Nerd out with me for this latest episode of The Professor Is In as I dig even deeper into the latest tariffs on Canada, answer subscriber questions, and respond to my comments section.

I address the suspicious timing of these tariffs, break down the confusing dairy tariff-rate quota, and argue that total US-Canada dairy trade — about a billion dollars against hundreds of billions in overall trade — isn't worth blowing up either economy over.

On whether Canada should retaliate, I cite Joan Robinson's "rocks in the harbour" metaphor: much of a tariff's cost lands on the country imposing it, so matching Trump would mostly hurt Canadians.

Finally, I discuss the biggest issue: trust. Once a president established a pattern of tearing up deals he signed, the value of his next signature is zero — and that discourages the deep, long-run cross-border investment that has defined North American trade over the past several decades.

Can trust be rebuilt in a post-Trump world? That remains to be seen.

We knew these were coming — I made a video explaining them a little over a month ago, and sent it out in a newsletter. (One caveat: the video mentions 60 economies. With the EU treated as one economy, you wind with more than 80 countries affected. Either way, these tariffs encompass upwards of 99% of all U.S. imports.)

This third attempt at tariffs is somewhat likely to survive — not because it’s smarter or more principled, but because it comes wrapped in a process that courts are more likely to tolerate. But they will fail to deliver for the American people.

The Administration may have gotten the law right, but they still got the economics wrong. Indeed, this latest approach to tariffs may deliver even less than previous (illegal, unconstitutional) attempts at tariffs.

And to my platypals: You knew all of this was coming because we predicted almost every element six weeks ago. So if you want to be the best-informed person at the water cooler, go back and have a look at that earlier piece, because it holds up almost perfectly.

Before you do business with anyone, you should ask why they want to do business with you. Last week handed me the world’s most absurd teaching example: A White House teleprompter operator was betting on Kalshi about what the president would say — words he was personally scrolling onto the screen. He cleared about $100,000, and honestly, I’m shocked he didn’t make more.

There’s an important lesson here: every market could have a metaphorical teleprompter guy on the other side of the trade. And once you understand that, markets can simply stop working. This problem — which economists call asymmetric information — can also be fixed by sensible regulation which levels the informational playing field.

Which brings me to another big story that sits adjacent to information economics: Trump Media may soon sell early access to the president’s Truth Social posts. Think about what this means. This is how the president announces war; every embassy on earth has to maintain a Truth Social account just to stay informed of American policy. And we already have a place for official government proclamations — it’s called the Federal Register. But now the president has privatized and monetized it, and anyone active in markets will have no choice but to pay. After all, if you don’t pay, you could be trading with someone a lot like teleprompter guy — a counterparty who has an informational advantage over you.

Time for a confession: I helped build the intellectual case for freeing prediction markets from unnecessary restrictions. The dream was that markets would surface useful information, like election odds or product safety. And part of it came true: market odds beat the polls, the pundits, and Nate Silver. But go look at Kalshi or Polymarket today and you’ll see that roughly 90% of the money is on sports. We built a superior information aggregation machine for the economy, and the ideas are being used to create a backdoor sportsbook.

And I know exactly what that costs: Before I was an economist, I was a teenager working for bookies on Australian racetracks. I once took five dollars from a coworker who “didn’t bet” and put it on number one in the next race. Six months later he was betting thousands a race and stealing from his own family. Compulsive gambling destroys lives — and the families it wrecks have no lobbyists. Meanwhile, the major firms dominating the industry have piles of cash and Donald Trump Jr. on both of their payrolls.

I don’t claim to know the exact right policy answer for America. But I know we never even had a grown-up debate. Perhaps that’s a theme we can come back to in a future newsletter.

The average food stamp recipient receives about $188 a month, or roughly six dollars a day.

Six dollars a day. That’s milk. That’s cereal. That’s eggs, rice, peanut butter. It’s the thing that lets a parent say yes to fruit this week instead of no.

Hold that number in your head, because over the past year, Congress passed one of the largest cuts to food assistance in a generation. And what’s happened since is bigger, broader, and harsher than most people realize.

This is one of the biggest economic stories in the country right now. It touches millions of people. And somehow, almost nobody’s talking about it.

What’s SNAP and who uses it

SNAP stands for the Supplemental Nutrition Assistance Program. Many folks still call it food stamps, even though the benefits are now delivered electronically on something like a debit card. It’s the country’s main program for helping low-income families buy groceries.

And that last word matters. Groceries. Not restaurant meals, or fancy extras.

At six bucks a day, this isn’t enough to live on, but it’s enough to help. It helps when the paycheck runs out before the month does. It helps when the power bill lands the same week the car needs a repair, the kid gets sick, and hours get cut.

Something’s often got to give — and for millions of families, SNAP makes sure that something isn’t dinner.

So who does the program help? Children account for nearly 40% of SNAP recipients, and about a fifth are over 60. Half of all households getting SNAP benefits include either an older adult or someone with a disability. There’s also workers stuck in low-paying jobs, and single parents trying to keep a household running on wages that just don’t stretch.

How we got SNAP cuts

In July 2025, Congress passed Trump’s big budget law, the One Big Beautiful Bill Act. Tucked inside it were very large cuts to SNAP.

But why go after food assistance?

Well, the bill was doing something else at the same time: handing out large tax cuts, especially to wealthy households. And to get the whole thing through the Senate, Congress used a legislative process called reconciliation — the fast track that lets a simple majority pass a budget bill without needing 60 votes.

Here’s why that matters. Reconciliation is a budget process, so the arithmetic has to work. If you want to put more money in some people’s pockets through tax cuts, and you want the bill to stay inside the budget targets, you’ve got to take money out of someone else’s pockets.

That someone else was — in part — families on food stamps.

The Congressional Budget Office (Congress’s own nonpartisan scorekeeper) estimated the food-stamp changes would cut federal spending by hundreds of billions of dollars over ten years. Which makes it one of the biggest ways this bill made room for everything else it wanted to do.

And the shape of it is ugly. Rich households got tax cuts. Poorer households got their food aid slashed — and their health care, too.1 Put the pieces together, and it’s the largest redistribution from poor to rich in a single piece of legislation in American history

What the law actually changed

Let’s start with how the old system worked.

For decades, the deal was this: the federal government paid for food-stamp benefits, while states ran the program — the paperwork, the offices, all of it. That split mattered, because when times got tough and more families needed help, states didn’t have to scrape together the money themselves. Washington — which has far more flexibility when it comes to borrowing money — paid the grocery bill.

The new law changed that, in two ways.

First, it changed who can get cut off directly. Before this law, there was already a strict rule for many adults: if you were between the ages of 18 and 54 without dependents, and couldn’t prove you were putting in enough hours, you could only get food stamps for three months out of every three years. Pretty restrictive, but aimed only at folks you might think have a good chance of getting by on their own.

The new law took that rule and stretched it. The restrictions now cover more older adults, all the way up to 64, as well as some caregivers and parents of older children. It also made it harder for states to ease up on the rules when jobs get scarce. So more people can now be knocked off food stamps after just three months — with the calendar, rather than their need, determining whether they qualify.

But the second change may matter even more. Washington cut in half the share it pays states to administer the program. And states now have to pay part of the benefit costs themselves, with the size of that bill depending on their payment error rate.

Picture yourself running a state food-stamp agency. Now you’re no longer just trying to get help to eligible families, but also trying to dodge a future bill from Washington. That changes how your agency behaves. It means you’ll start to require more paperwork. More verification. It means more caution, and more delay. Basically: make it harder for families to get help without officially making it harder to get help.

If you’ve ever dealt with one of these systems, you know exactly what that means on the ground. More letters you can’t decode. More time on hold. More trips to the office. More chances to blow a deadline, lose a document, or just give up. A system that was already a hassle — and honestly, kind of humiliating — just got worse.

The payment error rate (which this new formula depends on) officially includes both overpayments and underpayments. But there’s a hole in the logic, and this one boils my blood: If a family gets wrongly denied altogether, or wrongly booted off the program, that doesn’t show up in the error rate.

So the system dings a state for paying the wrong amount — but not for making it too difficult for eligible people to get through the door in the first place.

That’s a recipe for a much harsher system.

What’s happened since

Here I want to bring in the Center on Budget and Policy Priorities — one of the sharpest, most careful think tanks in Washington on this stuff. And I say careful deliberately: these are people who footnote their footnotes.

They’ve been tracking food-stamp enrollment month by month, and their number is stark. Between July 2025, when the law passed, and March 2026, more than 4 million people lost food assistance. Four million people, each losing roughly six dollars a day toward groceries.

The official forecast already expected the program to shrink. But the actual drop was bigger, and landed sooner, than the government’s own budget scorekeepers had penciled in.

Now, you might be wondering: maybe fewer people needed help?

Fair question. But the evidence says no. Unemployment was roughly flat over this stretch, and the survey data show that trouble affording food stayed high. In 2025, nearly one in four adults reported not being able to reliably afford enough food. Among working-age adults living with kids, it was closer to one in three.

So the need for help didn’t disappear. Just the help itself.

And — perhaps the most important part — the people losing help were broader than advertised. Even if you liked the original pitch for this law, even if you genuinely thought tighter rules on a narrow group of adults was good policy, that’s not what the evidence shows.

The clearest example is kids. In the states where we can actually see the child data, about 1 million fewer children were getting food stamps by spring 2026 than before the law passed. Extrapolate carefully to the rest of the country, and the number is likely well north of 1.5 million.

That is a huge number.

And nobody stood up on the floor of Congress and said, “our goal here is to take food off the table for a million and a half children.” That was never the pitch. But it’s what’s happening.

Yes, this was a budget cut. But it was also a redesign of the whole machine that delivers the help. A system that used to be about getting food to eligible families is now under a lot more pressure to screen, to doubt, to delay, and to deny.

We shouldn’t be surprised when a lot more people get hurt than the politicians ever owned up to.

The enduring lesson

When politicians cut a program, you shouldn’t just ask how much money they saved. You should also ask: who lost what.

In this case, rich households got tax cuts. While millions of poorer households lost a modest – but essential – food benefit worth about six dollars a day.

In Washington, six dollars a day may sound like a rounding error. But in a kitchen where the milk is running low and the month isn’t over yet, it’s a whole lot more than that.

Trump just hit Canada with a new set of 50% tariffs.

There’s a lot going on here. A lot. So let’s dig in.

This matters for American families because the President’s “retaliation” is higher tariffs — that is, higher taxes charged to Americans who buy stuff from Canada.

It matters for Canada. My rough insta-analysis says this is a much bigger deal than most of the President’s recent volleys in our on-again off-again trade war with our nearest neighbor.

And it matters for the rest of the world – and our relationship with the rest of the global economy – because the next round of the trade war is just around the corner.

My interpretation is that the President intends to send a message that resonates far beyond Canada. We’re on the cusp of the next round of the Trump trade war, and the President is trying to say: If you retaliate, expect further escalation and counter-retaliation.

Here’s a reminder about what to expect in the next round of this trade war:

This tariff broke the Canada exception

So what actually happened?

Yesterday – July 20, 2026 – the White House posted three proclamations under Section 338 of the Tariff Act of 1930, plus a fact sheet pulling them together.

Each one slaps an extra 50% tariff on a list of Canadian goods, and these come into effect in a month’s time. The disputes are labeled motor vehicles, alcoholic beverages, and dairy. Those names refers to the President’s complaints, not to the tariffs involved.

There’s going to be a lot of ink spilled over these disputes.

Let me save you the time. There’s not much here, other than a desire to punch Canada, dressed up in a novel legal theory.

But this punch is different.

Here’s the important bit: The White House says these tariffs hit the covered goods whether or not they qualify under USMCA.

Let me put that in plain English. Even if a Canadian good ticks every box for preferential treatment under the North American Free Trade Agreement (which Trump renamed USMCA), this new tariff can still apply.

Why does that matter so much?

Well, for much of the tariff chaos earlier in Trump’s second term, USMCA compliance was the escape hatch.

Throughout 2025, the White House threw around tariff threats with reckless abandon, but it also quietly added an asterisk saying these wouldn’t apply to goods from Canada and Mexico that qualify under our existing USMCA free trade deal.

That turned out to be an important escape hatch, because almost all Canadian trade caught up in those earlier fights qualified. A Canadian Finance Department briefing said 97.5% of Canadian exports covered by those earlier tariffs were USMCA-compliant and thus came in duty-free. I have seen others suggest numbers closer to 90%. It’s hard to be precise, but it’s clear that this escape hatch effectively shielded most of Canadian industry from President Trump’s tempestuous tariffs.

Trump keeps renegotiating his own trade deal

Honestly, the history here is so absurd that the best thing I can do is just line the facts up and let them do the comedy.

First, Trump spends his first term telling everyone that NAFTA is a disaster.

Then he renegotiates it.

Then he announces the replacement (USMCA) like he’d discovered fire, invented trade, and personally rescued North America and created a deal they had (awkwardly, embarrassingly, noticeably) already been in for decades.

He held a signing ceremony. There were flags. Sharpies. People applauding.

In realty: Nothing much changed, except for the branding.

But in his second term, he hits Canada with tariffs anyway.

Then he adjusted them.

Then he carved out USMCA-compliant goods (effectively removing them).

Then he slapped sectoral tariffs on other stuff.

Then he kept telling everyone the trade agreements aren’t good enough.

And now, here we are again. Same President, reaching for a law from 1930 to tariff Canadian goods even when they qualify under the trade agreement that replaced the trade agreement he blew up in order to write this trade agreement.

The list is weird because the law is weird

Now let’s talk about the novel legal theory behind our new trade war with Canada. And I’m not a lawyer, so I’ll just sketch out the big details.

Remember, the constitution gives Congress, not the President, power over tariffs. So if the President is going to do something, he has to pretend that somewhere along the line Congress gave the White House this power. The courts have recently forced President Trump to actually pay attention to this, ruling many of his tariffs unconstitutional.

These new anti-Canada proclamations lean on Section 338 of the Tariff Act of 1930. Which was last used when Herbert Hoover was still in the building.

Section 338 lets the President slap on additional duties, up to 50%, if he finds another country discriminates against U.S. commerce or puts an unreasonable, unequal burden on it. And the law says the tariff should offset that burden or disadvantage. This seems to suggest there needs to be some proportionality to the response.

But a February 2026 brief from my friends at the Peterson Institute for International Economics called Section 338 an “untested retaliatory tool” and said it had never once been used to apply a tariff, even though people had threatened it over the years.

So yeah, this is weird. And that weird law is exactly why you get a weird list.

The three proclamations are officially the result of separate disputes over cars, booze and milk. But the goods actually getting hit? They’re not related to these disputes at all.

That’s because the title tells you the grievance, but not what is actually being tariffed in response. So you end up with a so-called motor-vehicles proclamation that reaches all sorts of things that are not motor vehicles: Wine. Cement. Hockey Sticks.

Tariff policy has discovered the junk drawer.

Small for America, real money for Canada

Okay, let’s do some arithmetic.

Now, this is day-one insta-analysis. I’m just trying to get the order of magnitude right.

In order to figure out how much of the economy is about to get whacked, I read up on the pages of goods that are to be tariffed, and paired them with official government data on US imports from Canada, by product.

My rough estimate is that these tariffs cover a bit more than $20 billion of Canadian goods sold into the United States. That’s maybe around 5% of what we import from Canada.

So for the United States, it’s a modest macro effect that will pack a more powerful punch in specific sub-sectors of the economy.

The cost to the typical American household lands at around $50 to $100 a year on average, depending on pass-through, substitution, and which firms use the tariff umbrella to jack up their own prices. Meaningful, but not gigantic.

But for Canada, this is a real hit.

Canada is a much more open economy than the United States, so trade really matters. And trade with its nearest neighbor matters a lot. When you impose an extra 50% tariff on something like 3% of a country’s exports (which adds up to nearly 1% of its entire GDP), businesses notice. Exporters notice. The people planning next year’s investments notice.

One more thing that expands the reach of these tariffs: Everyone in Canada will notice, including those who don’t make the specific products the United States targeted this time. The more far-reaching news here is that the President has shown that the list can change.

The USMCA shelter is no longer much of a shelter — that’s the escalation. Reliability, certainty, and a spirit of mutual cooperation are out the window.

Canada may be the warning shot

So why Canada? And why now?

It could be that the Administration is genuinely telling the truth that it’s worried about Canada’s cows, cars, and cocktails. I mean, it’s possible

The dairy dispute is probably the cleanest rationale, on its own terms. The U.S. has been complaining for years that the way Canada runs its dairy tariff-rate quotas under USMCA chokes off the market access America thought it negotiated. The US Trade Representative has actually taken this to a dispute panel. So that one did not spring out of nowhere.

The alcohol dispute is smaller and more provincial, and the motor-vehicles fight is tangled up with earlier rounds of tariff retaliation.

But if you step back from the legal labels and ask what the broader play is, I think the answer is far bigger than cows, cars, or cocktails.

My interpretation is that Canada may be the test case.

The White House fact sheet goes out of its way to point out that only China and Canada chose retaliation instead of negotiation. And I think you’ve got to hear that message alongside whatever’s coming next, including the administration’s broader push toward tougher customs enforcement and the expected wave of new tariff action around forced-labor issues.

To everybody else, the message is pretty simple: Don’t retaliate. Because if you do, the President is willing to reach for old powers, ignore new promises, and improvise from there.

And there’s something more broader, and more important: A deal is only a deal if today is a day the President feels like honoring it. Which means that it’s impossible for the United States to strike serious trade deals with anyone. For all of the President’s claims that he wants these agreements, no-one has done more to undermine that possibility.

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In this episode of The Professor Is In, I answer your questions and respond to comments from my latest video dispelling the hype around Trump Accounts. I argued that Trump accounts are really two policies bundled together. There’s the attention-grabbing $1,000 payment for newborns, which has a genuine “kernel of genius” if the goal is to introduce families to saving, investing, and compound interest. But that piece is temporary. The larger, more durable part is a tax-advantaged wealth-transfer tool that primarily helps upper-middle-class families pass assets to their children.

I connect these accounts to other temporary Trump-era tax promises — on tips, overtime, and Social Security — and contrasts those short-lived populist gestures with more permanent tax cuts for the rich. The result is a style of fiscal policy that looks pro-worker on the surface while delivering much larger long-run gains elsewhere.

I also explain why complexity is not just annoying — but economically harmful. When benefits are routed through a maze of tax rules, account types, and employer provisions, take-up falls. And those most likely to miss out are often the families who can least afford to, making an already regressive system even more unequal.

This week, we discuss the collapse of the Iran ceasefire and what it might mean for the economy. We also break down the latest inflation numbers, why the relief is probably short lived, and how inflation is starting to show up in less obvious and more surprising ways.

Then, in response to the terrible air quality affecting both Ann Arbor and New York, I give Stacey a quick lesson on public goods, before sharing a surprising good news milestone.

On Monday, I joined to (once again) discuss the ongoing economic fallout from the Iran war, the implications of AI, and the political economy of corruption. Also, what it means to be human.

The Iran War, redux

We’re now twenty weeks into a “four-to-six week war,” and the economic costs are far grimmer than most coverage suggests. Markets can clue us into the scale here — every escalation drops American stocks, while de-escalation lifts them. The moves look small, but that’s because much of the chaos has already been priced in. Once you adjust for that, the market’s judgment tells us that this war has erased something north of a trillion dollars in the future profitability of American businesses.

Some thoughts on AI and competition

Next, we discussed the AI price war — Anthropic and OpenAI are burning cash to undercut each other, and Charlie wondered whether it signals a bubble. On this, I was happy to deliver good news: this is glorious. This is exactly how market competition is meant to work. Rival firms are in a race to create better products, and they’re each feeling pressure to offer lower prices and hence a better deal to consumers. When we write in our textbooks about the value of competition, or Adam Smith describes the “invisible hand,” and folks talk glowingly about the value of markets, this is what they’re after: Robust competition delivering better products at lower prices to buyers.

It’s an interesting lesson in business journalism. This is a good news story for everyone except the AI labs who are seeing their margins compressed. (Okay, their margins may be negative right now, but think of this as part of a longer-run competitive strategy and they are still valued as if their strategies will be profitable.) But nothing is ever good news in business journalism, and the interests of you and I — consumers — are barely visible. So this is written up as bad news, and we’re told to fear the world’s largest companies not being as profitable as their shareholders hope. Harumph.

The scenario that should keep you up at night isn’t commoditization, but monopolization.

It’s not just the corruption, it’s the threat to democracy

Finally, we broached the topic of the president’s recent financial disclosures: roughly $2 billion in personal enrichment in year one, dominated by crypto. There are two ways to get rich in this world — you can grow the pie by creating something people value, or find clever ways of transferring other people’s money into your own account. As a property developer, the president was (arguably) on the grow-the-pie side of the ledger. But in his second act as a president-businessman, every one of his major lines of business is about grabbing money from others and stuffing it into his own pockets. His crypto “investments” are perhaps the purest form: his working- and middle-class supporters paid in, the value collapsed, and their losses became his gains. No product, no value added, just a transfer from their pockets to his.

No-one likes corruption, but I think there’s something far bigger at play here. And it’s all about arithmetic. A presidential campaign costs about $2 billion, all-in. If holding the office yields more than $2 billion per year in income, then a full presidential term adds up to $8 billion in profits. For the first time in American history, buying the presidency is inherently profitable.

Our democratic institutions weren’t built for that.

I’m an optimist at heart, so let me remind you: We’ve had a thriving democracies for generations. And we can still have one in the future. But it’ll take work.

On being human (while being an economist)

Oh, and on optimism, and being human… My conversation with Charlie headed in a delightfully unexpected and personal direction. We explored my attempts at learning to sing, playing improv, and Charlie’s turn to poetry. I led with my heart a bit — or at least as much as an economist can do — and shared a bit about my personal journey toward the humanities and trying become more fully human. It’s not the conversation you might expect from an economist and a political commentator, but beneath it all, there’s a beating heart in each of us. (Jump to the 26 minute mark if you’re impatient.)

And if you’re ready to share, I would love to hear about your journey. What’s your creative outlet? What’s your journey to discovering your deeper humanity? What have you learned? What can you share?

We’ll get to the oomph of it all in just a moment, but first a personal aside. It’s rare that I’m intimidated by folks I talk with. But Heather is so prolific, so well read, and so beloved — a national treasure, no less — that I’ll admit to being more than a little bit nervous. I can share that she’s as lovely in conversation as she is thoughtful in print.

Back to the economics of our conversation…

When you’re talking with an historian, we’re not reviewing last month’s inflation numbers. It’s a longer sweep, viewed through a bigger lens. And for an economist, that means talking about institutions.

They’re central to thinking about the effects of inequality on economic performance. Here’s why: A healthy set of economic institutions gives everyone an incentive to bake a bigger pie; an unhealthy set gives folks an incentive to steal their neighbor’s slice, instead.1 And when wealth gets particularly concentrated, those at the top stop inventing better electric cars (or baking pies) and start lobbying for carve-outs (pie-stealing, with better lawyers). Which is why I believe the biggest threat from inequality runs through our democracy.

Here are some numbers: Elon Musk spent $250 million to help swing a presidential election, and has enough left over to do it for thousands more. And now the president is on track to earn $8 billion during his second term (largely through a cryptocurrency industry he regulates), far exceeding the roughly $2 billion Republicans spent to elect him. Buying the presidency has become profitable, and our democratic institutions were not built to deal with this reality.

Despite these very real threats, the historical record offers hope. Wealth inequality in America over the past century is a U-shaped curve: sky-high during the Gilded Age and through the Great Depression, dramatically lower by the 1950s and 60s, and back up today.

My students often feel these are forces beyond anyone’s control, but they’re not. We compressed inequality once before through policy choices, and there’s no reason we can’t do so again.

We’ve made enormous progress on other fronts as well: movements toward racial equality, women’s liberation, and LGBTQ+ rights. These movements not only made America fairer, but made the pie bigger, too. Jobs are now allocated to a greater degree by talent, rather than demographic characteristics. Point is, not everything is an equity-efficiency trade-off. That’s a point worth emphasizing: Sometimes we really can make the economy both more equitable and more efficient.

All of this brings us to our current moment, and the choice in front of us today: artificial intelligence. Whether the economic transformation is one-tenth the size of the Industrial Revolution or twice as big, it’s already begun—and none of the rules have been written. The decisions we make now about how AI’s gains are shared will shape the American economy for the next fifty years (or more).

We’ve fixed lopsided economies before, and can write these rules well, too. But only if we understand that we—not “the economy”—are the ones holding the pen.

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Here’s the pitch: Babies get a thousand bucks—a little stake in the stock market—and over time, that money grows into something much, much larger.

But here’s the reality: Trump accounts are actually two separate policies jammed into one. The first is a tiny, temporary giveaway for babies born in a very narrow window. The second is a brand-new, permanent tax break that will mostly benefit those who already have plenty of money to save. The first got all the headlines. The second is the more consequential policy.

Which means rather than giving poor kids a leg up, these accounts are far more likely to widen the gap.

They’re Selling the Baby Story

Let’s start with the bit the White House wants you to notice: some babies will get a thousand dollars from the government.

The administration has talked about the magic of compound interest, shown us glossy future balances, and wrapped the whole thing in the language of opportunity and ownership and getting a head start in life.

In other words, it’s extremely clever politics.

And here’s the thing: the idea of handing a child an asset at birth has a long—and frankly very progressive—history. But the progressive iterations (typically called Child Development Accounts or Baby Bonds) tend to be automatic, larger, and bigger for kids who start with less.

Take Senator Cory Booker’s proposal. It would have started with a public deposit at birth, and then piled on larger annual public contributions for kids from poorer families to offset unequal starting wealth.

Compare that with Trump Accounts: If a child is born between January 1, 2025 and December 31, 2028, they can get a one-time $1,000 government contribution—if a Trump Account is opened for them.

And that’s a very important, practical point you need to know: This deposit isn’t automatic. You’ve got to claim it. If your kid is born in the eligible birth window, you need to sign in through the IRS, submit Form 4547 (yes…really), and grind through the account election and activation process. (Which you should do: your baby will become a thousand dollars richer.)1

So yes, there’s a baby-bond-ish piece here. But it’s baby bonds after they’ve been through the wash a few too many times. They’ve faded, shrunk, and frayed. And come January 1, 2029 (conveniently just after the next presidential election) that bit vanishes altogether.

Which gives away the priorities, and brings us to the real policy.

The Real Policy Is a Tax Break

The lasting part of Trump Accounts isn’t the thousand-dollar seed money, but the tax breaks families get for pouring their own money into it. And this bit keeps on keeping on—long after the next election.

During childhood, families can chip in up to $5,000 a year (if they have it) to a Trump Account. And as part of this $5,000 cap, employers can deposit up to $2,500 in tax-free contributions.

These employer contributions are what economists consider a tax expenditure. Rather than the government writing you a check, they’re helping you out by collecting less tax. So the support flows through the tax code instead of through direct spending, but the overall effect—and the cost to other taxpayers—is the same.

And here’s another important bit: Since these employer contributions essentially operate as a cut in taxable income, this part is worth more for families in higher tax brackets. In other words, the government is making an even bigger contribution to the already-wealthy.

Now, when it comes to direct family contributions, the tax break is much weaker. When a family puts in its own money, there is no up-front tax deduction. And your kid will have to pay income tax once again after the money is withdrawn.

So the family-side benefit is mostly this: the money can grow without an annual tax on the gains (i.e. dividends, interest) while it sits inside the account. This is called a tax deferral. And while it can help, it’s often not the best deal. (More on that in a bit.)

This Mostly Helps Better-Off Families

Here’s the bottom line: the families struggling the most will hopefully grab the $1,000. But they’ll probably have to stop there.

Meanwhile, wealthier families are far more likely to add money year after year. They’ll also pick up employer contributions, and get more value out of the tax shelter since they’re paying federal income tax at rates that make them worth dodging.

Which means Trump Accounts aren’t so much opportunity-enhancing, as inequality-exacerbating.

Oh, and the $1,000 contribution only applies to babies born during the second Trump presidency. The tax-advantaged savings will be available forever (or until Congress repeals them).

The Big Numbers Are Misleading

Now let’s dig into those big glossy numbers the administration has been peddling.

The White House put out projections at TrumpAccounts.gov showing that your kids could end up with enormous balances:

These numbers are ridiculous, dishonest and deeply misleading.

Now I’ll concede, the arithmetic is real—in the narrowest possible sense. The math maths. But it’s also GIGO — garbage in, garbage out.

These absurdly rosy projections reflect three assumptions that are wildly unrealistic for most families:

First: decades of private contributions. The big balances don’t come from the government’s one-time $1,000 contribution. They come from you, feeding $5,000 in every year for eighteen years. (Oh, and if you follow the footnotes, they also assume you feed another $7,000 per year into an IRA for the decade after that.)

Second: rosy market assumptions. They assume strong returns across long stretches. Quite literally, they’re assuming that the highest-ever recorded rates of return will conveniently repeat themselves when you invest in a Trump Account.

Third: inflation. A dollar in thirty years sounds like a dollar, but it really isn’t. Inflation-swollen future figures look impressive in a press release but turn out to be a lot less useful when you try to spend them in a grocery store. The honest way to go about this would be to present the numbers adjusted for the cost-of-living.

At the end of the day, these projections show a best-case, wishful-thinking scenario: families keep contributing, markets repeat record returns, and inflation apparently doesn’t matter.

Is This Even the Right Account for You?

But suppose you do have money you’d like to save for your kid. Is a Trump Account the best place to keep it?

For a lot of families, the answer is no.

Remember, on the family side, the main benefit is tax deferral—the money grows without an annual tax on the gains. That helps, but you’ve usually got better options.

For most families, Trump Accounts are less tax-advantaged than their alternatives, and would simply add another layer to an already cluttered savings system.

Let’s walk through those alternatives:

If the goal is education, a 529 is probably better—qualified education withdrawals come out tax-free (not deferred).

If the goal is retirement and your kid has earned income, a Roth IRA is usually the best option—the long-run tax treatment is typically more generous.

And if the goal is flexibility, a plain old taxable brokerage or custodial account can stack up surprisingly well—capital gains treatment often beats the ordinary-income treatment your kid will get on their Trump Account withdrawals.

If this all sounds like a lot of made-up words to you, my advice is even simpler: Do your homework. Talk with a financial advisor. Or with Claude or ChatGPT, who often give even better advice. (I’ve checked.)

Don’t put this off. It really matters. Ten minutes of reading could be worth thousands of dollars to your kid.

So where does this leave us?

I don’t want to overstate the criticism. If your kid is eligible for the $1,000, you should claim it. Free money is free money. (Well, it’s not free to the rest of us, but you get the point.)

And if some families use this as one more savings tool—that’s fine, too.

But let’s not pretend this is some great equalizing reform.

The baby-bond bit is small, temporary, and gone in 2029. The lasting bit is another tax-favored account—one whose benefits mainly flow to high earners with employers willing to contribute.

If you actually wanted to attack inequality, you’d make the public contribution bigger, permanent, and better targeted to those who need it. If instead, you wanted to hand already-comfortable families one more tax-advantaged shelf to store their money, you’d build something that looks a lot like this.

And here’s the most important lesson: Not every policy with a smiling baby on the label is about equal opportunity.

Sometimes it’s just a temporary populist giveaway stitched onto a permanent tax break for those who need it the least.

Headline inflation was down 0.4% for the month — the steepest one-month drop since April 2020 and the earliest days of COVID. Meanwhile, the year-over-year rate was +3.5%, down from +4.2% in May.

If you’re going to tell me that you don’t believe that prices fell last month, I get it. What really happened is that most prices rose, but a small set of prices — yes, energy prices — fell 5.7% for the month.

The numbers for core inflation (stripping out the more volatile energy and food prices) also provided good news. The monthly index was flat, while the year-over-year figure was +2.6% (down from +2.8% in May).

Nevertheless, these numbers remain high by historical standards, and still well above the Fed’s target rate of 2%.

U.S. inflation also outpaces each of our G7 peers, suggesting that the current inflationary burst isn’t just caused by global forces like surging energy prices. (Ahem, tariffs would like some attention.)

When it comes to purchasing power, real wage growth has fallen sharply over recent months, and real wages barely grew over the past year. At least we got a bit of a rebound from May when real wages actually declined.

Zooming out to consider Trump’s entire second term, we see that average hourly earnings are barely outpacing inflation.

This report also has important implications for the Fed.

Today, most economists are breathing a sigh of relief that inflation is less of a threat than we might have thought as recently as last night. As a result, federal funds futures now predict lower interest rates through the end of the year. Yes, rate hikes are still more likely than a rate cut, but they may be later, and there may be fewer of them.

But… this report tells us about June, and we’re now in July, and we already know of some unwelcome developments in the fight against inflation. The recent collapse of the Iran ceasefire is a big deal for a lot of reasons, including inflation. It’s a simple rule: More war, higher energy prices.

And indeed developments over the past few days have led oil futures markets to move sharply, and they’re predicting higher energy prices for the next several years. So this month’s relief about lower headline inflation — due to cheaper energy — will likely be short lived.

Finally, a question. What are you seeing in your community? How is inflation affecting the issues you’re discussing at work? What are the companies that you work with doing, and how is the current energy crisis working itself out on the shop floor?

The gas price story is not just about your local station—it runs through refining, production constraints, inventories, retail competition, and consumer behavior. When oil prices rise, gas prices can adjust within days, but when they fall, the trip back down is slower—and there are several possible reasons, from tacit collusion to slower consumer search to real production asymmetries.

This conversation also widens into one of the biggest ideas in macroeconomics: sticky prices. Across much of the economy, businesses don’t constantly update prices when demand or costs change. That matters because price stickiness can keep markets from quickly returning to equilibrium, leading to ups and downs in the business cycle.

I also tackle the slippery question of price gouging. Is there a technical definition? Not really, even though ordinary people often feel they know it when they see it. That tension has real stakes for policy debates, including anti-price gouging laws and investigations into unfair pricing.

It’s not your imagination. Economists have documented this pattern for decades. Gas prices have a habit of rising like rockets, while falling like feathers.

And this phenomenon is making news right now.

Oil prices have been bouncing around since the start of the Iran war, but now that prices have started to decline following the (on-again, off-again) ceasefire, Donald Trump has jumped on social media to accuse oil companies of not cutting gasoline prices fast enough.

He even called it price gouging:

Price gouging is a serious charge. So before we press charges, let’s attempt to better understand what’s actually going on here.

The asymmetric pattern of “rockets and feathers” doesn’t necessarily prove wrongdoing on the part of oil companies or gas stations. Instead, it can emerge from several different mechanisms—some innocent and others more troubling. But either way, understanding this pattern (and its causes) can help you make smarter decisions for your own wallet.

Gas prices jump, then drift

Let’s start with the actual claim: It’s not that gas prices never fall. Of course they do. Instead, it’s a claim about the speed at which they do.

Which means this isn’t necessarily a question about good blokes versus bad blokes, but one of timing: Does bad news travel through the system faster than good news?

This is a hypothesis we can test.

What the data show

To do so, I fetched weekly oil and gas prices as far back as the data (easily) allowed.

The gas prices come from the U.S. Energy Information Administration (or EIA), and reflect the retail price surveyed at the pump first thing every Monday. The weekly oil prices reflect the closing price of West Texas Intermediate crude oil from the previous Friday.

I compared each of these Monday pump prices to the previous Friday’s crude oil price, and as you can see below: the two track each other pretty closely.

Next, I separated the weeks when the price of crude oil rose from those when it fell, and used Stata to figure out how much these different movements showed up in retail gas prices over the following eight weeks. (See the very bottom of this post for a few more details.)

Here’s what I found: When the price of crude oil rises, the price of gasoline catches up really quickly. Most of the movement lands within a week or two.

But when the price of crude oil falls, the relief shows much more slowly, dribbling in over the following weeks.

In other words, the data prove the pattern we suspected: gas prices respond to oil price changes asymmetrically: They rise like a rocket and fall like a feather.

But give it a couple of months, and the two roughly even out. Eventually, the feather does land. Which means the asymmetry is almost entirely about speed. No-one is pocketing an extra big profit margin for more than a few weeks.

Why the pattern exists

Now that we know this pattern exists, the next question is much harder to answer: why does it exist?

There are several possible mechanisms, each of which can produce the same broad pattern:

Cause #1: Consumer Search Habits

An unchanged price (even if it’s high and too high given the state of oils prices) tends to generate a lot less attention than one that’s actively increasing.

So even when the price of crude oil has fallen and gas prices really ought to be lower, most people don’t know what the correct lower price should be and will keep buying from the same station they bought from the previous week.

Because of this tendency for consumers to search less aggressively when prices are falling, stations can lower their prices slowly without losing many customers. This isn’t a conspiracy, or even price gouging. Instead, it’s the result of imperfect information, costly search processes, and a bit of human psychology.

Cause #2: Tacit Collusion

The second mechanism is one that many people—including the president—suspect straight away. It’s called tacit collusion.

The collusion part is when competing gas stations each agree to keep their prices high. That’s illegal. But it can work without competitors meeting up in smoky alleys to agree to squeeze their customers rather than each other. Instead, they can just watch each other. (This is particularly easy with gas stations, whose prices are prominently displayed for all to see.)

When the price of crude oil starts falling, each gas station faces the same awkward question: should I cut my prices or not?

On the one hand, cutting prices could give them a competitive advantage. But the bloke across the street is going to see that change immediately and respond in kind. Which means cutting prices will reduce a station’s profit margin, without helping them gain much extra business.

Thus, there’s a strong incentive for neighboring stations to simply wait and watch the other’s move—making them slow to move their prices on the way down.

The president would be right to call this a form of price gouging; however, the safer textbook term is tacit strategic interaction. It’s not an explicit cartel, but the firms watch each other, and know they’re being watched by others, and the implied threat that lower prices will be met with lower prices is enough that they’re each most comfortable keeping their prices a bit too high for a bit too long. Over time though, competitive forces bite, one of them blinks and cuts their price, and the feather begins its slow descent.

Cause #3: Asymmetries Elsewhere in the Supply Chain

There’s a third mechanism. Gas stations and their customers aren’t the only actors here. Gas comes from a long and complex supply chain, and perhaps that’s the source of the rockets-and-feathers asymmetry.

To make gasoline, crude oil needs to be refined and blended and shipped and stored and delivered. And at each step, firms aren’t just responding to today’s oil price, but also to the cost of ramping up production, storing inventory, and a number of both forward- and backward-looking decisions, each of which may create their own asymmetries.

Moreover, if competition is weak at any point along that chain, there’s plenty of room for the decline in oil prices to dribble through slowly to the number you see at the pump.

What this does—and doesn’t—tell you

Here’s the thing: just because we know this pattern exists—and we know some possible mechanisms—doesn’t mean we can pinpoint which mechanism (or combination of mechanisms) is responsible.

However, there are two main lessons you should take away from this:

First: Don’t overreact to a short-run mismatch.

If the price of oil fell yesterday but your local gas station hasn’t yet moved their prices, that doesn’t necessarily mean they’re trying to rob you blind. There are several mechanisms at play that could be contributing to their slow reaction, some of which lie beyond their control.

But second: Know when information matters.

When oil prices are rising, there’s often not much you can do—bad news hits the market fast. By the time you’ve learned that oil prices are moving, the six foot price at your local station has probably already risen.

But when prices are falling, stations don’t usually adjust at the same speed. Which means that’s when it’s worth checking a gas price app like GasBuddy, or shopping around a bit more carefully.

You’re not going to completely outsmart the market. But understanding the rockets and feathers pattern points you toward the moments when paying greater attention can yield bigger savings.

It’s not magic, but it’s useful economics. And hopefully, it makes the world stop looking so random, and start making a little more sense.

One more thing (for the stats nerds and stat-curious)

This post, like many, involved a bit of number-crunching. And I like to show my work, and perhaps also teach a little statistics along the way. So in a new partnership with Stata, I’ve put together a worksheet so that you — or if you’re a teacher, your students — can work through this style of analysis for yourself.

Click through here if you want to work through this analysis, pressure test my findings, and keep building your statistical mastery.

Oh, and if you’re an introductory stats / econometrics instructor: Tell your friends.

Here’s the thing: from a macroeconomic perspective, a couple (or a few) billion is a drop in the bucket for the U.S. economy. But the policy changes that helped the president acquire those billions—like gutting the DOJ’s crypto enforcement unit—could cost the country trillions. And morally, the case is even more cut and dry: taking tens of thousands at a time from people who wanted the best for you destroys lives.

We also ran the numbers on something I’d long suspected but never expected to see demonstrated so brazenly: buying the presidency is now extremely profitable.

Some simple — and very rough! — math: Total Republican campaign spending in the last presidential election was roughly $2 billion. The president has now earned $2 billion in just the first year, putting him on track for $8 billion over the term. Buying the Presidency yields a rate of return that few other investments ever offer. Add in the myriad ways the broader Trump family is getting richer — young Barron is already worth $150 million — and the math gets even crazier.

We spend a lot of time worrying about the role of money in politics, but this is something new: the role of politics in money. No democracy is built to survive being a profitable investment.

Our conversation also touched on the costs and benefits of prediction markets, my defense of stock buybacks (but not the policy failures surrounding them), and the implications of a weakening link between economic and military might—demonstrated by Ukraine’s momentum in their war against Russia.

If there’s one thing I want you to take from conversation, it’s this: economics isn’t hard. Economists just find it profitable to make it sound hard. Economic questions will shape your life and that of your kids, and you deserve the tools to join the conversation.

That’s exactly what Platypus Economics is for.

This week’s conversation covers the latest jobs report (disappointing but far from a disaster), why there’s a disconnect between economic statistics and consumer sentiment, the pros and cons and a less transparent Fed, and America’s newest addition to its tax code.

To wrap things up, we look back on the many ways life has improved for Americans over our nation’s 250 years—from income to life expectancy to jobs, and what it might tell us about the future of work and our next quarter-millennium.

And finally, you’ve been thinking about becoming a paid subscriber to support our work, good news: It’s time for our Bisesquicentennial July 4 sale. Take 17.76% off an annual subscription to Platypus Economics, but only this long weekend. To get the sale price, you need to subscribe through this link: https://newsletter.platypuseconomics.com/july4

This is the most timely and accurate indicator of the state of the economy. Of course — like any data — it’s imperfect, but here’s today’s big story:

The U.S. economy is not sinking, but it’s also not surging. It’s treading water.

Is this the new break-even point?

According to this report, employment grew by 57,000 in June. Markets were predicting a number closer to 120,000, so this comes in below expectations.

If I told you this number a few years ago, you would have (rightly) been unimpressed. But 2026 is a very different economy. And that has everything to do with population growth.

Under the second Trump administration, we’ve seen a sharp contraction in population growth. This is mostly due to immigration crackdowns. Fewer Americans means both less demand for stuff, and fewer workers looking to make that stuff.

Which means our break-even jobs growth number — the number of jobs we need to create each month, on average, to keep the economy steady — has also plummeted.

A few years ago, the economy needed to create around 150,000 or perhaps even 200,000 jobs each month just to keep pace with our growing population. We don’t know exactly what our break-even number is today, but it’s certainly a lot lower. If you want a ballpark estimate, it’s somewhere around 60,000 jobs per month (and I reckon a reasonable confidence interval probably allows for the possibility that it’s 50,000 higher or lower than that).

Below expectations, but not all bad news

Today’s report is particularly striking because it comes after a May report that was surprisingly strong — with both strong numbers for May itself, and positive revisions for the prior two months.

Now we can see that some of that growth was illusory.

The May jobs number was revised down by 43,000 (to a growth of +129,000), and April was revised down by 31,000 (to a growth of +148,000). Put these numbers together, and the three-month average — which is my favorite indicator of the underlying pace of jobs growth — is running at a little over 100,000 jobs per month.

That’s probably enough to meet break-even job growth — and maybe even exceed it. Which explains why the unemployment rate has flatlined and may even be slowly drifting down.

What does this mean for the Fed?

This is another big question that comes with any jobs report. A month ago, two things were happening at the same time:

1. Inflation was surging (mostly because of the Iran war, seasoned with a side of tariffs).

2. The job market was surging.

When the job market surges, the Fed worries about overheating, and even more inflation. Which means last month they had two reasons to consider raising rates, and zero reasons for cutting them anytime soon.

This report suggests a more sustainable rate of job growth, and lowers concern about overheating. Nevertheless, inflation remains uncomfortably high. So the case for a rate rise has gone from unmistakably obvious to still reasonably strong.

Women and healthcare continue to lead

It’s too easy for people to focus on this month’s number in isolation. But every month’s number is noisy, and every month gets revised. (And yes, I still believe these numbers are honest.)

It’s worth stepping back to think about how this current economic expansion is working as a whole. To that end, there’s a few longer-run stories we’ve been focusing on here at Platypus Economics.

The first is perhaps the most surprising.

Since January 2025 (the start of the second Trump administration), 90% of all new non-farm payroll jobs have gone to women. Women now hold a majority of all non-farm payrolls jobs (and have done so for a few months).

This is an interesting — and frankly, stunning — fact on its own. But it’s doubly interesting when you juxtapose it with the economic story this administration has been trying to sell.

Theirs is a story of hard hats and steel-toed boots and big boofy blokes getting back to the factory. But that’s not what’s actually happening.

Instead, this is an economy that has grown largely through the service sector in predominantly female fields. It’s a pink collar expansion.

Which leads to the second trend we’ve been keeping our eye on: Since the start of the second Trump administration, more than 100% of job growth has come from the healthcare and social assistance sector.

If you take those jobs out of the picture, the rest of the economy has shed jobs overall.

Now, I wanted to be careful here. We don’t know that if the growth in healthcare hadn’t happened, the economy would have shrunk. A lot of workers would have likely moved across to other sectors and found other jobs.

But, as it stands, this is a strikingly unbalanced economy.

And that, in turn, helps explain why many people feel like economic opportunity might be shrinking. If you’re not in the healthcare sector — it is.

I expect this pattern of growth — of ongoing strength in the service economy at the expense of goods — to continue for decades. And it suggests that men may have to come to terms with the fact that the future of the economy looks very different from the past.

The manufacturing revival has not arrived

This brings us to the sector the administration’s been focused on most squarely: manufacturing.

Despite this focus, they’ve delivered literally nothing: The U.S. economy has been shedding manufacturing jobs for decades and has continued to do so over the last year and a half.

An ironic fact is that the first few months of Trump’s second term didn’t see too much of a drop in manufacturing employment.

But then came the “Liberation Day” tariffs.

The introduction of these tariffs — which were allegedly designed to help American manufacturing — is when the drop off really gained steam.

And when those tariffs were struck down by the Supreme Court? Well, that’s when we finally started to see a bit of a turnaround.

I honestly can’t say whether this is cause and effect, or merely a coincidence. But I know that the promised manufacturing revival has not arrived. And continuing to talk about it isn’t getting us anywhere.

Are real wages falling again?

One final fact.

This jobs report also tells us about wage growth. But the most important story for many folks is what’s going on with wages relative to prices. This tells us how much your living standards are rising (or falling).

Today’s report gives us the wages part of that equation, and it reveals that nominal wage growth remains tepid. While we haven’t seen the price data yet, we have a pretty good guess that they’ll also have continued to rise, likely faster than wages.

Over the last 18 months, wages and prices had risen by exactly equal amounts. But my bet is that when we get the price data we’ll discover prices have gotten ahead.

This means that people’s real wages — on average — have fallen over the last 18 months. And they’ve been falling sharply over the past few. The sense that it’s hard to get ahead right now has some grounding in the data.

TL; DR

The economy’s not surging. It’s not sinking. We’re treading water.

I was in a meeting a few weeks back, and my boss stood up and announced that this year’s average pay rise would be about 2%. She smiled, and my colleagues smiled back. The news seemed well received.

But I was fuming. Inflation is running at a bit above 4%, so a 2% hike in the number of dollars I get doesn’t compensate for the fact that each of those dollars buys 4% less. In reality, my boss had just announced a 2% real wage cut. Yet no-one was angry.

That’s the mindfuck of inflation: It distorts your thinking, and can lead you to nod when you should shake. And if you aren’t careful, it can lead you to make a lot of mistakes.

So today, I want to give you a user’s guide to living with inflation. If you better understand what’s going on, and how inflation can distort your thinking, you’ll be equipped to make better choices.

Inflation is here, and there’s little you can do about it. But you can control how much it hurts you.

Inflation changes the measuring stick

My favorite textbook tells me that inflation is “a generalized rise in prices.” It means that a given amount of money now buys you less stuff. And so even if you still have as many dollar bills as you had yesterday, it’s like they’ve all shrunk, because you can’t do as much with them.

This leads to an important distinction:

• Nominal means the dollar amount.

• Real refers to what those dollars buy.

A 2% nominal pay raise gives you more dollars. But if prices rise faster than 2%, those dollars buy less. Your nominal wage went up. Your real wage went down.

That’s inflation’s nasty little trick: It makes the number bigger while the thing you care about gets smaller. That disjunction can cause a lot of problems.

More zeros aren’t the problem

But first, I want to clear up a common misconception. The problem of inflation isn’t the obvious one that inflation leads to higher prices.

To see this, imagine you wake up tomorrow and every dollar amount in your life has an extra zero attached. Your $5 coffee is now $50. Your $1,000 paycheck is now $10,000. Your $2,000 rent is now $20,000. Your $4,000 bank balance is now $40,000. That $10 bill in your wall is now a $100 bill.

In this fairy tale, every price, wage, debt, bank balance, and contract changes the same way. This is one version of “a generalized rise in prices.”

At first, that might sound terrifying, but is it?

Has anything really changed?

You’re not richer. You’re not poorer. None of the fundamental tradeoffs you face — such as how many hours you need to work to buy a coffee, or how many years of income your savings represent — has changed. Indeed, nothing real has changed. The world simply has a lot more zeros in it. Beyond this, your economic life is the same.

The measuring stick has changed, not the stuff being measured.

This is why economists can sound oddly calm about inflation — at least in theory. If every dollar number adjusted instantly and proportionately, inflation would mostly be an accounting nuisance.

It often doesn’t feel this way. That’s because of what we call the inflation fallacy. Too often people worry about the prices they pay rising, but fail to appreciate that the prices they receive for what they sell — your wages, investment returns, or social security — also rise when inflation, that “generalized rise in prices,” occurs.

But this misperception is not the whole story. Real life is messier. Or foggier.

Inflation creates fog

In reality: Prices don’t all change at once. Wages don’t automatically keep up. Your rent may reset this month, while your salary review happens next year. Your checking account pays you essentially nothing. Your fixed-rate debt may stay fixed. Your long-term contract may have been written as if the dollar would sit still and behave itself.

That’s where inflation starts to bite.

Inflation can also distort your decisions. It creates a fog, making it harder to see economic reality. Inflation changes what a dollar can buy, and so distorts the very meaning of what a dollar is. In most of economic life, you treat a dollar as a measuring stick, helping you compare one thing with another. But inflation makes the measuring stick shrink while you’re using it. It’s harder to figure out whether your boss just gave you a meaningful raise, whether the mortgage rate you’re offered is high or low, and whether the price of something is temporarily high, or just part of a generalized drift up.

Worse, higher inflation is usually more unstable, harder to predict, and harder to plan around.

When inflation is low, you can mostly get away with ignoring it. The mistake you might make — confusing nominal and real wage rises as my colleagues did — aren’t of much consequence when inflation only drives a small wedge between them.

When inflation is stable, you can’t ignore it, but you can plan around it.

But when inflation is high, it also tends to be variable. This was the story of the 1970s and 1980s, and arguably it’s become true (to a lesser degree!) in the 2020s. And so today’s problem is that you can neither ignore inflation, nor plan around it.

The mistake that my colleagues made — cheering on a nominal wage rise even as their spending power fell — is called money illusion. The cure is practice. And a few simple rules for minimizing your mistakes and the pain they cause.

Five ideas for minimizing the pain of inflation

Here are the five ideas I’d use for living with inflation.

Idea #1: Translate everything into real terms before you act

Before you react to any dollar number, translate it into real terms, evaluating it in terms of what really matters — purchasing power and its opportunity costs — rather than nominal terms.

The following illustrates the point. It’s a true story, with a few details changed to protect the guilty. A (very smart!) non-economist friend of mine was negotiating a raise. His boss offered a contract that would increase his pay by 5% over five years. That sounded like progress, and he was pretty pleased with himself.

But inflation was running around 2% per year. Over five years, prices would rise by roughly 10%. So a 5% nominal raise over a period when prices rise 10% is roughly a 5% real pay cut.

His mistake was to focus on nominal rather than real wage gains.

So we hatched a strategy, which was all about shifting the reference point in his next conversation with his boss. You should try it too: Walk in, and suggest that before you start negotiating, we agree on what your current real wage is. Make that the reference point, and then begin by negotiating from there.

That shift in perspective changed the whole conversation. His boss agreed that — at a minimum — he deserved the same real wage. Then they started negotiating, noting that he had become more valuable to the company and that his hard work merited a real raise.

And it worked. My mate negotiated a much better contract. You can do the same.

Idea #2: Build inflation into your contracts

If you’re writing a deal that lasts over time, build inflation into it. Economists call this indexation, which is a wonkish way of saying that the dollar amounts should automatically adjust when the price level changes.

This matters whenever today’s dollar amount is meant to govern tomorrow’s life: wages, leases, retainers, child support payments, pensions, and long-term contracts.

If prices rise 5%, and your contract automatically adjusts by 5%, you don’t have to re-fight the same battle every year. You can still argue about the real raise you deserve, or the real change in child support that’s fair. This strategy isn’t just effective, it makes sense: It recognizes that the measuring stick — the value of the dollar amounts you’re negotiating — has changed.

Without indexation, every inflation adjustment sounds like a new demand. With it, the contract says what’s really happening: dollars are worth less, so the dollar amount needs to change.

That’s preserving the bargain.

Idea #3: Shop around more, and substitute more aggressively

Inflation usually arrives through staggered price changes. One store updates prices this week. Another does it next month. One brand jumps. A substitute doesn’t. One insurer raises your premium and hopes inertia does the rest.

That means the payoff to shopping around rises.

In calmer times, old habits are cheaper. You renew the same policy. You buy the same brand. You keep the same phone plan. You let the streaming services nibble away at your bank account like tiny, well-capitalized termites. Sure, you won’t get the perfect deal, but pretty good is often good enough.

But when inflation is high, old habits are no longer pretty good. Indeed, they can be pretty expensive.

The danger is the shrug. You see a price increase and think, “Well, everything’s expensive now.” Sometimes that’s right. Sometimes it’s inflation. But sometimes it’s a relative price change. Sometimes it’s a seller testing whether you’re paying attention. Sometimes it’s a signal that your old choice is no longer the best choice.

So shop around more. Substitute more aggressively.

Buy the cheaper brand if the old one jumped. Get a second quote. Re-shop your insurance. Inflation rewards super shoppers, so become a super shopper.

Idea #4: Hold less idle cash

Inflation taxes money that sits still. The dollars in your wallet are getting smaller each minute they sit there. So don’t leave them there.

This idea applies beyond just the cash in your wallet — it also applies to money sitting in payment apps, and balances in checking accounts that pay little or no interest. When inflation is higher, interest rates are often higher too, which raises the cost of leaving money idle.

If your checking account pays essentially nothing while safe alternatives — like savings accounts — pay more, inertia is costing you money. Get in the habit of sweeping excess balances from your checking account into savings.

Idea #5: Hedge inflation risk

If inflation risk worries you, use tools designed to hedge inflation risk.

The cleanest example is inflation-indexed government bonds. In the United States, that means instruments like inflation-indexed bonds (called “TIPS”) and I Bonds. Their appeal is simple: the inflation adjustment is written into the contract. If inflation rises, the payoff adjusts. Your purchasing power remains guaranteed, even as inflation rises and falls.

Sometimes people talk about alternative assets — like gold and bitcoin — as a hedge. Don’t listen. Their prices may rise when inflation rises, but a hedge is supposed to reduce risk. Gold and bitcoin are volatile. They’re up and down like a kangaroo on Red Bull. If the money is meant to protect purchasing power for some real-life need, replacing inflation risk with roller-coaster risk won’t help.

A hedge should be boring. That’s sort of the point.

The goal is to know what problem you’re solving. If the problem is that inflation might erode the real value of your savings, look for assets whose payoffs are linked to inflation. If the payoff isn’t linked to inflation, it may still be a fine investment. But it’s not automatically an inflation hedge.

Ask what the dollars will buy

Let’s return to my boss announcing that 2% pay rise. It was a faculty meeting, with some of the most brilliant people I know. They’re not all economists — this was the public policy school — but they’re smart. They heard the number was going up. That was true. But the truth that mattered was what the number would buy. Even brilliant people failed to see this (obvious?) reality.

But that’s the habit inflation demands. When someone announces a raise, a deal, a rate, or a payment, don’t just listen for the dollar amount. Translate it.

The next time someone tells you the number has gone up, pause before you clap.

Ask whether your purchasing power went up too.

Look, you can’t choose the inflation rate, but if you follow these five strategies, you can choose how much it costs you.

One more thing (for the stats nerds and their teachers)

When I write these posts, I often crunch a few numbers in Stata — and today, it was all about illustrating that higher inflation tends to be more volatile. I’ve started a fun partnership with Stata, and so I’ve put together a worksheet that Stats teachers — or the statistically curious — might find useful. Click through here, if you want to work through the steps I followed, and build your statistical mastery.

Let me know if you find these useful because I can keep producing them. I would love it if this is useful in your stats class, or as you’re trying to build your own statistical superpowers.

But it’s also gotten painfully expensive. The $28 burrito isn’t just a meme; it’s a reality.

And here’s the thing: this sure looks like the textbook version of a competitive market. There are lots of firms, and they all sell pretty much the same product. But to really get that competition going, buyers should be able to easily compare prices to find the best deal. And when it comes to food delivery – that’s weirdly hard to do.

First, the prices on an app are usually significantly more expensive than ordering from a restaurant directly. (And they don’t even tell you what that markup is!)

Then you’ve got the fees, which come in different shapes and sizes across every platform, and seem to vary by time, order size, subscription, or whatever strange mood the algorithm woke up in that morning.

And, perhaps the worst bit, these fees don’t show up until you’re nearly done ordering. By that point, you’re dreaming of burritos. Or pizza. Or sushi.

Which makes this a prime example of what happens when you have plenty of competitors, but comparison itself is painful.

Ordering my family’s dinner

Competition is the force that leads markets to deliver better outcomes for consumers. One shop charges five bucks for a soda and a candy bar, and another charges seven — you go with the cheaper one. This provides a pretty sharp incentive for suppliers to keep their prices low, and the quality of their goods high.

At least, that’s how it works in theory. But in food delivery, competition stumbles over one small problem: the price isn’t easy to find. You don’t care about the menu price next to a burrito; you care about the bottom line on actually getting it delivered.

But to get there, you have to login, click all the way through, search through different bits of long menus to find your faves, enter your address, tell them whether to knock on the door or ring the bell, enter your email and a password you’ve definitely forgotten (was it one or two exclamation points?), and finally you do twelve jumping jacks before they agree to show you the final price.

Which means to compare prices, you have to do all of that on multiple apps, rebuilding the same cart over and over again with the same items that are somehow rearranged on every platform. Yes, technically, you can compare prices. But only if you’re willing to do what feels like hours of unpaid clerical work before dinner.

To make this more concrete, I tried it out with my family’s own sushi order. We wanted five pretty basic rolls, and I priced it four ways:

• directly with the restaurant,

• on Uber Eats,

• on DoorDash,

• and on Grubhub

What matters here is not just that the totals differed. But that the differences showed up in several different ways, making direct, one-to-one comparisons quite difficult.

What exactly were those differences?

• On the three apps, the rolls were about 20% more expensive than on the restaurant’s own website. (With a couple exceptions that honestly looked like typos.)

• On Grubhub, the delivery fee, service fee, and tax were each displayed separately. While on Uber Eats and DoorDash, service fees and taxes were combined (until you clicked for more info).

• For the tip, Uber Eats and Grubhub defaulted to 20%, while DoorDash suggested a flat $6.

• And promos, large order discounts, and optional subscriptions muddied the water even further.

So when trying to find the best price, I got three different answers depending on whether I was looking at the subtotal, the advertised delivery fee, or the bottom line.

And just getting to the point where the prices were genuinely comparable took time. Across these apps, I lost half an hour of my life. If I could earn $30 per hour driving for Uber, that half hour of price comparison cost me $15 worth of time. Maybe I would have saved $10, but at that point — is it worth it?

Search costs matter

In economics, there’s a phrase for what’s going on here: search costs.

Search costs are the time, attention, and effort it takes to figure out what something really costs and whether there’s a better alternative.

Search costs matter because competition is not actually magic. It doesn’t work merely because several firms exist, but because consumers can compare offers easily enough to punish the expensive seller.

But if comparison becomes annoying, slow, or mentally taxing, fewer people do it and firms face less pressure to compete on the true price.

This isn’t quite the absence of competition. But a much weaker, murkier version of it.

More than bad design

Now, you might think all these search costs are just sloppy app design. But the evidence suggests something far more structural. After all, these prices are digital. It ought to be super easy to create a tool that could compare these numbers floating out there in the internet ether.

Instead, the companies make it hard.

The terms of service for Uber’s API say that users may not aggregate Uber’s data with its competitors’ data, or use it in ways that support competitive price comparison. Similarly, the terms for DoorDash and Grubhub prohibit the scraping and systematic retrieval of its data. And Grubhub also forbids the creation of databases from platform content without authorization.

Now, firms are generally allowed to write their own terms of service. But here, they’re writing them explicitly to destroy your ability to comparison shop. The tools that would make cross-app price comparison easier for consumers are nearly impossible to build because the platforms forbid the very actions necessary to do so.

The bad design is there by design.

We can fix this

Now for some good news. Regulators are beginning to take notice.

In December 2024, the Federal Trade Commission settled a case with Grubhub over allegations that it hid the true cost of delivery and used what the agency described as a pricing shell game. Grubhub was forced to pay $25 million and make several changes to the way it does business.

And this past April, the FTC opened a broader inquiry into unfair and deceptive fee practices for online food and grocery delivery. Basically, the regulators are asking: do consumers actually know what they’re paying and why.

Which means this is not merely a story of one grumpy economist getting annoyed while ordering dinner. It’s increasingly a policy debate about whether a market counts as competitive if consumers can’t easily see the real price.

So, what would fix this? Here are a few ideas about where to start:

First: show the full, mandatory price earlier, up front. Not halfway through checkout. Not after I’ve emotionally committed to the spicy tuna.

Second: if the app price is higher than the restaurant’s own price, tell me. Clearly. Right there on the item.

Third: standardize the fees. If there are service and delivery fees, explain what they are, whether they’re mandatory, and who gets it. The fees should follow clear rules that are consistent across orders and customers.

Fourth: and this is the bigger institutional point — don’t make it impossible for independent comparison tools to exist.

And that’s the tell.

If firms really believe they’re offering the best deal, they should welcome easy comparison, not fear it. A genuinely competitive market should not require detective work from the customer.

Look, delivery is a real service. It costs money and convenience is worth something. But if you’re charging for convenience, at least be honest about its price.

What this tells us about capitalism

Here’s the larger point: competition is not simply about whether there are a lot of firms in a market, or colorful apps on your phone. It’s also about whether the market is structured so that ordinary people can make sensible choices. That means clear enough prices that a busy family can tell who’s actually offering the better deal.

From your perspective as a consumer, competition is beautiful – it pushes firms to offer a better deal. But from the side of businesses, competing destroys their pricing power. They might have to sell burritos at reasonable prices. Their profit margins might fall.

So businesses fight to reduce or eliminate competition. In the food delivery industry, they do it by making it hard to compare prices. Other industries use other tricks. This is the inherent tension at the heart of capitalism. It’s a system that delivers extraordinary outcomes, but sellers are always trying to destroy the competitive forces that make it work.

Competition can only thrive and survive if we also have clear rules keeping markets truly competitive.

A lot of people use the rhetoric of economics to say that our policies ought to be pro-business, or we should get the government off of businesses’ backs. But if you let businesses do whatever they want, they’ll destroy competition.

And if you really pay attention, you’ll learn that it’s competition — not business — that delivers the cheap burritos. The point here is that there’s a much stronger case for being pro-market or pro-competition, than pro-business.

So next time you tuck into a burrito, realize you’re holding a foot-long lesson in economics. That lesson: competition is your best chance at getting a good deal.

I give the current economy a “B minus”: inflation just hit a three-year high and real wages have barely budged since the president took office, but job growth has been surprisingly strong over the past three months. It’s important to separate the parts of the economy that are working from those that aren’t, and not let either side of the political spectrum cherry-pick a narrative that best fits their slogans.

On AI and automation, I try not to sugarcoat the situation. The current moment reminds me of the Industrial Revolution, which dramatically shrank agricultural employment — progress that, in hindsight, freed people up for other pursuits, but was often brutal for generations caught in the transition. What’s different this time around is both the speed and target: automation used to come for physical labor, slowly. This wave is coming for cognitive work, fast.

We then move onto an equally anxiety-inducing issue: the concentration of wealth and its implications for the American political system. By my calculations, Musk spent roughly 0.026% of his net worth to influence the outcome of the latest presidential election — proportionally equivalent to the average American household donating roughly $50. Which means he has enough left over to fund thousands more such efforts. The stakes are high, and this conversation is long overdue.

Despite it all, I still believe the next generation of Americans will inherit the richest society in history. But maintaining that prosperity requires attention to safety nets, fair competition, and the institutions that underpin growth and innovation.

Now that the war with Iran is maybe(?) over, I dig into the lasting economic damage with Slate’s Mary Harris.

So far, oil prices have been where Americans have felt the costs of war most acutely. But while they will certainly decline with the re-opening of the Strait of Hormuz, we should expect a bill for years to come.

To truly understand the full price tag, we have to get the counterfactual right. The correct comparison is not today’s situation compared to yesterday’s. But today versus what it would have been without the war. So yes, energy prices will fall, but futures markets tell us that they'll still remain a lot higher than they would have been without the war.

But there are broader costs, too — an estimated $200-$400 hit to U.S. output due to rising geopolitical risk. (We can extrapolate this estimate combining estimates of how sharply risk has grown from the Federal Reserve’s Geopolitical Risk Index, with historical estimates of the growth-risk nexus.)

We also know the consequences are much greater elsewhere in the world, in places that had even less say than the American people in starting this conflict. That’s particularly true in the world’s poorest regions where a significantly larger portion of household income is spent on energy and food — the two commodities hit hardest by war-fueled inflation.

Ultimately, this war is a symptom of something even larger — a “post-contract presidency” defined by Trump’s habitual lying and unreliability. While often a source of nihilistic humor, it has real, measurable economic costs. Progress is not guaranteed, particularly when institutions begin to falter and prioritize extraction over growth.

Our conversation ends with a point I’ve been trying to emphasize recently: being pro-market is not the same thing as being pro-business. Competition — not business itself — is the true engine of prosperity. Unfortunately, Trump’s second-term economy has consistently favored business over competition — undermining very forces that drive innovation and deliver for the American people.