why did we even start tariffing Canada?

One admirable thing about the president — and I’m being serious here — is that he ran as a tariff man. He was elected on that promise. He loves tariffs. He wanted to impose them. He was very, very clear about that.

Here’s the thing he didn’t do. Not once during the election campaign did he say that the country he wanted to target was Canada. Why?

The idea is absurd. Canada is a longtime friend and ally. We have deeply integrated manufacturing supply chains. It would hurt people in Canada. It would hurt people in the United States. And the president’s political instincts were strong enough that he understood not to run on tariffs against Canada.

Then he won the election. Many people forget that the very first trade policy action of the new Trump administration was a set of tariffs on Mexico, China, and Canada.

These were the so-called fentanyl tariffs. The stated goal was to use access to the American market as leverage to get those countries to stop the flow of fentanyl across their borders. That is fair enough, and the objective is good. There’s one problem, though. Almost no fentanyl came from Canada.

There was almost nothing Canada could do to eliminate fentanyl manufacturing or stop exports of fentanyl, because they basically didn’t have a fentanyl trade to stop in the first place. The stuff was crossing north from the United States about as often as it was crossing south.

So from Canada’s perspective — and from reality’s perspective — this was an arbitrary set of tariffs imposed because of something they hadn’t done. They retaliated with their own tariffs in March and April of 2025. Then the Supreme Court ruled the fentanyl tariffs unconstitutional, they vanished, and the president more or less forgot about Canada.

The asterisk workaround

Over the last year and a half, Canada was sometimes the number one target of the United States — the fentanyl tariffs — and it was sometimes our number one ally. Somewhere in this back-and-forth, a compromise arose. The president would announce sweeping new tariffs on the world, and buried in the announcement would be a little asterisk: except for USMCA-compliant goods.

Nobody else got that asterisk. Not our free trade agreement with Australia, not KORUS with Korea. Just Canada and Mexico. And because nearly everything those two countries send us is USMCA-compliant, the effect was that while the president was out broadcasting how much he hated Canada, Canada (and Mexico) were getting one of the best deals of any trading partner we have.

That changed about a month ago.

The president’s worldwide tariffs had been struck down, and he’d rebuilt them on a legal authority meant for balance of payments emergencies — an authority that only allows temporary tariffs, good for six months. Those six months were nearly up. The president was preparing to launch round three of his global trade war, and he needed to find a way to launch it without inviting the world to retaliate.

So, about a week beforehand, he put 50% tariffs on hundreds of Canadian goods. He said it was punishment for Canada retaliating in the past. My perspective is that this was meant as a brushback pitch to every other country. It was meant to say, “don’t retaliate or we’re going to go against you, the same way we just did against Canada.”

Why Canada? My guess is that Canada was convenient.

Canada’s response, which took effect today, is that the president’s tariffs violate the free trade agreement the president himself signed, and that Canada will be matching those tariffs dollar for dollar.

Twenty billion dollars sounds like a lot

It is a lot. I’d like twenty billion dollars.

But the useful question for an economist staring at a list of hundreds of tariffed items — hockey sticks are on there, along with a great deal of other oddities — is what share of Canada’s economy that list actually represents.

It’s about US$20 billion of goods, tariffed at 50%. Canada exports hundreds of billions of dollars’ worth of things every year. So the list is roughly 4% of Canada’s exports.

Imagine the most outlandishly bad outcome from this. Imagine Canada could never sell those tariffed goods to anyone again. They’d still have 96% of their exports. And that’s the worst case, which won’t happen — when a Canadian exporter can’t find an American buyer, they’ll probably just find a buyer somewhere else, at a somewhat worse price. Realistically, Canada keeps something like 99% of what it sells.

Canada’s retaliation covers US$20 billion of American goods, about C$27 billion, roughly equal and opposite. And the U.S. economy is about ten times the size of Canada’s. If it’s small there, it’s smaller here.

Though I’ll note the Canadians did their homework. They chose goods where Canadian buyers have easy substitutes from Europe or Asia — minimizing their own pain — and they weighted the list toward aluminum, machinery and dairy, which lands squarely on the Rust Belt. On my part of the country. On Michigan, Ohio and Iowa: purple states, live Senate and House races. States that will decide the 2028 election.

So far, the economic consequences of this are relatively small (though the political consequences may be somewhat larger). But there’s another part of this, and it’s the part I’m worried about.

A Lego set made across a border

People imagine Ford and General Motors making cars from scratch. Mostly, they don’t. They buy parts from a lot of other companies and snap them together at the end, like a Lego set. Much of the value in an American car comes from parts that somebody else made — and a lot of those somebodies are on the other side of the Canadian border.

That is the 1965 Auto Pact in action. Around a city like Detroit, a cluster of automotive specialists grew up that straddles the border and draws on American and Canadian ingenuity at once. The bet was that a cluster like that could beat any purely American or purely Canadian city on earth, and it did.

Now run a tariff wall through the middle of it. American factories can’t get the parts they need at the price they need, so they use costlier parts, or worse ones. Canadian factories lose their American customers. Both sides get weaker.

But take one super competitor and split it into two smaller ones, and the deeper loss isn’t that each half is smaller. It’s that neither half is competitive.

The car door factory goes overseas

Imagine the decisions that someone in this industry faces today. Say you make car doors. Where do you put your next factory? Ten years ago this wasn’t a decision — you built on the U.S.-Canada border, fed the world-class cluster on both sides of it, and let the parts move freely.

Today, you have to price in the possibility that this administration, or the next one, wakes up one morning and taxes your doors at 50% because it needs to make a political point. That risk doesn’t destroy your business. It destroys your business plan, which is worse, because the business plan is what the money is lent against.

So maybe you build near a port instead. And maybe you ship to Europe and Asia.

Nothing dramatic happened. No factory closed. It’s just that the cheap, high-quality car door that would have been available to an American assembly line is now on a boat headed somewhere else. Multiply that one example by every industry where the two economies are stitched together, and you have the real cost of this fight — paid slowly, by us, for decades.

The tariffs also won’t bring factories home to replace those who ship goods overseas. The president’s tariffs have a half-life of about three days. Nobody breaks ground on a plant based on a tax that will be gone before the blueprints are finished, and nobody bets a decade of capital on a policy the next Democratic president will reverse in an afternoon. We haven’t seen a factory boom. We’ve seen factory construction fall since the tariffs went in.

The European Union and North America

Step back from the border and look at the continent.

The logic of the European Union was that a group of countries that lets goods and people and ideas cross its internal borders can draw on the genius of all of them, and compete with anyone. There’s real substance to that idea.

North America had the same logic available. One integrated market, three countries, world-beating.

We are now busily converting that one market into three separate ones. And what we’re spending to do it isn’t the tariff revenue, which is trivial, and it isn’t the 4% of Canadian exports, which they’ll re-route. What we’re spending is Canada’s belief that we are a country worth building a factory next to.

We lose the cluster. We lose the investment that would have come to the border. We lose the cheap parts that made American cars competitive. And we lose the thing that takes generations to build and one weekend to break, which is the assumption that a deal with the United States is a deal.

Well, when the poem is about manufacturing, it turns out an economist might be just the person for the job. Poetry In America is re-releasing that piece for Labor Day, which is the perfect holiday for it. A year later I remain more than a little proud of my five minutes as a poetry critic. (That’s the story I tell myself, anyway.)

The poem is Martín Espada’s “Who Burns for the Perfection of Paper.” It’s short and it sticks in your head. I’m going to describe it here, but really, you should just go read the whole thing here.

In the poem, Espada is sixteen, working after school in a plant that makes legal pads. Just ordinary legal pads, but a factory’s worth, so they’re seven-foot stacks of yellow paper with cardboard slipped between the pages and red glue brushed up and down the stack. He doesn’t wear gloves, because the job needs fingertips. Late in the shift the paper turns sharp and leaves micro-cuts in the skin. Then, ten years later, the poet is in law school, looking at a legal pad, knowing something that his fellow students might never understand: the work and the cuts that go into each pad.

What it costs and what it took

Hold on, this is going to get a little wonky, but I think it’s the whole poem.

You can read this as an extended act of pondering value. Espada describes everything that went into the legal pad, and it would be hard as a human working on this thing not to conclude that all that work must make it intensely valuable. But what comes out the other end is a legal pad. A simple yellow pad that a lawyer will write on and then, presumably, throw away.

What is value? Economists, political philosophers and lawyers have chewed on that question for generations. I usually tell my students not to bother; it’s too hard.

Because there’s more than one question hiding in there. There’s the price of a thing, which is a fact you can look up. And then there’s how we choose to value a thing, which is an ethical and moral judgment, and it’s not built into the price tag. A price is a magnificent piece of machinery — it coordinates strangers across the world who will never meet, and it does it without anyone in charge.

That’s the set of questions I think the poet is inviting us to ponder.

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What’s it good for?

Espada turns those questions around on himself as a poet. Nobody, he says, ever disputed that the practice of law had value, or that the work he was doing in the plant was some kind of contribution. But poetry gets interrogated constantly. “What’s it good for? Why do you do it? What’s the outcome? What’s the impact? As if poetry could be weighed, packaged, labeled, boxed and shipped somewhere.”

“As if it were manufactured,” Lisa says.

“And unfortunately, there is no price tag on a poem,” Espada says. “I can’t write a poem today, turn around, go down the street to the local grocery and say, give me a pound of sliced turkey, here’s a poem.”

He’s right, and I’ll add that the grocer’s refusal tells you nothing about the poem.

So what does poetry do that the law can’t? Espada’s answer is that it can make people cry. That it can move them enough to want to do something about those hands, and about the people those hands belong to.

You can watch the full conversation above, or find a bit of my contribution here:

And do go follow Poetry in America — Lisa’s team makes lovely things. My goal for Platypus Economics is to do for econ what she’s doing for poetry, which is what made this collaboration such a joy. You can find Poetry in America on YouTube, Tiktok, and here on Substack at .

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Then we got to talking about Canada, and the jokes ran out.

Here’s the thing: when the president campaigned in 2024, he was bracingly honest about loving tariffs. He talked about China. He talked about other countries “ripping us off.” He never once connected that to Canada. Then one of the very first moves of the administration was steep tariffs on China, Mexico, and Canada. These were the “fentanyl tariffs,” which he imposed because of “the failure of Canada to do more” to stop producing fentanyl and shipping it over the border. Canada basically isn’t in the fentanyl game, so that was weird. Those tariffs were eventually scaled back and later ruled unlawful. But that wasn’t the end of it, because it was probably never really about fentanyl.

Since then it’s been a cycle of retaliation, then retaliating for retaliation, and retaliating for retaliating to retliating.

Let me offer the simplest way I know to think about whether any of this is good for America.

I live in Michigan. Michigan borders Canada. According to the administration’s logic, policy that makes it harder for goods to cross the Michigan–Canada border is good for Michigan. So why don’t we make it harder for goods to cross the Michigan–Ohio border? (Honestly, might be a good idea during The Game.) No-one thinks a tariff wall with Ohio would make Michiganders richer. Or Ohioans. The same logic applies going north.

Americans know this. They like Canadians. They have no interest in tariffing them.

The deeper failure here isn’t really economic (well, okay, it’s a little bit economic). Mainly, it’s a failure of leadership. Your job as a leader — of a company, a community, or a country — is to work out what’s good for your people and then make it easy for others to say yes.

This administration has done the precise opposite. President Trump called Canada the 51st state and openly mused about using economic power to take it by force. He calls the prime minister “Governor Carney.” He has called Canadians nasty, and clowns, and told them to fall into line. And — keep in mind here, the president is laser-focused on the affordability crisis — there’s the “renaming” of Lake Ontario. My partner Betsey Stevenson named the moment beautifully:

Kids in the midwest learn to name the Great Lakes with the mnemonic HOMES, which stands for the Huron, Ontario, Michigan, Eyrie, and Superior. Swap out Lake Ontario for Lake America, and the only useful way to remember it is SHAME. Perhaps that’s right.

Any reasonable observer can see that this has stopped being a trade dispute. North of the border it’s about sovereignty and dignity, and the anger is difficult to overstate. Canadians are all in — they’re refusing American groceries, cancelling trips, and sending their students elsewhere.

Which puts Carney in a tricky spot. There’s an old economist line, originated by William Beveridge and popularized by Joan Robinson: if other countries have rocky harbors, should you put rocks in your harbor? A tariff is a rocky harbor. It makes it harder for goods to move in and out. Retaliation does hurt Canadians. But Trump has made it politically rocky for Carney to clear the way.

Trump can punch Canada, but only with tariffs that also punch Americans in the economic gut. Carney can punch Trump, but only by retaliating with tariffs that also punch Canadians in the gut. Winning this sort of game requires caring less about your own people’s pain than the other guy cares about his.

Meanwhile the more consequential thing may be Carney’s middle powers speech — the idea that countries other than the U.S. might start acting collectively in their own interest. It hasn’t yielded much yet. But if it rewires global trade around us, the president will have sold American exceptionalism remarkably cheaply.

We didn’t have rocks in that harbor. We put them there ourselves.

You can catch up here:

Now it’s time for The Professor Is In, where I sit down with my producer Augusta to answer audience questions.

Why are Trump’s tariffs so unpopular?

One thing Augusta asked me about: why so many people hate these tariffs. Our comments were filled with people expressing outrage about the policy, and these aren’t just people who have spent years reading economics papers about deadweight loss. One Pew poll from this February found that 60% of Americans disapproved of the tariff increases — including 28% of Republicans. That’s a notably high rate of disapproval, and it’s one that deserves a closer look.

Tariffs have historically been pitched as a populist, pro-worker policy. And they used to be a Democrat position, not a Republican one. Politicians would go to a union hall and say: we’re going to put tariffs on China, we’re going to save American jobs, and China is going to pay for it.

I know because I’ve been the nerd who had to sit in the back of meetings with a whiteboard, sketching supply and demand and coloring in deadweight loss triangles, saying “Well actually, this isn’t going to do what you want it to…”

That is a very hard argument to make. I think the economics of tariffs is wrong, but if you’re a remotely skilled politician, you can sell them. Historically that’s exactly what’s happened.

This time, nobody even tried

What’s different is that the president has had no interest in making his case in the court of public opinion. He’s been completely absent from it. The entire case, as far as I can tell, is: I love tariffs work, and I'm doing them.

So the easiest sale in the world went unmade. Generally speaking, I hear the American people running about two to one against tariffs. That is basically unheard of.

And the parties have swapped sides

The partisan split Augusta alluded to is the strangest part of this.

Go back and watch old Reagan speeches. He hammered on free trade — in the video linked here, he’s is explaining why he’d put a single tariff on Japan (the reason: because they weren’t honoring a free trade agreement over semiconductors). He says: “imposing such tariffs, or trade barriers and restrictions of any kind, are steps I am loath to take … Over the long run, such trade barriers hurt every American worker and consumer.” A single tariff imposed needed a speech from the President assuring the American people that this was a last resort.

The Republicans were the free trade party, and Reagan believed deeply in it — one bigger integrated world, more markets for America, America playing a leadership role through trade. It was the union halls, typically Democratic-leaning, where free trade was the hard sell. That’s why NAFTA was such a difficult lift for Clinton.

I’ve watched the same switch happen in my own classroom. Early in my career, pre-Trump, I’d teach international trade and my students were vehemently unconvinced by the material I was teaching. They tended to be sympathetic to tariffs. I had to work to try to get the principles across.

Now when I teach trade, they look at me like I’m belaboring the obvious. Trade good, tariffs bad, why are you harping on this?

I’m not entirely pleased about that, for reasons I’ll come back to.

A promise should be permanent

Here’s the other half of it. The whole point of doing a deal with another country is that it’s a promise. It’s meant to be a till-death-do-us-part sort of thing.

But a promise that comes out of the White House, when there might be a new bloke in the White House in four years, isn’t much of a promise. It’s more like: let’s hang out for a while.

If Trump were serious, he would push his tariff agenda through Congress, the way Bush and Clinton did with NAFTA. That works for an odd reason. We all know Congress can’t ever get anything done — which means Congress also can’t undo things. So once a program is through, it’s typically pretty close to permanent.

But Trump’s tariffs come only with his signature. And so the next president can — and hopefully will — get rid of a large chunk of this agenda with the stroke of a pen.

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More from office hours

Other questions Augusta put to me:

• What would the administration actually have to do to raise its grade?

• What are the unintended consequences everybody’s missing? (Answer: a middle school cafeteria. The bully takes your lunch money for a few weeks, and then everyone quietly gets up and moves to a different table.)

• Is rebuilding the American industrial base a goal worth having at all?

• How does this all connect to AI?

Finally, what we did not learn

We’re going to have a presidential election in a few years. Tariffs will be back on the agenda. And a lot of people are going to stand up and say: we learned from the trade war of 2024, 2025 and 2026 that tariffs don’t work.

I’m going to have to be the guy who says: actually, we didn’t learn that.

There is a real argument to be had about tariffs, and I’ll be having it with my freshmen this year. Some economists think there’s almost never a good moment for a tariff. Some think good moments occur somewhat more often. But everyone in that range is talking about smart tariffs — meaning you sit down, you have a think, you analyze conditions, you get your wonks and your nerds to write the reports, and you’re clear with yourself, your allies, and your trading partners about the strategy.

That is not what we got. What we got was incoherent in a way that guarantees all of the costs and none of the benefits.

I used to chart tariff rates using annual data. Now I use daily data, and sometimes they’ve changed within a day. The theory of the case is that a bigger domestic market makes people build factories here — but a factory is a fifty-year bet. When the policy is there Monday, gone Tuesday, partly reinstated Wednesday, thrown out by a court Thursday and back on Friday, you’d be crazy to pour the concrete.

You could ask me right now what the tariff is on a specific good from a specific country. I have followed this as closely as anyone alive. There’s a 50-50 chance I’d get it wrong.

So: employ some good economists. Do the homework. The Liberation Day formula was a laughingstock in my profession, and it was settled on one or two nights before the announcement — which is how you end up tariffing penguins.

This wasn’t a hard question of theory. It was a competence problem.

We didn’t learn that tariffs don’t work. We learned that incompetent tariffs don’t work. We learned that poorly implemented tariffs don’t work. We learned that tariffs nobody bothered to explain to the public or pass through Congress don’t work.

That’s a much narrower lesson, and I’d like us to get it right before the next exam.

Watch the full episode for the rest.

I’m smiling today, and here’s why. I hate unemployment. That’s one reason I became an economist. It’s a scourge — it hurts people, it hurts their sense of themselves, it hurts their families. And right now it’s 4.1 percent, which is low. There is plenty in this economy to be unhappy about. That fact isn’t one of them.

So I want to spend most of this post on a different question, because it’s the one almost nobody asks and it’s the one that tells you what kind of country this is becoming.

Instead of only asking how many jobs we’re adding, let’s ask: what jobs are we adding? Who is taking them?

The hard hat economy never showed up

This is an administration that talks about big boofy blokes in hard hats and steel-toed boots. Manufacturing coming home. The 1960s, all over again. That rhetoric is the entire justification for the tariffs.

That, to be brief, has not happened.

Since January 2025, the U.S. economy has created nearly a million jobs in health care and social assistance.

The rest of the economy, taken together, has shed jobs.

That is not a story about tariffs and industrial revival. That’s a story about an aging country getting richer and buying more care. As people age, they need more health care. As people get wealthier, they want more of it. This is a services economy shifting further toward services, and it’s been doing that for decades regardless of who’s in the White House or what they say about factories.

I don’t want to downplay these numbers: August was a reasonably good month for the non-health-care economy, with growth spread fairly widely. That’s a true improvement on the rest of the Trump term. But one month doesn’t rewrite eighteen.

The reality of our labor market is very different from the rhetoric coming out of Washington.

And almost all of it went to women

Here’s the part that surprised me most in the whole report.

Only 7 percent of the jobs created in the second Trump term have gone to men. Ninety-three percent have gone to women. Over roughly a year and a half, that’s on the order of 60,000 jobs for men against 747,000 for women.

We may be on the cusp of a male jobs recession.

I want to be careful about what I’m claiming here, because this is not a story about hiring preferences or anyone’s politics. It’s mostly a story about industry mix. If your net job growth is almost entirely in health care and social assistance — well, those sectors employ women in large majorities. As a result, nearly all your net job growth goes to women. The composition of the jobs determines the composition of the workers.

This is where the rhetoric comes in. A tariff policy built around the industries men have historically worked in is not going to move a labor market whose growth is coming from nursing homes and clinics and home health agencies.

We’re going to keep watching that one.

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The paycheck problem

Now the part that’s worrisome regardless of which sector you’re in.

Nominal wage growth — that’s the number on your paycheck, written in dollars — has been falling for a few years running. It’s now at 3.1 percent, the lowest rate in years.

What matters for your actual purchasing power is how wages move relative to prices. I won’t know exactly what August looked like until the inflation data arrives. But I don’t need to wait to tell you the direction.

Real wages are falling. Prices are running ahead of paychecks.

That’s why it’s harder to put food on the table. That’s why an economy with 4.1 percent unemployment and six straight months of job growth can still feel like it’s squeezing you. A job is not the same thing as a raise.

What Quiet Kevin does next

Wage growth matters for a second reason: it’s one of the biggest costs businesses face. I know you probably don’t think of yourself as a cost — you’re a benefit — but that’s how it enters the inflation arithmetic.

The Wall Street Journal already has people out saying this report removes an obstacle to a Fed rate increase. The logic runs like this: inflation is the Fed’s first responsibility, inflation is too high, and if the labor market no longer needs the Fed’s protection, the Fed can pivot to prices.

Fair enough. Let me offer another perspective that I think isn’t getting enough play.

The Fed is meant to be looking at the future of inflation. It knows it’s dealing with a supply shock right now from the war in Iran and the tariffs. And the Fed knows that those effects fade in due course. The enduring cost pressure behind inflation over the long run is… wages.

And I just told you nominal wage growth is falling, and, indeed, is low. If productivity growth exceeds one percent, then it's likely that wage growth of three percent will — eventually — lead to inflation below two percent.

So a dove on the Fed — a patient dove — could read this report and say: fine, the labor market isn’t demanding that we keep rates down, but I’m also more confident today that inflation is coming down on its own, and so maybe we don't need higher rates, either.

I think that’s a real argument. It’s not the narrative in financial markets, and it’s probably not the mood at the Fed. Federal funds futures — basically a betting market on the Fed’s next move — got a little more confident of a hike after this report. So Quiet Kevin may be about to become Hiking Kevin. And if he does, look out.

Before you tell me the numbers are fake

One last, brief thing.

Every time good economic news lands, I hear that the administration must have cooked the books.

I’ll be straight with you: this administration lies frequently, and it has recently tried to interfere with a lot of our statistical infrastructure. I’ve got a long piece on that coming next week.

However, these numbers are not that. They look fair dinkum. And think about what the conspiracy would require — publishing miserable numbers last month and lovely ones this month. That’s not how you rig a scoreboard.

Serious statisticians produced this. Nothing in it looks awry. Hold your conspiracy theories and let’s argue about the economy instead.

Because there’s plenty to argue about. In the medium run, we can think about AI, the hiring issues affecting young people, and wages not keeping up with prices. A lot of this economy is delivering for the owners of businesses rather than the workers in them.

But what isn’t up for debate: we spent a year and a half being told that the point of all this disruption was to bring back the hard hat and the steel-toed boot. Yet the data shows an aging country hiring nurses and aides and social workers, overwhelmingly women, while everything else treads water.

You can have opinions about whether that’s the economy you wanted. What you can’t do is keep describing a different one.

Post-Script: A Normal Response from the White House

Alright, folks. Just when you thought the jobs news was all in, Trump suggests a response so bizarre it’s hard to know what to make of it.

If I’m reading this correctly, the president is threatening the Fed… with tariffs. Actually, not tariffs — the Supreme Court ruled that unconstitutional. So it's sanctions. I'm not kidding.

And there’s more madness. The end result is that the president is posting through objectively good news in a way that may actually undermine your confidence in our economic future.

And sometimes what happens in the bond market doesn’t stay in the bond market.

What’s going on?

The interest rate that the government borrows at is sometimes called the bond yield. And that interest rate has been rising. It’s been rising over recent years, recent months, and recent days. So there isn’t really just one conversation about the bond market right now, there’s several, and it depends on which time horizon you’re focusing on.

Zooming in on the past few months and weeks:

As always, we’re going to skip past the day-to-day, and focus on the medium- and longer-run movements.

Why are bond yields rising?

Let’s skip the complicated explanation. Start with the market for apples instead of bonds. If lots of people wake up and want to buy more apples, we call this an increase in demand. The price of apples rises.

Interest rates work pretty much the same way, but with slightly different language. Instead of apple buyers, we have folks who want loans. Instead of apple farmers, we have lenders, which might include your 401(k). And the bond market equivalent of the price tag on an apple is the interest rate.

What’s happened In the bond market is simply that the demand for loans has risen, which has driven up the interest rate.

Where is this all coming from?

There are three (relatively) separate forces that have increased the demand for loans..

First: the AI build-out. This isn’t the future-of-work story, just the concrete rooms full of computers. That’s a huge undertaking that costs billions, and a lot of it is borrowed. Goldman Sachs recently estimated that $500 billion of debt has gone out for AI. And that’s just in 2026.

Next: the U.S. government. It’s running a deficit of about 6% of GDP, the biggest in the post-war period outside a war or a recession. Plus, there are fresh tax cuts on the books, so there’s less coming in. The government deficit isn’t exactly new. But what is new is the visible lack of political will to even begin to fix this.

There was a time when numbers like these produced belt-tightening, and a lot of people in Washington muttering about the budget. That is simply not happening. Washington will care when the voters care, and right now the voters are distracted by — waves hands around — …all this. The bond market has long known the deficit is large, but now it’s figuring out that’s on track to continue for years.

The third factor is a bit harder to pin down. It’s… the future.

If you’re lending money to someone for thirty years, you’re also asking yourself what the world looks like in year four, year eleven, and year twenty-nine. You might even ask yourself: if I loan this money out in a few years time, will I get even better interest rates? Which means your vision of the future has a big effect on these interest rates.

The U.S. is at war. The four-to-six-week “conflict” in Iran is at its six-month point, the hot war is back on, and nobody sees an easy way out. I know we’re not really at war with Canada, but gee, it feels a little weird. Our friends in Europe feel very queasy about the things that have been said about Greenland. Ukraine and Russia grind on.

History is boring until all of a sudden it’s not. There’s a reason the English phrase “may you live in interesting times” is ironic. History tends to turn right around pivot points like this one.

I don’t know what will happen next. But it isn’t hard to imagine a world in which the U.S. wants a much bigger military, and in which other countries build much bigger militaries because they no longer feel they can count on ours. Militaries are very, very expensive. Expensive things get borrowed for.

And don’t forget: the U.S. isn’t necessarily looking trustworthy these days. For years, the government published data that was honest. The Census Bureau is under threat right now. The Bureau of Labor Statistics has been under threat. The president has put the Federal Reserve on watch. I wrote about this recently, here:

A decade ago I had enormous faith in a few basic tenants about the United States: That we would (continue to) have institutional stability, functioning markets, a democracy, and therefore a government you could always rely on to repay. Nobody feels quite so certain now.

The United States has always been able to borrow at a discount, because it was the safest place on earth to park your money. But if you’re going to carry some risk anyway, you might as well lend to a company instead. That safety discount is starting to erode.

Now: notice what words I haven’t used.

I haven’t called this a crisis. I didn’t urge you to the edge of your seat.

Because right now, there isn’t a crisis happening. The bond market is doing what it’s built to do: lots of people want loans, so loans cost more. There’s nothing disorderly here. Nothing that says a crisis arrives Tuesday.

Here’s what I am worried about.

Each of those three factors makes trouble more likely down the track. That’s a different sentence from “trouble is coming,” and I’d like to keep them apart.

Start with the data centers. I am not telling you AI is overbuilt. That’s a hard thing to know and I don’t claim to have the answer. But what I am saying is that it’s possible. What if we didn’t need all of this? What if those companies can’t repay?

If you hit troubled times and can’t repay your mortgage, the economy shrugs and moves on. If somebody who borrowed hundreds of billions can’t repay, that’s a different animal — and the trouble goes far beyond the borrower.

The key question is: who lent the money? Spread thinly across many actors, a bad outcome is survivable. Concentrated in one corner of Wall Street, all standing on the same bet, and you start to see a domino effect. That’s what we saw in 2008.

And in 2008, what stopped the fall was the federal government stepping in to hold the economy up. Go back to factor two: we’re already borrowing groundbreaking amounts of money. Would Washington have the room to do it again?

One more thing, and this one’s a judgment, not a number. I think it’s simply a fact that this is the least technocratically competent administration of my lifetime — the weakest set of economists I’ve ever seen on the inside combined with the least qualified cabinet. And they’re not even bringing their A-game because they seem to be much more interested in impressing the president than in making real change.

Every morning I wake up grateful nothing has gone too badly wrong yet. What I worry about is whether we’d have the competence to get out of it if it did.

President Trump’s tariffs were supposed to do a lot of things. Give America leverage over foreign governments. Shrink the trade deficit. Bring factories home. Make America safer from China. And pay for child care, tax cuts, farmer relief, and tariff dividend checks. Maybe replace the income tax. Or cure toe fungus.

So today, for report card day: Five promises, which we’ll put to five empirical tests, and deliver five grades on.

Here’s the rule I’m using. I’m not grading these tariffs against what I would have done, or against what economists think trade policy should look like. I’m grading them against what the administration itself said the tariffs would deliver.

So: pencils down. Let’s see how the administration’s tariff policy scores on its own test.

Test One: Leverage for Getting Better Deals

Promise one was the tariffs were going to give America leverage over foreign governments. This was an argument that came in two parts. One hinges on fairness, the other on strength.

The fairness claim was that foreign governments were ripping America off with tariffs, subsidies, regulations, currency policies, all of it. The second part of the argument came down to power. America has the world’s biggest consumer market, everyone wants in, so we use that to force other countries to the table.

There’s a few problems with the fairness side. First: the world we actually lived in — at least before the trade war — wasn’t the world the President described. The world actually involves very little protectionism. The arguments for free trade had mostly won the day in most countries.

Canada and Mexico traded with America under USMCA, the free trade agreement Trump himself negotiated in his first term, and most goods crossed those borders duty-free. South Korea had KORUS, and most American manufactured exports already entered Korea tariff-free. The average tariff on American goods was around 3% in the European Union and around 3% in China. Most other rich countries sat in the same neighborhood. A few poor countries ran bigger tariffs, but they’re not large markets for us, so not really a big deal.

So there were tariffs — just very, very low ones. Why weren’t those numbers zero, rather than two or three percent? Because that’s not how trade deals work. When it comes to negotiating trade, two leaders sit down and eliminate tariffs across most of the economy. But they leave aside a handful of politically radioactive sectors — think dairy, rice, sugar, sometimes steel. Those are the sectors where a politician who mishandles them loses their job. So you forgive your counterpart their political weaknesses, and they help you with yours. The result is the attainable trade deal rather than the perfect one: tariffs broadly at zero, hand your counterpart a few political wins, and trade (mostly) freely.

That’s the world America had. The claim that we faced vast tariff walls across the developed world isn’t true, and hasn’t been for decades. It may have been partly true in the President’s youth… But that was a while ago.

Now for the power half. Did the tariffs get America better deals?

There have been many announcements about this — but they don’t amount to much.

Take South Korea. The administration celebrated a new deal opening Korea to American cars and manufactured goods. Except that our trade agreement, KORUS, had already given most American manufactured exports tariff-free entry years ago. So the new arrangement leaves a 15% U.S. tariff on Korean goods and claims credit for market access American manufacturers already had.

Or take the much-touted arrangement with the European Union, which isn’t a deal at all. It’s a framework: a promise to make future promises. The document is written almost entirely in the future tense — “intends,” “will work,” “seeks.” It’s the trade equivalent of “we should really get coffee sometime.”

Still the administration claims to have signed real deals — reciprocal trade agreements — with ten countries: Argentina, Bangladesh, Cambodia, Ecuador, El Salvador, Guatemala, Indonesia, Jordan, Malaysia, and Taiwan. Say that whole list out loud and it sounds impressive. Add up their share of American goods exports and you get about 6%. And the agreements cover only some products and only some barriers, so the share of exports actually affected is far smaller than that.

Oh… but it gets worse. It’s not clear that any of these agreements are actually in effect. Most were struck in response to tariffs imposed under emergency powers, and those tariffs were subsequently ruled unconstitutional. A USTR report from February lists all or nearly all of these as agreements that “have been negotiated, but have not yet entered into force.” So the count might be closer to zero.

Who isn’t represented in that count? The folks we actually trade heavily with: Mexico, Canada, the UK, China, Japan, and Germany, plus (as discussed above) the EU and Korea. This list of counties shows up elsewhere: It’s the list where American access has been restricted, or may soon be, in retaliation. China took tariffs on American exports as high as 125% in April 2025, and while the peak came down, a 10% additional tariff on U.S. goods runs through November 2026. That’s alongside targeted tariffs on American farm and energy products. American goods exports to China fell 26% in 2025. Sales elsewhere rose, but they didn’t replace that market.

The Canadian government retaliated too, and Canadian consumers started quietly protesting in their own way: trips to the U.S. fell sharply, as did their imports. Turns out the surest way to lose a Canadian’s business is to keep calling their country the 51st state.

Grading Leverage: Threats, retaliation, a few small commitments that may not be in force. No serious net gain for American exporters. That’s an F.

Test Two: Reducing the Trade Deficit

The White House called the trade deficit a national emergency. Not just the total trade deficit either: Peter Navarro argued for actions to reduce every bilateral deficit. This would require persuading the rest of the world to want exactly as much American stuff as America wants of theirs. Bold.

In 2024, America bought $1.212 trillion more in goods from the world than it sold. In 2025, the first full year of the tariff program, the goods deficit rose to a record of about $1.24 trillion. Tariffs apply directly to goods, and the goods deficit got worse.

The first half of 2026 does look better — roughly $550 billion, which annualizes to something a bit north of a trillion. That’s an improvement… and a trillion-dollar deficit.

And, as you may have heard, America is a service-focused economy. We sell a lot of that — finance, software, travel, consulting, entertainment, education. The total deficit — including services, this time — was about $904 billion in 2024 and about $902 billion in 2025. If those sound like they’re pretty much the same number, that’s because they are.

A good professor asks his students to show their work, so let’s look to China. America’s goods deficit with China fell by about $94 billion in 2025. That’s good news — until you notice the goods deficit with Southeast Asia rose by about $100 billion over the same stretch. We just changed the labels on the boxes. Imports left China and reappeared in Vietnam, Malaysia, Thailand, and Indonesia. Some of that is real supply chain relocation. Some of it is Chinese firms shipping through third countries. Either way, Americans kept buying.

Grade the Trade Deficit: Bigger in 2025, maybe smaller in 2026, still enormous. Another F.

I’d add that a deficit is an accounting total, not an economic scorecard. The whole here premise is flawed. It’s not at all clear that a better grade on this score would mean a better life for Americans.

Test Three: An Industrial Revival

This is the big one, folks. The one the administration talks about at every opportunity. They said they were going to bring back factories. Big boofy blokes with steel-toed boots bringing home the bacon.

And yet: Manufacturing employment is lower than when Trump returned to office. By July 2026, America had about 62,000 fewer manufacturing jobs than in January 2025. That’s a small number, coming in at roughly half a percent. It’s not a collapse. But we ran an extraordinary trade war to rescue this one sector, and the sector kept shrinking while the rest of the economy added jobs.

Manufacturing output has risen modestly this year, and factory capacity remains loose. American factories are not running flat out, because tariffs did not unleash a wave of new demand for what they make. Factory construction says the same thing: the manufacturing construction boom of the early 2020s was driven by semiconductor investment and industrial policy passed before Trump returned, it peaked in 2024, and it has fallen since. The tariffs arrived after the boom started and during its slowdown.

This is one where the details really deserve a first-hand account. The Dallas Fed put a beautifully simple question to 271 Texas firms: what net impact do you expect higher tariffs to have on your business this year?

59% said negative.

4% said positive.

17% said no impact.

20% didn’t know.

Fifty-nine over four is roughly fifteen — fifteen manufacturers expecting harm for every one expecting help.

And among the firms expecting harm, 55% said they would pass costs to customers. 44% said they would absorb costs as lower profits. Notably, 29% would look for domestic suppliers — that’s something the policy was actually going for, and it’s a positive. 27% would just shift the timing of their imports.

Just 5% planned to move production to the United States.

The Fed’s national small business survey finds the same pattern: 13% of firms using foreign inputs switched to domestic suppliers, and just 3% moved production to America.

There’s a reason nobody’s pouring concrete: if a tariff is on Monday and off on Tuesday, you don’t build a plant around it. The tariff can flip several more times before the concrete has dried.

Grading the Industrial Revival: Some domestic sourcing, fewer factory jobs, no revival. A clear F.

Test Four: National Security

I don’t want it to seem like I’m going through this report on the premise that there’s no point going after these goals. There is a real trade policy case for targeting strategic risks. America does need secure access to rare earths, magnets, chips, medicines, and specialized metals.

The trouble is that most of this trade war wasn’t targeted at all. And where it was targeted, it backfired.

Rare earths are misnamed — they aren’t especially rare. The scarcity comes in who processes them. China does a lot of that processing, and they do it for the entire world. That means they turn raw material into magnets. Those magnets go into cars, aircraft, electronics, and military equipment. Before the trade war, China supplied around 70% of the rare earth compounds and metals America imported.

Then things escalated, and China restricted exports of critical rare earths and magnets. The White House’s own economic report says those restrictions caused factory shutdowns, including in the U.S. China has since used export controls on gallium, germanium, graphite, and antimony too. No, those aren’t words I made up to sound like a scientist (please don’t ever think that I am a scientist). But those critical minerals matter for semiconductors, batteries, weapons, and advanced manufacturing.

Here’s the part that keeps me up. The dependence was always there. But a dependence only becomes a vulnerability once your adversary discovers it — and this trade war sent them looking. They found it. Now they know exactly where to press, and they’ve shown that they’re willing.

The administration has announced domestic mining and magnet projects, and those may help reduce these vulnerabilities. They also have nothing to do with the tariffs. And don’t get me started on the Strait of Hormuz and the rest of what we import from that part of the world.

Grading National Security: The vulnerability was revealed, not reduced. F.

Test Five: Tariffs Raise Revenue

Here’s a partial list of what the President promised that tariff revenue would fund. Child care. Tax cuts. No tax on tips. No tax on overtime. No tax on Social Security. Tax benefits for American cars. Farmer relief. Tariff dividend checks — remember those? Mine never arrived. Debt reduction. And the end of the income tax.

Tariffs are taxes, and taxes do two things: they change behavior, and they raise revenue.

This program certainly changed behavior. Families paid higher prices, businesses paid higher input costs, and supply chains reorganized themselves around dodging the tariff.

The revenue is the strange part. Customs duties rose from $77 billion in fiscal 2024 to $195 billion in fiscal 2025 — an increase of about $118 billion. Much of that increase came from tariffs imposed under the International Emergency Economic Powers Act, and the Supreme Court struck those down earlier this year. By mid-August, roughly $100 billion had already been refunded.

These refunds don’t work like they do at a store. When I paid more for olive oil at Costco because of a tariff, the refund didn’t come to me. It went to the importer of record. Yes: that’s the company on the customs paperwork. So… Costco. The family at the checkout paid while the big importer got the check.

More is likely coming. The Section 122 replacement tariffs — a temporary 10% tariff meant for a balance of payments crisis — were struck down at trial because there was no balance of payments crisis, and that’s on appeal. The newer Section 301 tariffs, the ones you’re paying right now, rest on the premise that we’re punishing other countries for their use of forced labor. Which countries? Apparently all of them. That’s a pretext, and everyone involved knows it.

Why the parade of odd legal theories? Because the Constitution gives the tariff power to Congress. Congress has occasionally lent narrow slices of it to the White House, but nobody ever intended it as something a president waves around at will — and this administration has consistently declined to go ask Congress for it. The courts occasionally suggest we look at the Constitution, and it’s unclear whether the administration will gather much revenue here at all.

Of course, if the administration passed these tariffs as laws, they wouldn’t have any of these problems. The revenue problems are the direct result of the President refusing to involve Congress in his trade war.

Grade Revenue: Americans got the distortion, and much of the money is being handed back to importers rather than kept by the Treasury. F.

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Final Grade: Time to Call the Parents

Let me put the report card up one last time.

Leverage: threats and retaliation, no serious net gain. The deficit: worse in 2025, smaller in 2026, still enormous. Factories: a little domestic sourcing, no revival. Security: China found the choke point. Revenue: Americans paid, importers got refunded.

These failures look different from one another, but they share a root, and it’s an idea about what trade is.

Trade is cooperation. A farmer gets a customer. A factory gets a component. A family gets a product. An American business gets a buyer abroad.

The trade war threw sand in all of it. It disrupted export markets. It disrupted supply chains. It disrupted investment. It disrupted relationships with allies. Then it added uncertainty and stirred.

A stronger America has more customers, more suppliers, more trusted partners, and more capacity to make the things it needs. This trade war has delivered fewer of every one of them.

Five promises. Five tests. Five fails.

And this is grading the President on his own stated goals. As I’ve said before, those goals are themselves questionable:

Now, it’s time for The Professor Is In, where I sit down to answer audience questions about this topic. My new producer, Augusta Chapman, joined me for the conversation.

The dollar is dominant. For now.

One question that stuck with me was about the dollar. One reason we think we can push Iran around is because we can cut off their access to the dollar system. But every time we use access to the dollar as an ultimatum, we hand other countries a reason to build an alternative. People have been predicting the end of dollar dominance for decades and it hasn’t happened. So how seriously should we take the risk?

To answer that, it helps to be clear about what dollar dominance — and the role of the U.S. dollar as a “global reserve currency” — actually is. If I tell anyone, anywhere, that a barrel of crude oil costs $90, they’ll assume I mean ninety American dollars — not Australian, Canadian, or Hong Kong dollars. So “dollar dominance” is a linguistic convention, the same way inches are a convention here and centimeters are everywhere else.

Once the world quotes prices in dollars, it writes contracts in dollars. That $90 barrel of Brent might be Norwegian crude, pumped by a Norwegian company and sold to a German refiner. Not one American is involved — and the price is still quoted in U.S. dollars. And so an Aussie buying European oil needs U.S. dollars. And this is just one example. If you want to trade Australian dollars for British pounds, you’ll usually sell the Aussie dollars for U.S. dollars and use those to buy pounds. The dollar sits in the middle of nearly 90% of all foreign exchange transactions. This in turn means an enormous share of global financial transactions runs through pipes owned or regulated by the United States.

We get two things out of the dollar’s centrality to global commerce. One is the sanction power Bessent is currently waving around. The other sounds a little more boring: portfolios all over the world hold dollars. That’s not because dollars are inherently special; it’s because everyone else holds them too. All of that demand to hold dollars means the U.S. government borrows at lower interest rates than almost anyone else. This is sometimes called America’s “exorbitant privilege,” and it means our government pays lower rates on its huge debt. As a result, we save billions of dollars a year in interest bills.

Is the U.S. dollar the MySpace of currencies?

Dollar dominance gives the United States a weapon that other countries don’t have — the ability to financially punish bad actors. But it’s so valuable that we ought to use this weapon rarely, and carefully.

Think about how fast conventions change. Everyone was on MySpace until everyone was on Facebook. Everyone was on Facebook until everyone was on Instagram. A wave of people tried to leave Twitter for Mastodon and discovered that a social network is lonely if the rest of the world hasn’t joined you. These equilibria can look stable until a change begins, and then each defection makes the next one easier.

We don’t know whether the U.S. dollar is the MySpace of currencies. And we probably won’t know until we know which currency will be the Facebook.

There’s another level here, too. If using Facebook required you to say “I hate Iran” out loud eight times, you might well switch to Instagram — not because you have strong feelings about Iran, but because it’s a hassle. So what happens if we force you to say “I hate Iran” to use U.S. dollars? Pretty soon, people around the world might find using the euro to be less annoying. The dollar is a real instrument of power. It just isn’t one we can use repeatedly without degrading the value of the asset itself.

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Will Operation Economic Outcast work?

Even prior to “Operation Economic Outcast,” Iran was already subject to one of the world’s most extensive sanctions regimes, and by one recent count, it faces over 6,000 sanctions and designations, plus a massive naval blockade.

What’s left is pressuring third parties. This means leaning on Iran’s key trading partners to lean out, and here, the key names are China, Russia, and Turkey. Secretary Bessent’s threat is: Go along with U.S. plans to isolate Iran, or we isolate you.

That threat only works if we’re prepared to follow through with a costly trade and financial war against these powerful nations. Yet at the same press conference announcing this threat, Bessent basically admitted he’s unlikely to follow through. When pressed on why the administration is not immediately imposing its threatened sanctions, he responded with the suggestive rhetorical question: “Why would I want to blow up the global financial system?” Hmmm… I think he should have prepared better for that question.

All of this sounds like another administration announcement full of sound and fury, signifying nothing. Markets heard this. They have seen sound and fury from this White House before, and they’ve figured out what it signifies. That’s why Secretary Bessent announced an “Economic D-Day,” and markets basically shrugged.

A policy that’s not going to be enforced is no policy at all.

More on the Iran sanctions

Other questions Augusta put to me:

• What makes the Iran sanctions different from Cuba?

• Where does China fit into all this? (Answer: China is André the Giant, and most people who fought André should have stayed home.)

• Do third countries like Australia and Canada gain anything by going along?

Finally, is there a case for optimism?

There is, actually. Economic warfare is much better than guns-and-bombs warfare. The standard diplomacy sequence is talk first, sanction second, bomb last. But we ran it in reverse. This was a war we were told would take four to six weeks. We’re six months in, and we’re reaching for the tools we should have started with.

Watch the full episode for the rest.

Personally, I’d hold those as three separate briefings at three different times of day. But they’re connected: the people running them all report to one bloke, and the bloke is something of a chaos monkey. Different wars, different chaos, same monkey.

Ryan started with a question I get all the time: amongst the chaos, how is the American economy doing? My answer: it’s the little engine that could. Despite many dire predictions, nothing has knocked it off track in a long time — yes, COVID is an exception. A global pandemic will stop anything.

But that’s not the whole story. This administration promised growth was about to explode, and it keeps saying that growth of four or five percent is coming “next quarter.” Yet next quarter never arrives.

I’m a generous grader, so I’ll call the little engine that could a B+. But I’d grade the policy considerably lower. Apparently so do the American people.

Onto the trade war: I made a simple point that I think is often overlooked. The sheer size of your economy — total GDP, if you like — isn’t the same as leverage. If you're trying to throw your weight around, what matters isn't how rich Americans are — it's how much we trade with everyone else. And the United States is a remarkably closed economy. We do enormous amounts of trade, but a lot of it is between California and Texas. On the global stage, we’re big, but shy (at least relatively speaking). Canada is the opposite: small, but very open, which is why shutting its spigots would be felt everywhere.

America’s real exceptionalism lies elsewhere. It’s in the dollar sitting at the center of the world's financial plumbing, and in the fact that most of the companies that will shape the next thirty years are headquartered here.

I also pushed Ryan away from one line of thinking about the Fed. Whether rates move a quarter point up or down in September is not the story. Instead, we need to focus on whether our central bank is in good hands, and if its strategy is coherent. We now have a chair, Kevin Warsh, who has said he won't share his forecast or explain how the Fed will respond to future conditions. Silent Kevin says he'll simply listen to the bond market. Of course, the bond market is still listening to the Fed, but what it’s hearing may now be more static, and less signal. This new approach to the Fed — of less communication, less transparency, and less accountability — has drawn bad reviews up and down Wall Street, and not for partisan reasons.

Ryan also wanted to know where the real vulnerability is. Oil probably isn’t going to shock the economy into stagflation, because this isn’t a rerun of the 1970s. Back then, the United States imported huge amounts of oil. Now we’re energy neutral — actually, we’re tipping towards being exporters. If you want to worry about the American economy depending too heavily on one sector, the sector to worry about is AI.

Ryan’s last question was whether there’s some number at which the economy simply cracks. It’s human to believe such a number exists. But I offered something different. Economists are superb at identifying recessions — roughly six to eight weeks after they’ve begun. We’re nearly useless before. So if someone tells you they can see the next one coming, you may be talking to a genius. But in my experience, overconfidence is far more common than genius.

You can tune into our full conversation above, or here.

On this Fed-heavy episode of Off the Clock, Stacey and I dig into “Silent Kevin’s” argument for a quieter, less transparent central bank — and why it doesn’t hold up. At the annual Jackson Hole meetup, Warsh continued to defend saying less, insisting markets should take their cues from the economy instead — then his speech pushed expected interest rates sharply higher.

The takeaway is simple: whether or not the Fed means to guide, markets are listening either way — so it’s better to be clear. Stacey pushed back with the real case for silence, which is the tendency for forward guidance to create “glass handcuffs.” (An instantly-great coinage I’ll be stealing.)

We also discussed the escalating-but-still-small Canada tariff fight (why $20 billion is tiny — until it isn’t), the limits of “economic outcast” pressure on Iran, and a worrying dip in women’s labor-force participation driven by rising child care costs and shrinking work-from-home flexibility.

Finally, in honor of the late, great Dolly Parton, we pay homage to the fact that Dolly was a bit of an amateur economist – with economic lessons permeating so much of her songbook and legacy.

Chart versus Chart (Round 3)

In this latest installment of The Professor Is In, I dig into your follow-up questions and address comments from my earlier episode debunking the Census Bureau’s claim that 24,000 noncitizens voted in the 2020 election.

This is not just a story about a bogus claim. It’s a more fundamental shift as a previously independent agency is being enlisted to create propaganda for the White House. It’s an attack on one of our most important truth-generating institutions.

The claim that 24,000 voters were ineligible — alleged in an unsigned report — can be explained by a combination of people-matching errors and outdated citizenship records. The broader lesson is that when you’re trying to measure rare events, even small amounts of error can overwhelm statistical signals, often over-stating how frequently these events occur.

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Nevertheless, I wanted to address the elephant in the room: even if the claim were true (which it’s not), these votes couldn’t have swung anything. Biden won the 2020 popular vote by seven million votes. As for the decisive states: he won Arizona by 10,000 votes, Georgia by 12,000, and Wisconsin by 21,000. By comparison, this report alleges 1,100, 400, and 500 fraudulent votes in those states, respectively.

In other words: the math never gets close.

I also dig into the institutional question: why the BLS guardrail held while the one at the Census did not. Was it simply because the BLS had the right senator on the right committee, and she was willing to go to bat for it? Or another factor: aside from it’s own-a-decade moment in the sun, the Census often conducts its essential work quietly in the background. As such, its reports don’t get the same headline-grabbing attention as the BLS’ monthly data drops.

Whatever the reason, the stakes here are far greater than a single report: The Census not only determines Congressional representation but underpins nearly every official number we rely on as a nation and economy. And when a statistical agency begins producing propaganda, we join a notorious club of countries that have put everything from democracy to economic prosperity on the line.

A little history: The United States has had a free trade agreement with Canada since 1989. That U.S.-Canada Free Trade Agreement gave way to the North American Free Trade Agreement (NAFTA) when Mexico joined the club in 1994.

Then the first President Trump came to office calling NAFTA a disaster. He renegotiated it and replaced it with the United States–Mexico–Canada Agreement, or USMCA to its friends. The new deal was signed in 2018 and took effect in 2020. It’s basically NAFTA with a new title.

President Trump called that agreement:

“the largest, fairest, most balanced, and modern trade agreement ever achieved. There’s never been anything like it.”

That agreement passed the U.S. Congress, the Canadian Parliament, and the Mexican Senate, and was signed by the leaders of all three countries. It’s the law of the land in all three countries.

But here we are again. And my head hurts.

Talks collapsed and the trade war started

The second President Trump thought the deal that the first President Trump negotiated was terrible. He was unsparing in his criticism, saying:

“I would rather not have the agreement… We do better as a country if we don’t have an agreement.”

So earlier this year Trump demanded a new deal, and threatened large tariffs if he didn’t get his way. Talks began, then collapsed, and President Trump imposed tariffs of 50 percent (that’s high!) on a weird-looking list of Canadian exports, including hockey sticks.

There are two ways to see these tariffs. (Warning: Two-handed economist in the house.) On the one hand, these tariffs apply only to a relatively narrow slice of goods — around $20 billion worth of Canadian exports. That’s only about 4 percent of Canada’s exports, so not really that big of a deal. On the other hand, these tariffs apply to goods that should be tariff-free under the existing trade agreement. Previously these goods had been exempt from an array of Trump’s tariffs. This new move suggests a willingness to significantly broaden the trade war.

More here:

It’s retaliation all the way down

We recorded this podcast before retaliation gave way to retaliation for retaliation, then retaliation for retaliating against retaliation. So, a quick update: We’re in a retaliation cycle.

We’ve seen this movie before. In 2025, Trump got the United States into a tariff escalation cycle with China, and tariffs rose and were countered and counters were countered, and after a bit the United States was imposing a 145 percent tariff, while China was at 125 percent. Both numbers are untenable — high enough you might as well call it an embargo — and a month later, both sides agreed to mostly back down.

We may see this play out again with Canada — escalate until economic pain generates political pain, strike a “deal,” declare victory, and hopefully get back to where we began.

Reminder: We started with a free trade agreement with Canada negotiated by Trump.

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The real costs come in the longer run

In our economics textbooks, the case against tariffs is usually that they impose immediate costs, usually on domestic consumers and companies that use imported inputs.

But Trump has found a way to make tariffs even more damaging to Americans: by making them unpredictable. He has oscillated — at seemingly random moments — between treating Canada as a friend and an enemy. He never even pauses at frenemy.

Eventually the United States may discover that it already has a trade deal with Canada. Maybe we’ll rebrand it (again!) and declare victory. But the history of ripping up past deals really matters. It is now understood that whatever is written down is only binding until the president decides it isn’t.

Canadian Prime Minister Mark Carney has noticed, saying that “America has changed,” and its “signature was written in pencil.” I noticed too, and wrote about it recently:

The problem is that this sort of on-again off-again relationship prevents either side from making long-term investments in their shared future. Even if we get back to trading with Canada, we’ll get less investment, less integration, and fewer of the gains that trade usually brings.

Should Canada retaliate?

We know what happened next: When Trump imposed tariffs, Canada retaliated.

I don’t think this is in Canada’s best interest.

The intuitive argument for retaliation says that Trump’s tariffs on Canada hurt Canadians, and so Canada should retaliate with tariffs on the United States that hurt Americans. A credible threat of retaliation might also deter future tariffs.

But that misses half the story.

The other half is that Trump’s tariffs also hurt Americans, and so the same logic says that Carney’s tariffs also hurt Canadians. That’s the argument for not retaliating.

This point was more vividly made by Joan Robinson, who was possibly the greatest economist never to win a Nobel. She wrote that answering foreign tariffs with tariffs of your own makes no sense: “it would be just as sensible to drop rocks into our harbours because other nations have rocky coasts.” (She credited William Beveridge with the metaphor.) The point is that tariffs make it harder and more expensive for ships full of goods to reach your ports. And who wants less efficient ports? Other countries’ inefficient ports are no reason to ruin your own.

This reality also makes Canadian threats less credible. The argument I hear most often from my Canadian friends is that they don’t want to be bullied. But if tariffs require hurting your own people as a necessary side effect of inflicting pain on foreigners, then a war of economic attrition rewards the leader most indifferent to the pain they inflict on their constituents.

I’m not sure that’s Mark Carney’s strong suit. And Canadians shouldn’t want it to be.

Can we (please) do this the easy way?

A good leader’s job is to make it easy for the other side to say yes.

Trump is doing the opposite. His childish taunts — that Canada is the 51st state, that its prime minister is really “Governor Carney,” that “Canada is nasty,” that its leaders are “clowns” who should “fall in line,” that Lake Ontario should become “Lake America,” and on and on — have stirred such anger among Canadians that Carney now has less room to give Trump what he wants.

Point is, Trump’s taunts unleashed a political force that all but forced Carney to retaliate. He has made it harder for Canada’s leaders to make concessions to the United States.

This is how you turn an easy deal into a hard one.

And we’re all paying for it.

Something extraordinarily dangerous just happened.

The United States Census Bureau published a report claiming that 24,000 noncitizens voted in the 2020 election.

Let me be clear: This report is propaganda.

Traditionally, the Census Bureau has been one of the unsung heroes of our federal government. It collects and reports truths about the United States, and its work forms the basis for our shared understanding of who we are and what’s going on.

It tells us where people live, where businesses are opening, where poverty is rising, where children need schools, where communities need hospitals, and whether government policies are actually working, as well as how many congressional districts each state gets.

Those facts are how citizens hold power accountable.

But this report is unlike any produced in the Bureau’s history. A typical Census report is produced by nonpartisan career statisticians using established rules, procedures, and high-quality statistical methods. Not this time. This report was produced by outside partisans — folks brought in from the America First Policy Institute, a Trump-aligned advocacy shop with an election agenda.

The statistical methods are shoddy, the usual standards and procedures were ignored, and the findings bear little relation to the truth. For the first time ever, the Census Bureau has produced low-rent partisan nonsense.

That means the government has turned an essential, truth-telling institution into a machine for producing and disguising political claims. When that happens, the country loses more than a single honest number.

It loses its grip on reality.

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Okay, the road ahead. I’m going to spend some time in the statistical weeds (but I’ll focus on intuition over math). That’s because I want to show you what’s happening, not just tell you. But if you’re allergic to the weeds, then read the next section, and then skip to the end.

This report has nobody behind it

Voting reports should be business as usual for the Census Bureau — it publishes one after every national election.

These reports — like all Census Bureau research — are signed by their authors. They tell you what they measured and where the data came from. They provide detailed tables, report error rates, and indicate the level of confidence you can have in the results. They’re written by career civil servants using well-established statistical methods, and each report goes through several rounds of expert review. The reviewers are usually listed.

None of those elements exist in this report.

(There’s something that does look official, but there’s less to it than meets the eye: a Disclosure Review Board number. This simply means the report was checked to make sure that it wouldn’t reveal your personal information. That’s important, but it merely shows that the report didn’t violate privacy laws; it is not a measure of statistical quality.)

There’s no author, report number, or named reviewers. It does not provide an error rate, nor specify the level of uncertainty. It claims to have “high confidence” in its methods — with no explanation of what that actually means.

There is nothing in this report that can help us figure out whether the analysis is actually correct. And the real statisticians inside the Census Bureau don’t want their names anywhere near it.

Small errors can fake a scandal

To know whether someone who voted was ineligible, you need two pieces of information about the same person: Did they vote? And were they a citizen at the time they voted?

There’s no national database that tells us both things, so the people behind this report had to build one. And the method used here is important. Hold on, this is going to get wonky (but hopefully it’ll be interesting!).

To build their database, Census (or those claiming to be Census) started with a commercial voter file. This is a private company’s database, assembled from state registration rolls and voter-history records. It lists names, addresses, and whether each person participated in the November 3, 2020 election.

Then, they tried to match the people in those records with government databases on citizenship and immigration status. Crucially, the commercial voter file did not include Social Security numbers. (And it only included birth dates for voters in some states.) That’s a really big deal, and all of the nonsense is downstream of this.

Without Social Security numbers, connecting the commercial voter file to government databases on citizenship and immigration is a tricky and imprecise endeavor. You need to determine, say, whether Gus D. Platypus from 42 Wallaby Way voted, and then you need to find the same Mr. Platypus in the government’s citizenship databases. That’s harder than it seems.

When there’s no perfect match for Gus’s name, gender, address, and birth date, this system will often look for similar names (e.g., Gus David Platypus), old or nearby addresses (perhaps Gus recently moved to 3 Highview Crescent), or perhaps only a partial birth date (as many databases record big piles of people as being born on the first of the month).

Most of the time, the system works. But sometimes there are errors. A voting record that belongs to one person can get attached to a citizenship record belonging to an entirely different person — a wrong-person match.

The Census Bureau has studied matching errors before. We don’t know the error rate for this report on the 2020 election, or this exact voter file, but we can draw on analyses of previous attempts to link commercial and government records.

According to that earlier Census study, the most cautious approach yielded a false-match rate of 0.146%.

That percentage is tiny, but this country is huge. Across roughly 128 million voter records, that would still get you about 187,000 wrong-person matches. Combine that with the fact that roughly one in nine adults in the United States is not a citizen, and you could easily end up concluding that there are 21,000 apparent noncitizen voters even if every voter were a citizen.

That’s not far off from the 24,000 “found” in this report. And a false-match rate of 0.146% is the friendly assumption. A less generous estimate puts the error rate at 0.185%, which would produce 26,000 “false-positives” — people who appeared to be noncitizen voters but were not.

Where there’s a smoke alarm, there’s (only sometimes) fire

An analogy might be particularly illuminating here: I’ve never had a house fire. But I’ve certainly had my smoke alarm go off a few times. It would be absurd for me to count every alarm as a house fire.

A smoke alarm isn’t a measure of fires. It’s simply a warning that there might be a fire. Sometimes it’s right; sometimes it isn’t.

The analogy is pretty straightforward here. In both cases, the measurement is usually pretty accurate. For instance, my smoke alarm is nearly always correct: most of the time it’s silent, which is the right signal when there’s no fire in my home. Likewise, the statistical method used to match people across databases is nearly always correct. But both methods can sometimes give a false alarm — a false positive.

That’s a big deal when you’re trying to measure extremely rare events (like fires, or voter fraud) because the rare errors can overwhelm the extremely rare events. And that’s the basic story of what’s happening in this report. Effectively, it’s trying to use the number of times a smoke alarm goes off as a measure of the number of fires. It finds 24,000 cases where a statistical smoke alarm went off, and announces 24,000 fires (that is, illegal votes).

(An aside: This is all about false positives. If voter fraud were more common, one would also need to account for false negatives.)

An added wrinkle is that false positives may be even more common in the very communities this report targets. In many immigrant communities it’s quite common for people to share common names. The Census Bureau says its ten most common surnames account for 14.2% of Hispanic Americans, while for White Americans, they only cover 4.4%.

That’s why past Census research has shown that it’s harder to take a Hispanic person in one database and find that same person in another. (Serious researchers would test whether matching errors like this differ across groups. As you’ve probably guessed — this report does not.)

Okay, that’s the problem of false matches — a real voter is matched to someone else’s citizenship record, which can mislabel them as an ineligible voter. And that error alone could easily account for all of the findings in this report.

Old records create false accusations

There’s a second type of error that can trigger false accusations: The computer could match the correct people while still getting their citizenship status wrong.

This occurs when Census connects a naturalized citizen to an outdated immigration record. If it fails to find the newer record indicating this person was naturalized prior to Election Day, they may be flagged as a noncitizen voter.

Let’s return to the case of Gus D. Platypus. He may have moved to the U.S. in 2001, spent time on a student visa, then obtained a green card, and finally took the citizenship oath in October 2020. That means any statistical match based on data that’s current only through September 2020 will “see” Gus as a noncitizen, and hence a fraudulent voter. The reality, of course, is that he had every right to vote.

Census’s own citizenship research explains why this is a real worry: The Social Security Administration isn’t automatically notified when a noncitizen with a Social Security number becomes a naturalized citizen. Those updates may arrive late or not at all. So if Census’s citizenship information was even a few weeks out of date, people naturalized during that gap could be falsely labeled noncitizens.

That’s not random noise but a second source of error that only points in one direction. We call this an asymmetric error, and it biases the exercise toward finding apparent noncitizen voters who are actually citizens.

Here, the report (accidentally) flashes a giant warning light. It says it found roughly 63,800 people whose old immigration records initially made them look like noncitizens, but who had actually become citizens prior to the election.

That’s not a reassuring footnote but proof that the raw data were full of citizens who looked like noncitizens. Furthermore, the report doesn’t tell us how complete the cleanup was. Suppose it found 72.5% of the people in that situation. Then the other 27.5% would be about 24,000 citizens it missed.

This error alone could explain the headline number.

Look, I don’t know whether that’s what happened. And neither do you. And that’s because the report doesn’t tell us. Nor does it give us any of the information we would need to figure it out.

Census ignored its own rules

Census’s own standards say that when it links your voting record to databases that speak to your citizenship status, it must evaluate the linkage. It must test whether it joined the right people. It must measure link rates and error rates. It must explain its assumptions, limitations, error sources, and the way those limitations affect the result.

And its transparency standards say qualified people should be able to understand who sponsored the work, who conducted it, what files were used, how the algorithm worked, what quality measures were used, and what could have gone wrong.

In other words: If you want to claim 24,000 people voted illegally, you have to show your work.

This report doesn’t even try. Which brings us to the question of leadership.

Since 2012, federal law has said that the Census Bureau should be headed by a Senate-confirmed director who is appointed “without regard to political affiliation” and has experience collecting, analyzing, and using statistical data. That law was intended to strengthen this Bureau’s professional independence.

Right now, that Senate-confirmed job is vacant.

Robert Santos was the last Senate-confirmed director of the Census Bureau. He resigned in January 2025, and the Trump administration hasn’t nominated a permanent replacement. Instead, George Cook, a Trump political appointee, is performing the duties of Census director in an acting role — which means he hasn’t been vetted by the Senate.

Now, we don’t know whether Cook personally approved this report. (The report doesn’t tell us who approved it.) But we do know the Bureau is currently led by a political appointee in a temporary role, not by the politically independent, Senate-confirmed leader that Congress designed the office to have.

We also know that this report was released under that leadership.

What’s more, the Census Bureau’s own standards require many levels of review. So who did those reviews? Did they actually happen? Who signed off? Who decided that an unsigned document — produced by external partisans — was suitable to publish under the authority of the United States Census Bureau?

Once again: the report doesn’t say.

Democracies depend on truth-finding institutions

Information that can be trusted is critical to democracy.

This is why the Census Bureau is supposed to be nonpartisan. Once facts are made to serve the people in power, the public loses the ability to judge those people in power.

We saw a version of this institutional fight play out at the Bureau of Labor Statistics. President Trump fired its commissioner after a jobs report he disliked. The first partisan nominee faced serious Senate resistance, including from Republican senators, and the White House withdrew him before the Senate held a confirmation hearing. The Senate later confirmed Brett Matsumoto, an economist with real experience in inflation and economic measurement.

That’s what a guardrail looks like. The pressure came. And the institution pushed back.

At Census, the guardrail failed. And we need only look around to see how other countries pay for this kind of failure.

When Argentina manipulated official inflation and GDP statistics, that manipulation had real consequences for regular people: pensions, wages, and bonds are all tied to official inflation figures. The International Monetary Fund eventually censured Argentina over these inaccuracies.

Greece offers another examle. There, investors stopped believing the government’s debt and deficit numbers, so they charged more to lend that government money. That meant more tax dollars went to interest payments, leaving less for schools, roads, health care, and everything else people need. These skyrocketing interest rates also led to a fiscal crisis.

Trusted statistics are economic infrastructure. Breaking them has major consequences.

When false allegations get dressed up as official statistics, there are also immediate costs. ProPublica reports that federal investigators have been pulled from work involving drug trafficking, human trafficking, money laundering, and child exploitation to pursue large numbers of alleged noncitizen-voting leads.

That’s what propaganda is. Not inconsequential lies, but lies that send the country chasing smoke alarms while real fires burn.

Mature industrial democracies don’t make official statistics in party backrooms. They don’t hide authors or conceal error rates. They don’t take a computer’s first guess and present it as a criminal verdict. And they don’t hear the smoke alarm and start filing insurance claims.

They check for the fire. They publish methods. They publish limitations. They let critics test the work. And if the work is wrong, they correct it.

That’s how a country keeps track of the truth.

The Census Bureau was built to provide facts that outlast whoever happens to be president. Facts that businesses, local governments, and citizens depend on to make consequential decisions and hold leaders accountable.

If we lose reliable facts, we lose our ability to see understand reality and fix what’s wrong. We lose democratic accountability. And we lose an important foundation of our prosperity.

Finally, if you found this useful, I’m worried this story isn’t getting noticed, so please share it.

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Treasury Secretary Scott Bessent just announced an “economic D-Day” against Iran.

And I got an immediate, serious case of déjà vu.

The big idea — of using economic isolation to effect regime change — isn’t new. We tried it in Cuba. In fact, we’ve been trying it for more than six decades. The idea was to overthrow Fidel Castro. Except he lived to a ripe old age and handed over the reins of power to his brother Raúl, who then handed power to his handpicked successor, Miguel Díaz-Canel, who remains Cuba’s president and Communist Party leader. The sanctions, like the regime, are still with us.

It’s remarkable how much of the current moment looks like a barely edited rerun.

It’s not just the idea of sanctions; it’s also the language. The administration’s talk of an “economic onslaught” closely echoes the private language of “economic warfare” used by officials in the Eisenhower and Kennedy administrations.

This is not a loose historical rhyme. It looks like the same playbook — six decades later.

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What’s the big idea?

The United States has already imposed plenty of sanctions on Iran: on oil, banking, and shipping; on military figures, front companies, and the networks that have helped them evade the earlier sanctions.

But the latest move is different. There’s a clue in the name: “Operation Economic Outcast.” It’s a threat to everyone doing business with Iran.

The White House is asking the world to choose. The choice is business with Iran or access to the United States and the dollar-based financial system. The White House is hoping the world takes that threat seriously.

There’s a funny analogy here worth dwelling on. We’ve just learned (the hard way) what a chokepoint can do. Iran sits right next to the Strait of Hormuz — the narrow waterway connecting the Persian Gulf to the wider ocean. When that route gets threatened, oil prices rise, shipping gets harder, and the global economy slows.

In other words, Iran controls a piece of the physical plumbing that’s central to the whole world. It’s hard to move oil without access to Hormuz.

On the other side, the United States controls a lot of the world’s financial plumbing. It’s hard to move money without access to Wall Street. If you’re cut off from that, moving money itself becomes much harder — and a lot more expensive.

It’s hard to know what to make of “Operation Economic Outcast” because it’s mostly just an announcement that there will be future announcements.

Still, we can try to take Treasury at its word. The idea is to expand the domains in which the United States can use its power to prevent folks in other countries from engaging with Iran. Treasury will now work harder to prevent anyone from doing business with Iran in shipping, aviation, technology, gold, and digital assets.

That list gives away the intention: Make it painful for anyone who engages with Iran in any economic domain.

The trouble with weaponizing the plumbing

One lesson from the Strait of Hormuz: When a chokepoint becomes unreliable, people start finding ways around it. That means turning to other suppliers, building new pipelines, adding storage, using different ports, or taking longer routes. The whole geography of trade shifts.

And the same thing can happen in finance.

Every time America uses access to the dollar system as an ultimatum, other countries get one more reason to build alternatives: other currencies, new payment systems, and different banking relationships.

The dollar is still extraordinarily powerful. But the more idiosyncratic and unpredictable American policy becomes, the more valuable an alternative route starts to look.

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Back to the future

The original sanctions strategy toward Cuba began with the same basic economic logic as today’s policy toward Iran.

Cuba’s main export was sugar. America wanted to deny Castro hard currency from sugar sales. Today, Iran’s main export is oil, and America wants to deny Iran hard currency from oil sales.

Both times, America has sought to prevent outside countries from filling its foe’s economic gaps in the hope that the resulting economic pain would produce political change.

In 1960, Lester Mallory, a senior State Department official, wrote that the way to alienate Cubans from Castro was through “economic dissatisfaction and hardship.” That meant denying Cuba money and supplies, reducing real wages, and bringing about “hunger, desperation and overthrow of government.”

The theory: starve a person long enough and they’ll turn on their leader. That assumes they won’t turn on the country doing the starving, and that’s a very big bet to make. Anyone who’s ever been hangry could have flagged the problem.

The Kennedy administration understood the danger. Richard Goodwin warned that America should be careful not to make Cuba look like the victim of U.S. aggression, as it would strengthen Castro’s hand and encourage Cubans to rally around the flag.

Unfortunately, that’s exactly what happened.

If you’ve ever been to Cuba, you might be familiar with the political story its citizens are taught: The country has economic problems, and the United States is trying to crush it.

That story leaves out a lot — Cuba’s government did enormous damage to its own economy. But the embargo gave Castro something real to point to, and provided an effective scapegoat for domestic problems.

The strategy works by creating real pain for real people

The Trump White House isn’t using Mallory’s language. Instead, it talks about illicit revenue, sanctions evasion, oil networks, and military procurement. But a country doesn’t have three separate economies for its military, its elites, and its ordinary families.

Foreign currency pays for imports; when it becomes scarce, it becomes harder to buy food and medicine, or the machinery and materials needed to keep factories running. And when you make it harder for a country to export, that pain moves through the whole economy.

Research on Iran finds that sanctions affect what families eat. Even exempt humanitarian goods (like medicine) get disrupted. That happens when banks and suppliers decide Iran-related transactions are simply too risky.

And the regime narrates that pain for citizens: America is attacking you. Your hardship is foreign aggression.

A recent study looked at nearly two million posts by more than a thousand Iranian political influencers during earlier sanctions episodes. It found that broad sanctions increased pro-government sentiment, including among some moderate opponents of the regime.

That’s influencer data, not a nationally representative poll. But it fits the Cuban lesson: You can make a country poorer for decades, but you don’t get to choose what its politics become.

The lesson from Cuba: It’s easy to create pain, harder to get regime change

Bessent recently said this approach “is working in Cuba right now.” But what actually happened in Cuba?

Yes, the embargo hurt Cuba. A 1982 CIA review judged it significantly damaging to Cuban growth and development in its early years, while finding that its effects diminished over time. Its broader conclusion was that U.S. and regional sanctions had “not met any of their objectives.”

Now we have more than four decades of history since that CIA assessment. And more than 60 years of pressure overall. There’s been plenty of economic pain, but not political transformation anywhere close to what Washington set out to achieve.

And the sanctions literature says Cuba is not some bizarre exception. A classic study by Gary Hufbauer, Jeffrey Schott, Kimberly Elliott, and Barbara Oegg is one of the more optimistic accounts of sanctions: It finds (at least partial) political success in roughly one-third of cases.

But success is much more likely when the demand is concrete and limited: release a hostage, reverse a specific policy, stop a particular transaction.

Regime change is an entirely different kind of demand.

In this latest installment of The Professor Is In, I answer follow-up questions and respond to comments from my recent post diving into the $20 burrito debate—and what it gets wrong about affordability.

I start by addressing an all-too-common misconception: you don’t actually want prices to fall. There's a huge difference between slowing inflation (the Fed’s 2% target is a level you can basically ignore) and actually forcing prices down (which would almost certainly trigger a recession and very possibly a depression).

Then I dig into whether some costs are rising more than others, why looking at the sum of our needs is more honest than cherry-picking items to suit our personal narrative, and why certain salient prices (like food and gas) drive a disproportionate amount of inflation anxiety.

I also draw attention to a caveat flagged by my partner (and favorite economist) Betsey Stevenson: recent wage gains are driven primarily by job-switchers. So in today’s “low-hire, low-fire” environment, the raise that’s supposed to help you catch up may have become more elusive.

Other questions include:

• Have any supply shocks ever made a country permanently poorer?

• How does all this relate to labor’s declining share of income?

• What could be driving the record-high pessimism among American consumers?

Be sure to check out the video to hear all my answers—as always with this series, they’re a combination of confident assertions, vague recollections, and my best guess!

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Trump is threatening Canada with 50% tariffs on a wide range of items, including — and this is the important bit — stuff that he had already agreed not to tariff as part of the USMCA, the free trade agreement that he negotiated with Canada.

If you need a primer on the details, we’ve dug into this one before:

The issue is back in the spotlight as the president is engaged in a will-he-or-won’t-he moment on whether he’s actually going to impose these tariffs.

The question everyone keeps asking is whether all this pressure will win us a better trade deal.

The marriage question

The problem, of course, is that we already have a free trade deal with Canada.

Which is where the marriage comes in.

Wedding vows are, in their essence, trade agreements. Stick with me, I’m serious.

For many couples, a wedding is the moment they form a household together. At their most mundane, these deals are about trading chores and obligations, and making investments together (in a dining room table, for instance). Most of these “trade agreements” are more far-reaching, and provide the secure foundation for couples to enjoy the dance of love and sex and children.

The standard script of wedding vows includes a commitment to work together “for better, for worse, for richer, for poorer, in sickness and in health, till death do us part.”

Our existing free trade agreement with Canada says the same thing, though less eloquently.

Now let’s try to get to the question of whether constant threats might win President Trump a better trade deal with Canada.

If I proposed to you, you’d want to know something about my history. So suppose I told you I’d been married seven times, and that I’d cheated on all seven wives. And then I asked you to marry me anyway.

If I had breached that agreement with seven past spouses, I reckon you wouldn’t trust me to live up to it the eighth time. And so even as we might say the words “in sickness and in health” at some flashy ceremony, I’m not sure it buys us anything. The reality is, you don’t think I’m going to live up to this “trade agreement,” so you don’t feel any obligation to do so either.

That’s where we are with Canada, and it’s the thing people miss when they talk about leverage. A threat doesn’t widen the range of deals available to you. It narrows it. Every arrangement that would require Canada to trust us for years running is now off the table, because we’ve shown ourselves to be an unreliable partner.

The best we can do is make a “deal” — the scare quotes are real — that is shallow, transactional, and not really binding.

To return to the economics of this, if you were a Canadian auto parts manufacturer, would you feel secure enough in your relationships with your American counterparts to build a factory near the US-Canadian border as part of deepening your relationship with General Motors?

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Consent matters

There’s an important second part to this analysis.

The president declared early on that he wanted Canada to be the 51st state, whether they wanted it or not. He’s not especially interested in his partner’s consent. That is a terrible way to begin a relationship.

Healthy partnerships demand vulnerability, but vulnerability requires trust. If a partner refuses to respect your boundaries or care about consent, trust evaporates, and without trust, genuine cooperation becomes impossible.

It’s not just a Canada problem

The United States has a free trade agreement with Canada. Reneging on it hurts our relationship with Canada. It seems implausible that this round of negotiations is going to lead to a lasting, closer relationship. That hurts folks on both sides of the border.

The damage is more far-reaching. President Trump’s inability to commit, and his indifference to consent, seem not to be a huge story in the United States (there’s so much going on!). But it’s front-page news around the world.

The rest of the world has noticed that it’s impossible to trust the United States on trade. Without trust, the range of what’s possible narrows. That doesn’t just mean with Canada, but also with every other country that has observed that the United States regards its commitments as optional.

And perhaps this explains how we can be a year and a half into Trump’s trade war, and we have yet to see a single trade deal that involves lasting and valuable commitments.

The bond market is everywhere right now. The New York Times front page led with it all day on Tuesday, the Treasury Secretary intervened on Wednesday, interest rates fell sharply, then folks thought harder about what that all meant, and by Thursday morning the bond yields rose again. We’re all on the edge of our seats trying to figure out what’s going on.

Unless you’re not an economist, in which case this can all feel pretty abstract, and you’re not sure if you really care. Spoiler: You should care.

The stakes here — your stakes — are important. The bond market determines the interest rate the government pays on trillions of dollars of debt. When the first bill you pay every year is on last year’s credit card, there’s not much left over for anything else, so we get fewer roads, fewer schools, fewer police, fewer of all the good things government is meant to do. That’s basically our federal budget right now.

The interest rates you pay on new mortgages, or car loans, or even your credit card are all closely linked to the bond market. As interest rates rise, so do your monthly payments. The affordability squeeze gets a little tighter.

Figuring this all out is hard. The bond market is big, and complicated. The government’s choices are hard to decipher. The stakes are high, but it’s foggy out. So I sat down to record an emergency podcast with my friend Ben Meiselas. We try to start from the basics — what is a bond? — and go all the way through to the latest developments, exploring whether Bessent’s latest move is just tinkering with the financial plumbing or part of a broader economic strategy, and how things work out when the Treasury Secretary is jumping into the bond market just as the new Fed chair is looking to hop out.

This post is mainly about saying: Watch the video, or listen to the podcast (Apple, Spotify). You can add Platypus Economics to your regular podcast lineup by clicking through here. Please do — I would love to join you on your daily commute. For today’s news, this was the fastest I could react.

But writing for you on Substack also allows me to add a bit more. So let me start with a quick update, as things got funky overnight.

Today’s update

The graph — and the two Wall Street Journal headlines separated by less than 24 hours — is the story.

Treasury Secretary Scott Bessent intervened in the bond market. He succeeded in pushing interest rates down. But no one really knows what he’s doing, or why. (I take some guesses on the podcast, but honestly, it’s all still guesswork.)

This morning, traders woke up and, with the benefit of a night’s sleep, felt pretty unconvinced that there was much to Bessent’s intervention. It is — in bond-market terms — a pretty small bet. So interest rates reversed course, and rose.

The end result: 24 hours of drama, and bond yields are basically unchanged.

One thing to bear in mind: All of the dramatic headlines over the past day have been about whether interest rates rose or fell by 0.1%. The bigger picture is that interest rates have risen over recent years, and that move is closer to 4%.

Point is, when you zoom out, you see a far more important trend.

If you’re an expert, that’s today’s post.

If you’re a bit more of an econ-newb, and you want to know a bit more about what’s driving this longer-term rise in interest rates, read on for some helpful background.

Some useful background

First, what is the bond market? I could give you a long explanation with a lotta detail. But it’s probably more helpful to simplify to this: It’s sort of like the bank where the federal government goes to borrow money. Right now, Washington spends a lot more than it collects, so to make up that difference, the federal government borrows in the form of bonds. And the interest rate that it pays on that loan has gone up sharply.

Why are interest rates rising?

There are probably three big causes.

First, the AI buildout. The private sector is borrowing huge amounts of money to invest in some very expensive AI infrastructure.

Second, geopolitical risk. Ukraine, Gaza, Iran, Oman. Kim Jong Un, Taiwan, Greenland. Tariffs on Canada — Canada! — NATO rearming, Hormuz closing, January 6. Trade wars, hot wars, oil shocks, nuclear threats. Billy Joel could just read the headlines. These are big stories. They rewire the global economy in ways that change how much countries need to borrow, if they can lend, and who we trust to repay their debts.

Third, government deficits and debt. This is the story we’re not spending enough time on. The U.S. budget deficit is at its highest level since World War II, outside of the extraordinary shifts demanded by COVID and the Great Recession.

What’s going on with government finances?

Our deficits are at the sort of level that would only make sense if we were in a moment of extreme economic distress and needed a ton of fiscal help. But we’re not in extreme distress. We’re just borrowing like we are.

Deficits create debt, and the U.S. government is borrowing more and more each year. If digging into the national debt is your jam, lemme recommend a favorite from the archives:

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A couple weeks ago, Andrew Kolvet—a spokesperson for Turning Point USA—posted the following on X:

The claim was simple: A burrito shouldn’t cost $20.

And that kicked off the burrito discourse among MAGA Republicans. Some agreed completely: Life’s too expensive. America has an affordability crisis. For others, the response was: Eat ramen. Get roommates. Work harder.

A faction that won an election by telling voters America had become unaffordable was now arguing about whether it’s polite to say a burrito costs too much. So naturally, I decided to write a column for the New York Times about it. (Here’s a gift link.)

My job on Substack is to give you the extra stuffed, double-wrapped version. This is the kind of burrito that needs a second tortilla just to hold in all the juicy economic goodness.

Let’s start by setting the scene. Here’s what we know about the national mood:

• Back in April, a record 55% of Americans reported that their finances are getting worse.

• As of July, 95% of Americans believe there’s an affordability crisis.

• And two-thirds of Americans now say groceries are unaffordable.

In other words: Folks are worried about affordability, and the national media talks of an affordability crisis. And yet, the broad economic data says that the amount of stuff that regular people can afford has been rising for years.

My job is to explain how both of those things can be true.

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Toast (the company that owns the ordering systems, payments, and menu software behind a huge chunk of American restaurants) has a national burrito price monitor that pulls menu data from roughly 180,000 locations.

According to their latest estimate, the typical American restaurant burrito costs $13.67, and has risen 2.2% over the past year.

So yes, burritos are getting more expensive. But they’re not exactly skyrocketing.

And crucially, this data only tells us about prices, not affordability. Those two things are not the same.

How Economists Measure Affordability

Economists have a pretty straightforward definition of affordability—it’s what you can afford. We measure this by asking how much stuff your income can buy.

If prices double and your paycheck remains the same, you can afford half as much stuff as before. But if prices double and your paycheck doubles, your purchasing power (and thus affordability) remains the same—even though the numbers on everything are larger.

Let’s take this definition of affordability to the data to see what’s really happening.

With economic data, there are always choices. When it comes to affordability, those choices include: Should we look only at hourly wages, or also count benefits? Should we measure the average worker or the median worker? Do we ask workers what they make, or ask employers what they pay?

But when something’s true, it tends to show up no matter what you choose.

So I grabbed five different measures of real wages from official government statistics, and put them all on the same chart, with each one set equal to 100 at the start of 2022. (In each case, it’s the wage rate deflated by the consumer price index.)

During the initial, post-pandemic burst of inflation, prices did jump ahead of wages. Workers lost purchasing power, and affordability declined.

But then, wages caught up. By early 2026 real pay was above where it began. That’s true across all five measures. Perhaps you were hoping for stronger real wage growth. I sure was. But is this shortfall really big enough to call a crisis?

Since averages can hide a lot, I also took a peek at the Atlanta Fed’s Wage Growth Tracker, which follows the same people for a year and tracks how their pay changes.

According to this tracker, the median rate of wage growth between July 2025 and July 2026 was 3.8%, while inflation was 3.4% over that same time period. This tells us that more than half of all workers received raises that beat inflation.

Why Feelings Don’t Match The Facts

Those are the facts. (Or rather, the statistics.) And as an economist, I’m inclined to believe them. But they clearly don’t match the national mood, and using statistics to explain to people that their feelings are wrong rarely works. (Believe me, I’ve tried.)

And that’s why I believe it’s also helpful to dive into the psychology of inflation. Let me start inside the mind I understand best: my own.

Last year, my university gave me a modest raise. Naturally, I decided this was a just reward for the fact that I had economist-ed extra hard. I’d taught my classes, gone to meetings, written the emails, and made at least one graph with far too many lines on it. (It’s the one above.)

I felt seen and valued; that raise was mine, and I earned it.

But then prices rose. And inflation ate away a lot of that gain. That part felt like theft.

Which brings us to the model of inflation many people carry around with them. Most of us don’t experience “the labor market”; we experience a boss.

And bosses—in the ordinary person’s model—don’t like raising wages.

Stefanie Stantcheva, a Harvard economist, has shown just how widespread this mental model is. She asked Americans what they thought happened when inflation rose, and 51% said: inflation will increase my employer’s profits, but that employer will not feel the need to increase my pay. Only 31% chose the economics-textbook story: companies compete for workers, and that competition pushes wages higher.

That textbook story has something important going for it: It describes an important truth. Employers do compete, workers get outside offers, and people can switch jobs. But the boss model feels more immediate—more intuitive. At least on first glance.

And if the boss model is your model, then inflation likely feels terrifying.

Stantcheva also found that 81% of respondents say prices rise faster than wages, and that folks usually credit a raise to their own job performance, not inflation.

More concerning: this shapes real decisions, especially for lower-income families. 56% of lower-earning respondents said that inflation had led them to delay essential purchases.

Wages and Prices Travel Together

Stefanie Stantcheva’s surveys tell us a lot about how people think inflation works. But what about reality? How does it really work?

The data is clear: an inflation burst that raises prices typically leads to a roughly equal rise in wages. Real wages—the amount of stuff people can afford—is not shaped to any particularly large degree by inflation.

That’s easy for an economist to say. Hard for many folks to believe. So let’s explore the empirical evidence together.

I pulled wage growth and price inflation for twelve large industrialized countries, going back more than sixty years. This gave me more than six hundred country-years of data.

And here’s the pattern:

• Sometimes prices move first—businesses raise prices, and wages catch up as firms compete for workers.

• Other times, wages move first—workers demand raises, and businesses pass some of those costs along in the form of higher prices.

But across countries and decades, price growth and wage growth move together remarkably closely. And the adjustment is pretty quick.

Remember, the popular perception is that prices rise and wages never catch up. If that were true, the data in a scatterplot of wage growth versus inflation (shown below) would lie along a horizontal line.

The economist’s model is that prices rise and wages keep up—and hence the data lie along the 45-degree line. Let me add one more wrinkle. In the full econ model, money wages tend to grow faster than prices over time—that is, real wages tend to grow—and hence the data should lie just above the 45-degree line.

Here are the scatterplots:

And yet…belief that an inflationary burst will not meaningfully undermine your purchasing power (for long) is at an all-time low.

Pessimism Hits a Record High

My colleagues who run the University of Michigan Survey of Consumers ask an incredibly revealing question: During the next year or two, do you expect that your income will go up more than prices, about the same, or less than prices? Even better, they’ve been asking this for decades.

The latest answer is a record: 71% of Americans say they expect prices to rise faster than their incomes. Only 8% say their income will rise faster than prices. (That’s despite the fact that more often than not, incomes have tended to rise faster than prices.)

That’s the highest degree of pessimism ever recorded in over 50 years.

So, what’s going on?

To be honest, I’m not entirely sure. There’s a lot more to learn about all of this.

Could This Time Be Different?

Okay, the story that I’ve been telling so far is that inflation doesn’t much shape real wages because price rises are closely linked to wage rises.

But I need to add an asterisk next to this. It’s one that’s really relevant right now.

Sometimes inflation comes from a supply shock: a war disrupts oil, a drought destroys crops, or a tariff makes an imported input more expensive. When that happens, there’s less real stuff to go around and real wages often fall, because the country has become genuinely poorer.

We’ve seen several supply shocks over the past few years: Russia’s invasion of Ukraine disrupted food and energy markets. The war with Iran has disrupted oil flows and rattled energy prices once more. And then—of course—there are tariffs.

The burrito discussion is helpful because it reduces the economy to something you can wrap your hand around and taste. And it provides very real examples of economic policy choices.

You can see the aluminum foil wrapper, which is subject to a 50 percent tariff. The Mexican tomatoes inside have their own 17 percent tariff. The cheese and sour cream began on dairy farms, which are struggling with labor shortages exacerbated by immigration crackdowns. And I’d hold the lettuce for the moment—until food safety is improved.

A burrito isn’t the whole economy. But it is a little bundle of trade policy, immigration policy, food-safety policy, and cost-of-living policy, all wrapped together. And if your goal is to make dinner cheaper, adding fresh costs and fresh risks to the food system sure is a strange way to go about it.

One last thing for the nerdiest of my Platypals!

Today’s post includes a paid partnership with Stata, the software I use to crunch the numbers in my posts (and my research).

I used it here to calculate how wage growth has kept up with rising prices in the United States and 11 other countries. And if you’re really nerdy, you can use this worksheet to follow along! Or if you’re an economics or econometrics instructor, you might find this useful for class.

Last week, I joined Mary Harris on Slate’s What’s Next podcast to discuss the July Jobs Report. I told her the truth: I’m worried.

Most economists expected modest growth last month. Instead, employers shed 23,000 jobs. Add in large downward revisions for May and June, and the U.S. economy added roughly 200,000 fewer jobs over the past three months than most economists previously believed (or hoped).

I don’t want to pretend to know where we’re headed. Anyone who claims to know where we are or where we’re going with any degree of precision is overconfident. The truth is, economists are always sailing through fog, but these numbers got my attention.

Mary and I dug into why jobs are so hard to count and why unemployment can remain low even when job growth stalls. We also discussed what it means for America that we slammed the brakes on population growth without much analysis of its macroeconomic consequences. (Yes, this is all about immigration.)

But here’s what frustrates me most: So much of our economic pain right now is self-inflicted. The United States chose a trade war, a war in Iran, abrupt immigration cutbacks, and a budget blowout. Those are choices that our elected leaders chose in our names. None of them were necessary.

And now regular folks are paying the price. They’re worried about work, losing food assistance, struggling to get healthcare, and watching prices outrun their paychecks.

Economics is never abstract. It’s about whether families can put dinner on the table and live with dignity.

That’s why I get up each morning… and worry some more.