It has been some months since Liberation Day, and we’ve seen tariffs come on and off. We’ve seen them go up and down. And the amazing thing about where the American economy is right now is that it’s shaky but pretty stable. The place where we’re seeing some stress is in the job market. The latest jobs report was far worse than expected. Revisions aren’t usually this large. Major revisions for May and June. Major downward revisions. Minus 258,000. So is that the beginning of all of this really putting pressure on the American economy? Or is the underlying resilience and power going to push it through? Then there is this other thing happening. The administration, President Trump in particular, is not acting like someone with a lot of confidence in where the economy is going. That woman — that woman’s numbers are — After the jobs numbers were revised down, President Trump, in a seeming fury, fired the head of the Bureau of Labor Statistics, replacing them with a more ideologically compliant, it seems, person. Chief economist and fellow at the Heritage Foundation, the conservative think tank behind Project 2025. Calling into question the future reliability of government data. He’s also been pressuring the Federal Reserve to lower interest rates. Calling Fed Chair Jerome Powell too late, too angry, too stupid and too political. The administration seems to be acting like they think they need more power over the tools of economic policymaking, over the flow of economic data. So what is that going to mean? Natasha Sarin is the president and co-founder of the Yale Budget Lab. She’s an economist and a law professor. She has experience in academia and in government, and her lab has been very closely tracking the effect of these policies on the American economy. We recorded this conversation on August 8. As always with President Trump, things are moving fast, so we’re not able to talk about his new nominee for Bureau of Labor Statistics. But I think the rest of it paints a pretty clear picture of an economy under a fair amount of stress. As always, my email ezrakleinshow@nytimes.com. Natasha Sarin, welcome to the show. Thanks so much for having me. So we are about seven months into this presidency, four months since the beginning of the trade wars. How’s the U.S. economy doing? That’s a complicated question because the answer is we don’t really quite know yet. The U.S. economy before President Trump took office was doing really quite well, especially relative to the rest of the world with respect to our recovery from the pandemic. So inflation had been very high, but was coming back down to the Fed’s 2 percent target. They had the last mile to go, but they were directionally there. The labor market was quite strong. And then President Trump took office. And so many commentators at the time, I myself said kind of the best thing, best case scenario for this economy at this moment is literally if the president does nothing, if he takes credit for the direction the economy is going, it is a strong and robust economy and one that and I’m sure we’ll get to talk about it, is about to get a productivity influx from AI. And then we didn’t do precisely that. Instead, what we did was on liberation day. And since there’s been a trade war that’s been initiated by the president and the administration with the goal of remaking the global order. And the consequences of the trade war are that it’s the most inflationary policies we’ve seen in our lifetimes. And so, obviously, it’s starting to reverberate in the economy and the Budget Lab at Yale that I run estimates that we’re going to see household prices increase by something like $2,000 a year. We’re going to see inflation uptick, and we’re going to see a weaker labor market as a result of all that’s already been done. I cover this professionally, and I will say that I am a little confused on where the tariffs are at this exact second that they’ve gone up and down so many times. They seem to be applied somewhat inconsistently. Where are we. What is the effective tariff rate that the Uc is placing on the rest of the world. And how does it compare to where we were a year ago. So effective tariff rate at the moment is around 18 percent where we were when President Trump took office was around 2.5 percent So that is a very substantial uptick. And that affects what percentage of the goods that people buy. That affects essentially everything that people buy, because it obviously affects imports, which are around 11 percent of our economy. But importantly, it also affects the prices that people are going to see for domestic goods that compete with those imports, because if the price of imports are going up, then the price of domestic goods that compete with them are going to go up as well. And by the way, those domestic goods often what is even a domestic good. Because if you take a car that GM or Ford is selling, something like 60 percent of those car parts are imported and then exposed to these tariffs. And so what we’re starting to see is we’re starting to see these price increases really across the board. And essentially everything that consumers are buying not services though not services. Correct so importantly, Yes, durable goods are the most heavily hit sector by these tariffs. And durables are things like furniture, apparel, consumer electronics like goods that people buy as opposed to services that are provided by workers in the economy. There have been varying levels of tariffs already in place, and one thing that we were being told was going to happen were huge shortages. I remember a period of time when the Flexport CEO was everywhere saying that if you look in the shipping data, everything was about to break down. I think we were expecting to see very sharp price increases on Amazon at Walmart. So far, things have seemed somewhat muted compared to some the more alarming predictions. Why so you haven’t seen price increases that are as high as our models predict at this moment. And in fact, to be clear, you have seen price increases. So durable goods inflation over the last six months was the highest that it has been over any six month period since the 1980s. So outside of the pandemic, so you are starting to see price increases. But importantly, knowing that tariffs were a tool that the president was likely to lean on, what you had importers and retailers do in the months leading up to liberation day and in the months since, frankly, as these tariffs were paused before taking into effect, is bringing a lot of inventory because the idea is if we can try to front run the tariffs, we can bring in stuff at the pre-tariff rate, and then we won’t have to pass on price increases to consumers because we wouldn’t have had to pay that tariff when we imported eventually. And you’re starting to see the Walmarts of the world and the Procter Gamble’s kind of telegraph this explicitly. Your inventories are going to dry up. There is just not enough space in the margins of those importers and retailers to eat the cost of these tariffs without passing them down to consumers, whether they’re going to pass down 100 percent of the tariff or 70 percent of the tariff, or percent of the tariff. Economists and different sectors are going to react differently. And economists have a lot of debates about those particular elasticities. But the idea that you aren’t going to see price increases from this set of policies. It just kind of doesn’t work with respect to the way the economy is structured, unless these tariffs are ultimately rolled back in meaningful ways. So there was a period of time after liberation day. People were somewhat shocked by the size and scale and idiosyncrasy, I will say, of the tariff announcements there. And then it seemed that they reformulated what they were doing into a fairly flat tariff with the rest of the world. And then an absolutely astonishingly gigantic tariff on China. And then they seem to have paused a bunch of those astonishingly gigantic tariffs on China and brought back some of the tariffs on the rest of the world. What is the structure. Yeah, it seemed for a while that what we were really doing now was a trade war with China. Is that still how you would characterize what we’re really doing or. No, we’ve flipped back from that deeply. I actually think and this goes to something that I have struggled with as we have been analyzing these tariffs over the course of the last many months and even frankly, during the election, because during the election, remember, President Trump was proposing a version of what you’re describing, a high baseline, a high baseline tariff, but a relatively low baseline tariff, around 10 percent and a 60 percent China tariff. So the idea was like low rate rest of the world, really high rate on China, which seemed like a big deal. And I was assured by people in the Republican Party, he was absolutely not going to do anything that crazy. And we’re higher than that. We are much higher than that. Well, China hasn’t landed yet. China’s not landed yet, and neither is Mexico. So like, big open questions. And all this gets to the question that I have really struggled with and can’t quite answer for you now, which is what exactly are the tariffs for. Like what is the point of tariffs. How do we measure success for this new ordering of global trade, if the point of the tariffs were that we need to reassess our relationship with China from a national security perspective, it’s incredibly important there are adversary. We must ally with the rest of the world, and particularly in certain sectors of the economy. I think you would find pretty broad based support for a version of that type of trade policy and strategic decoupling or some such. But the idea that the right way to effectuate relationships with our allies and our trading partners is by imposing really high tariff rates on them, in an attempt, I guess, to move us closer to autarky. And that’s what autarky. Autarky is a closed economy. So we just do everything ourselves and isolate from the rest of the world. I don’t quite understand or have the ability to describe for you what the purpose of that exercise is. And I can tell you something that has already happened, which is that growth in our economy has slowed over the last six months. Our growth rate has been something like 1.2 percent It was supposed to be as of last November when we made projections basically twice that. So this is having a real effect on the economy. It is slowing it. It is shrinking. It That’s exactly what our models predict. And that’s exactly what economists writ large would expect to happen from these types of policies. Let’s hold for a minute in this question of what we’re trying to achieve. So one thing that I think is being attempted here is not, I think, properly understood as economic at all, which is a restructuring of the way global trade works from the American perspective, away from fairly neutral rules governed in multilateral ways, and trade deals towards bilateral deals between America and other individual countries, or in the case of the EU, collections of countries in which we fully exert our leverage to get a better deal out of them than we would get from participating in the pre-existing global trading order. And so I think the big test case here was the EU trade deal. The administration announced that recently they were very excited about it. What was that deal. Is it good for the US economy. Like does it show that Trump is winning the global trade war. How would you describe it. The thing that I’m bristling at is you’re describing the EU deal, and whether we’ve won or lost is if you look at what practically has happened as a result of let’s take that example in particular, effective tariff rates on imports from the EU were about 1.5 percent at the beginning of the Trump administration. They’ve gone up as a result of the deal to around 15 percent But just baseline. It’s true that some non-tariff barriers went down as a result of this deal. It’s true some tariff rates on US exports to Europe went down somewhat as a result of this deal. But practically speaking, the idea that taking a tariff rate of 1.5 percent and turning it into a tariff rate of 15 percent plus is somehow a win for Americans. I’m just baffled by the concept, because no one would say that if you took the sales tax on certain goods and you increased it 15-fold, that was a win for Americans. But effectively, that’s what we’ve done. And it’s been. And then it’s true, there’s these other provisions that are in the deal that the European Commission agreed to do a certain amount of arms purchases or oil purchases or investment. But if you look under the hood of all that stuff and it’s true vis a vis the Japan deal, also it’s true vis a vis all these deals, there’s not really much there. They’re like, they don’t even have authority over. These are commitments to explore the possibility of different types of companies investing or different types of loans. It’s not really much from an economic vehicle. Trump do this with China in the first term, and China just never made the investment, never made the investments. And by the way, if you were to make the investments that would increase trade deficits, not decrease them. So the whole thing, we’re not going to get caught up in consistency here. We’re not going to impose a consistency that the Trump administration has not imposed on itself. But let me try to argue this from their perspective for a minute. The way I’ve seen them making the case for their trade deals, including with the EU, is, look, we got into this negotiation. We have now imposed this tariff on them. They are not imposing in many of these cases, an equivalently sized reciprocal tariff on us. So there is a tariff on their goods which either gets paid, which means more money for the US Treasury, or there is an incentive for these things to be made in the United States, which is good for the United States. And so either we get money or we get more domestic production. But it’s win-win. So a piece that I want to accept and somewhat credit the Trump administration for is if you think about how hard it has been to find ways to raise revenue in this country, and we can talk a lot about why that is. The reality is, if you look at our estimates and if these tariffs stick at these levels, they are going to bring in something like $3 trillion. In a world where I think we are fiscally unsustainable, debt to GDP is rising much too quickly. And part of the reason for that is the tax bill that was passed last month. But it’s rising. Finding ways to raise $3 trillion is a feat, and that is just a fact. And I think the question my problem with tariffs and my problem with this whole line of we’ve won and they’ve lost. It’s not that tariffs are a tax and taxes are bad. I actually think quite the opposite. My problem with tariffs and why I think you have seen these other countries choose not to retaliate, is that tariffs are a bad tax and they’re a bad tax for two reasons. One is they’re a bad tax because we traditionally think of the tax code as wanting to make it progressive, such that the people at the top with the greatest ability to pay are paying more, and the people at the bottom, in the middle who have the least ability to pay are paying less. Tariffs do the opposite of that. It’s been the argument against consumption taxes in this country that actually we don’t want to hit low and middle income people who consume most of what they earn. But the other piece of it that’s bad is that tariffs are ultimately a drag on economic growth, because they’re diverting activity from the most productive sectors in the economy into other sectors of the economy that we’re trying to protect in this way and lift up in this way. And maybe you can make an argument for national security reasons or some such. There are certain sectors of the economy you want to do that for. But that type of distortion it drags on economic growth. Slow that down. Give an example of what you’re talking about. So we put this tariff on the EU. How does that distort US economic activity. So we put this tariff on the EU. And we put lots of tariffs on the EU. Some of the tariffs are geared towards and some of the arguments that are articulated is that we want to do more manufacturing in the US. It turns out that other countries have comparative advantages in the ways in which their economies or have been structured to be particularly good at those types of activities. And in fact, they do them in a low cost way that is better than the way that we do them. We do other stuff very well, but we don’t do that as well. If you create a structure where it is more costly to rely on the advantages that other countries have are incenting us to try to do more of that domestically. But the issue is it is not efficient. It is taking activity that otherwise is efficient in our economy and concentrations in sectors of stuff that we are quite good at, and instead encouraging us to do stuff that we aren’t as good at. And that is ultimately not a positive enterprise. It’s a second layer of the challenge for us from an economic perspective, is because you are making it more expensive to buy goods. People are going to buy fewer goods. Demand is going to go down for stuff and you’re going to buy fewer TVs. You’re going to buy fewer couches because they’re more expensive. As a result of that, the production and investment in those types of capacities is also going to decrease. And so you’re going to get a drag not just because you’re doing certain types of activities that you’re not inherently very good at, but also because there’s just less economic activity being done. And as a result of that, less investment in the future. So one way you might see if part of their plan is working is if we see evidence of a manufacturing, a boom in investment in domestic manufacturing, a lot more money going into factory construction, a lot more training, diversion of workers into manufacturing roles. Are we seeing something like that. The data does not suggest that there has been much of anything that has happened yet. I mean, if you were making the argument that the data isn’t telling us that story yet, you would say, maybe it takes time and it’s not, because frankly, the terms and the parameters here are far from settled. Do you where are you supposed to. If this was really about China, then investing in Vietnam and India as manufacturing centers for iPhones makes tons of sense because they’re not China. If it’s really about the US, they just put AI think it’s a 19 percent tariff on Vietnam is where we landed percent on India right now, right. Percent India. There’s also the political dimension of tariffs. We have a percent tariff on India because it’s buying Russian oil. We didn’t put it on China, even though they buy more of that Russian energy. We also put a percent tariff on Brazil trade surplus because they are prosecuting Bolsonaro scenario for attempting to execute a coup. But we have an international solidarity with right wing nationalists who tried to do coups, so you can’t have that. So that is also a way in which the terrorists have become just a tool of geopolitical leverage. That’s definitely true. And I’m a law professor in addition to being an economist. And so I’m kind of interested in some of the legal dimensions of all of this. And a thing that I’m struck by is that a lot of these tariffs are based on this authority called iipa, but it’s essentially like emergency authority that the president gets, in particular national security circumstances. And the argument that somehow broad based tariffs on our allies have something to do with national security is a very hard stretch argument to be made. And by the way, the argument that the Trump administration has made is that the trade deficits are unusual and exigent and require attention. How you can then say that countries that have trade surpluses are somehow part of this same authority. It’s just like an incredibly difficult set of arguments to make. And I suspect that part of the uncertainty here is going to ultimately play out in the courts because these are far from settled questions, whether they even have the authority to do what they’re doing. Speaking as a law professor, has it been your recent experience that the Supreme Court seems unwilling to countenance arguments that we would have traditionally thought on the level of text are a stretch. I am an optimist on this dimension for the following reason. I was struck that the Supreme Court decided in a case about removal that had nothing to do with the Federal Reserve, to be pretty explicit that the president doesn’t have the authority to fire the Fed Chair. The Supreme Court has the view that actually, the president can fire a lot of officials who previously served particular terms that have traditionally not been subject to political whims. But not in the case of the Federal Reserve. And honestly, it was kind of like a tenuous legal argument how they managed to exempt the Federal Reserve. You slightly get the feeling from that one that the Supreme Court wanted to give Trump what he wanted, but they also didn’t want to see in the long term, all their stock investments go to 0. But that’s again, I think that the Supreme Court has a hard job at the moment, doesn’t it. Because and you also read this, by the way, doing poorly. I think Congress isn’t doing its job in the way that it should be. Well, that’s also true. And the Supreme Court, it’s the judiciary. It’s slow, it’s measured. It takes time. All these cases are taking time to the Supreme Court, giving Trump the level of powers and grants of heretofore unknown authority, and particularly doing a fair amount of it through the shadow docket, is a little shocking. I think it is. I hear you and maybe I’m speaking as a law professor, and that’s why I have this sympathy. But there’s been all this debate over the course of the last many months about whether or not we’re in a constitutional crisis where if the court says something or a court says something to this administration, are they going to agree to go, abide, abide by it. They don’t have any particular enforcement authority. And I think what you are seeing is this court has a fair deal of respect for the rule of law, but also understands that it is in challenging times, and it’s kind of trying to pick spots and they’re picking they might not be picking the spots to the extent that you would like to see them, or other critics of the court would like to see them, but I am struck by the fact that they have picked some spots. I think I am more pessimistic about this than you are, but I will bring us back to the tariffs here. Let’s say we have a year of again, 15 percent to 20 percent tariff, 60 ish percent tariff on China. What does that world look like. What does that world mean for the economy. So practically what it means is it means a smaller economy than you would have had in the world without this set of systems. And our estimates are we’re taking about 0.4 percentage points off of GDP annually forever. As long as these tariffs are in place, part of the challenge with talking about fiscal issues and talking about the economic impacts of these policies is it’s often hard to make those numbers tangible to people in a way that is meaningful. So 0.4 percentage points of GDP is like the way to think about it, I think. And Jason Furman had a good piece about this is that’s about $150 billion a year. That’s about $1,000 out of every American Family’s pocket as a result of these tariffs. Probably a little bit more, frankly, depending on where the China number lands, is it 50 or is it 80. The piece that is then interesting is how much do people notice that lack that $1,000 out of their pocket each year. If there are other things happening in the economy at the same time. And so a question that I have wondered the answer to is right now, GDP growth is set to slow this year. And to the extent there is GDP growth in the economy, it’s on the heels of artificial intelligent capital expenditures. If that ends up going better than we expected. And contributes more to growth than we anticipated, is it going to wash away the loss from the tariffs such that it is actually hard to do the precise counterfactual if you’re just isolating the impact of the trade policy. Let’s talk about AI for a second. I was going to do this later, but I think we should do it here. So one thing that my economist oriented friends have been debating recently, or I’ve seen them debating, are we in a recession net Yeah, exactly. And what would it even mean to say we’re in a recession. So you can look at GDP numbers. We can break things down. And probably if you pull out all the AI investment, we’re recessionary. But that’s not really, I think, a reasonable way to think about the economy because one, that money would be doing something else in that world. And two, maybe it’s a great investment. It’s all going to pay off. But the thing about the AI investment is it might not pay off. It might not pay off immediately. There might be a huge amount of redundant investment in an industry that’s only going to have a couple of winners. So there’s something a little bit frothy in there. Yeah, in a way that makes it a not totally stable place to be expecting a lot of near-term revenue from. Totally how do you think about it. I mean, not stable is a bit of an understatement, right. It feels very people keep asking me and I’m sure asking you what is going on in the market. It doesn’t seem to be the market was down around liberation day. We’re basically back to between 2/3 and 3/4 of where the tariffs were at liberation day. And the market doesn’t seem to be 2/3 to 3/4 of the reaction that it had in April. Well, can I add one thing to that. Karma my old who’s a senior editor on this show and is now at the Atlantic, he had a piece about the stock market recently. He made this point that there were years when everybody said oh, the stock market is just a huge bubble based on low Federal Reserve interest rates. And then those interest rates went much higher and the stock market is yet higher. Yes so there’s been a lot of people predicting for a long time instability in the stock market. And it just keeps going up. But it’s very heavily built on these seven tech companies. That and by the way Warren Buffett for is one of the people who for a long time has been holding a lot of money in cash precisely because he thinks that the market is overvalued. And so that piece is true baseline, even without what we’re witnessing in AI. And then within AI, so much of it is about these particular giants that are really driving a ton of investment and frankly, are responsible for a lot of the market. And the reason why I think that is important is your stability piece, which is it very well might turn out to be great. And I optimist, hope that it does kind of great the way in the late 90s you got a ton of unexpected productivity growth that was really about computerization and a bit about the internet in ways that you couldn’t have predicted or anticipated years, a few years before. But the thing that is nerve wracking about it is it’s kind of like a fundamental restructuring of the way that the economy is going to work and the types of tools that we’re going to use. And there’s also we haven’t talked about it and might not get to is it going to displace jobs. Is it a compliment. Is it a substitute. Like we don’t know the answers to any of these big structural questions. But we’re kind of like taking a bit. So one thing, that one way of thinking about it is that if AI pays off, the way it pays off is a massive forward leap deep in per worker productivity, a massive forward leap in per worker productivity where AI does something we’ve not really been able to do before and functionally simulates human workers like that. That is in many ways the pitch being made. Other things have simulated human tools or beasts of burden. The car replaces a horse. This is trying to simulate humans. It talks to you like a human. It does things that human might do on a computer. When you listen to Dario Amodei from Anthropic, he. A lot of these people talk about data centers full of geniuses or smarter than a Nobel laureate drop in remote workers. It is very hard to see how that vision of AI works in a way that actually creates revenue without displacing workers. What you are functionally doing is increasing by a conceptually limitless amount. The pool of labor. Now, we’re not there yet, but there’s some. It’s very hard to imagine the bet paying off without it happening. I agree with you. I think to a certain extent, if you look under the hood of the unemployment numbers, you don’t actually see unemployment rising among youths or among anyone in the parts of the economy that are most eye exposed. So in some sense, it’s just not there in the data. And by the way, you also don’t see any inflection associated with things like the introduction of ChatGPT or sum of the moment inflection points in the AI boom. That would draw you to the conclusion that there’s somehow this relationship between AI and the broader unemployment trends that we’re observing. What I have experienced is and I’m sure you’ve experienced this too, is AI has fundamentally changed the nature of what it means to train for a job like mine, because it used to be that economics PhDs, they would spend a lot of time learning how to code and a lot of time learning how to debug their code. And they would be in these state help centers looking things up. And none of that is happening anymore. And in fact, that feels like dinosaur times almost, even though I don’t feel like I’m that far removed from actually training to be an economist. And so I have a lot of sympathy with your view that it kind of must be the case that as a result, progress or success here has to look like a kind of different workforce doing different things than it was before. So the version where you do not have job displacement, to even just go to the example you just gave, is it’s great if all the young economists don’t have to spend hours debugging their code. It doesn’t displace them to give them a tool that debugs codes, any more than it displaced everyone to create calculators or laptops, laptops or Adobe Photoshop or all the different tools ATM. The ATM alveatum is an interesting. I always think about the ATM as an interesting example, because Obama always used to talk about the ATM, and then it turned out actually we had more bank tellers. Tellers it’s my favorite example. I was going to give it to you, but then that collapsed. Yes it did. And now we have fewer bank tellers. So there was a lag. And there’s a world where I just makes everybody a bit more productive. I can get my work done faster. And so you can get more out of me. And maybe that means either you want more people like me because we’re more valuable or something. It’s more that the level of investment, I think, to pay off requires something that looks more like replacement. That’s interesting. So the claim I’m making is not that you can’t imagine a world where I just makes everybody a little bit more productive. The claim I’m making is that the level of investment doesn’t look like people preparing for that world. A version where we do get waves of displacement. I have wondered, does it move us in the direction of the keynesian? We’re going to have 15 hour work weeks because there’s going to be all of this work that can be done ultimately in an automated way, by agents that are free. And what does that mean for society is like a question that we just haven’t really grappled with. The transition between here and there is nightmarish. That might be a great place to end, but between here and there is a nightmare. I feel like a lot of people draw the lessons of the China shock literature as telling us something about trade, and it does. But I think it really tells us something about the job market and labor and how difficult actually like the words we use upskilling, retraining, apprenticeship, how hard all of that stuff is in practice. Yeah, we are very bad at doing that. Yeah a future I have considered is something happens that pops the quote unquote AI bubble that makes people pull back in the way boom made people pull back. But that doesn’t make AI a non-useful technology. And in fact, the recession it causes is the time in which people in which companies begin trying to build AI into their firms at the ground level, replacing people, which is something we often see in recessions. Those are often big periods where firms retool themselves around New technologies. I don’t want to be too doom and gloom about this. It could go many different ways. It’s just it seems like one of the ways it could go. That’s very interesting. I have it is we talk about it in fiscal that the nature of our unsustainable debt. Like how do you deal with it ultimately in a world in a climate that doesn’t feel like it cares that much about deficits and a thing that people say sometimes is what you want is you want a small fiscal crisis because a small fiscal crisis, whatever that means, is going to focus the mind and bring all these policy compromises that you couldn’t imagine else, whether you’re going to raise a lot of revenue, you’re going to find ways to cut spending. And a little bit what you’re saying in I almost is you want a small crisis because the small crisis is going to give you the scope to actually weed out what is froth and bubble from what is real and Tenable, and actually figure out how to deploy a lot of this technology in ways that are ultimately going to be the future of the landscape. It’s just right now there’s a lot of different very large figures chasing a bit the same future. What would it mean for the level of investment we’re seeing in AI to pay off. And how quickly would it have to happen. Like how patient are the investors here. It goes back a little bit to what I was saying about the late 90s and the productivity boom in that the late 90s. You got productivity growth of around 3 percent in an economy that for the prior decade had been closer to 1 percent So big productivity enhancement and that productivity enhancement was really about computerization. It was about the AI, the learning how to take the technologies that had been developed really 15, 20 years prior. And figuring out how to deploy them in the way that businesses do their work I suspect that even transformational formational technologies take time to fully realize their potential. And I do actually think, having used it, as I’m sure you have, we’re talking about big transformational technology that’s going to make my work better. I don’t know whether you should anticipate, but again, famous last words, whether you should anticipate next year. This time US talking about a ton of displacement in the labor market that’s attributable to AI. But right now, and I think this is an important point, because people have been hearing these conversations about what’s happening with young workers. The labor market people often describe as a little bit frozen. There’s not that much hiring, but there’s not that much firing either. In the data for college graduates, in the data for young workers. We are not seeing AI displacement. We are not seeing evidence of AI displacement right now. We are seeing a lot of vibes. So that’s a little bit what you’re describing. But it’s not in the data right now. It does not. It has not happened in any way. There’s another dimension of AI versus jobs. There’s also AI versus wages. So if you take the economic analysis that the Trump administration applies most often to the economy, which is it. More labor means lower wages. That is their fundamental view of immigration, that more people here is bad for you, even when they’re fairly different than most American workers. It’s very different to have a worker who can speak English and a worker who cannot. They are bad for your wages. That is what JD Vance thinks. That is what Donald Trump thinks. That is animating a fair amount of administration policy. I do think that if you applied that theory to AI, and I’m not sure that I do, because I also don’t apply to immigration. But I think if you apply that theory to AI, you should be quite concerned. And I think it’s interesting they don’t seem to see it that way. So it’s so first of all, the reason why you don’t apply it to immigration is because it is not true. There is just the empirical evidence on this question, and it is vast, is that there is not a decrease in home wages that is associated with immigrants or immigration into this country, and that actually it’s you’re saying one version, which is, shouldn’t they be worried about I on these dimensions. I feel like the flip side, shouldn’t they be less worried about immigration on these dimensions. They should definitely be less worried about immigration. And by the way, and births and births, I mean, so as I say, consistency is not the strong suit of this administration. But if you have their view of immigrants and wages, you weirdly should probably not have their view of fertility rates because you don’t want more labor. Not you don’t want more labor. And there is much more competition between Native born labor than between Native and foreign born labor. So maybe their immigration, maybe their argument to you would be. Again, I don’t agree with any of this, but I’m just trying to. Maybe the argument would be that we have such deep demographic challenges, which we do. We’re an aging population that you actually want a bunch of New kids to enter the labor force in 20 years, but you don’t want them now. But again, that doesn’t make any sense. I don’t think that would make they would make that argument, and I don’t think it makes any sense. In fact, by the way, a thing that I was just talking to someone at the Congressional Budget Office about this week, a bunch of the challenge in that we face right now as a country has to do with labor supply. Obviously this. And the productivity estimates that exist, which show productivity growth in the next decade, but relatively limited productivity growth, about 1.8 percent in the next decade. They are on the backs of models that believe that we are going to have a lot of immigration into this country over the course of the next decade, we have in the last decade. And so that productivity growth kind of falls away. In a world in which you’re not getting this labor supply, just in a very simple way of describing the future that the administration is trying to build. We have an aging population. We have a falling birth rate. And they want to squeeze immigration down to a trickle or near zero while deporting large numbers of workers. And if you held that policy for an extended period of time, that would look just structurally very bad for the economy. You would have no productivity, really need I they really need that’s a little bit what it’s like your thing about is are we in an absent I recession. I think we’re banking a lot on into that. We are also adding this man made uncertainty in trade that doesn’t actually have the potential upside that you can get from I. It’s just risk. It’s just bad. We’ve been circling jobs. Let’s talk about the job market there. There was a jobs report that came out very recently. It led to a secondary story. We’ll talk about firing the head of the Bureau of Labor Statistics. But before we get into that, just what did that job report say and what should it make us think about the labor market. So over the course of the first half of this year, there was a bit of a puzzle because the economy was slowing down. And that is because of, again, our estimates at the Budget Lab suggest that is what you would expect in a world in which you have tariff rates that have gone up 7 or eight times relative to what they were in January. But at the same time, the labor market was looking very resilient. And so you’d expect, as the economy is slowing, that the labor market would be slowing, fewer firms would be hiring people, or even they would be firing people because they’re anticipating or they’re watching the economy shrink. And what the jobs number, told us is that, in fact, there is no puzzle, because that is happening. Over the course of the last few months, hiring has stalled very significantly in essentially all sectors of the economy outside of education and health services. And a little bit and I think that fact shouldn’t be that surprising to us. Again, we still have a pretty strong labor market. Unemployment is still just a tick above 4 percent but it is starting to show the signs of a labor market that is under some pressure from this trade policy. One of the things I thought was interesting in the jobs report is if you break the labor markets down by sectors, and as you mentioned, that the growth in labor was coming from really primarily health. So there’s a sign from Bloomberg without health. The last three months of payroll gains look like this. - 53,000 jobs in May, - 45,000 jobs in June, and negative 300 jobs in July. Now, there’s nothing wrong with health jobs. Many of them are very good jobs, but it’s not a high productivity sector of the economy. It’s primarily, in a way, caring for older people. It doesn’t look very dynamic where we’re headed here. Well, and another thing about health, by the way, is it’s one of the sectors of the economy that’s least impacted by the trade policy. So in part, I think what it’s telling you is that the rest of the economy is really bearing the brunt the tariffs are really starting to bite. And it is going to continue to show those signs in the months ahead, I predict. So one of the things that got a lot of attention in this jobs report was the pretty big revisions to the previous couple of months. Just walk me through what revisions are, why they happened. Totally the way that the Bureau of Labor statistics collects data in real time about the labor market is it surveys about 1/3 of non-farm employers, and people submit, and it gives them a relatively short period of time to respond to that survey, because, again, it’s trying to be in live time. These are monthly numbers. And they do a bunch of sample size adjustment and of trying to make it more representative of a sample. But that’s basically the exercise. And then there are always revisions. Twice they revise the numbers as they get more information. More people answer the survey. I know the numbers sound big to people when they hear them. And the president says 258,000 jobs or some such were revised. You really need to put the numbers into a ton of context. So first of all, 258,000 jobs revised downward for May and June. That is just a tick above point. It’s about 0.16 percent of the labor force. It is a relatively small revision. And in fact, over the last two decades, the Bureau of Labor statistics has gotten much more accurate with respect to its reporting in real time, which, again, is a hard thing to do about the state of hiring and firing in the American economy. The thing that I find really concerning about all of this, and this moment, is that the rest of the world sits with envy about how good government data collection is in the United States. It is like the gold star of data collecting. There is a ton of trust by markets, by regular people, by other countries in what these numbers mean and what they represent. And a ton of transparency with respect to the methodology, how the data is collected and what it’s telling us. I just worry that the politicization of our data collection is like a much bigger and more important and more troubling story than I think it’s gotten. It’s gotten a ton of attention, as it should, but it deserves even more. And it’s not an isolated example in some sense, of what we’ve seen in the last few months. One thing that people who understand this data better than I do tell me is that the commissioner of the Bureau of Labor Statistics, or the head of it, doesn’t actually have that much. Never touches it in the data. They only see it very shortly before it goes out anyway, it’s survey response. It’s coming in. You can actually see the raw numbers. So on the one hand, the opportunity for monkeying around with this is not so dramatically increased by this move. And on the other hand, the intention of the move and the effort to bring things under a kind of control is very worrying. How much do you take this as just like Donald Trump got mad at somebody, but it doesn’t really matter versus in a year we may not be able to trust the jobs numbers. I hope that you are right. And, I’m sure people have been asking you. People have been asking me since the beginning of the administration, should we still trust the data. Like, aren’t they going to be encouraging a bunch of trying to sleight of hand or trying to get rid of certain data sources, which we have actually seen over the course of the last many months. And particularly with respect to BLS and BA, which produces GDP numbers. I’ve also I’ve always made the point that BLS has about 2100 employees and one political appointee, and the political appointee is essentially the person who delivers the envelope with the numbers. They’re not involved in the construction of or in the presentation of these estimates. And there were no signs that there was any reason to be concerned, obviously, because if there were any politicization or monkeying around in the data, you would have legions of dedicated civil servants who would be out the door and telling you that this is not to be trusted. But I think the idea of politicizing economic statistics x is so deeply disturbing and dystopian and authoritarian. In Argentina, there was a ton of pressure put on to report friendlier inflation and poverty estimates, and ultimately, investors realized that they were being duped and decided that for the longest time, would not actually make new international loans to Argentina because they couldn’t trust the data. Or in Greece, you literally triggered a sovereign debt crisis on the heels of underreporting deficits and having public arguments that resulted in criminal prosecution for statisticians who tried to present truth. And obviously, we are not Argentina and we are not Greece. But I think going in the direction of starting to draw into question some of these fundamental truths that we like believe in numbers. We report the numbers. We can trust the numbers. I think it’s just like a really slippery slope. And frankly, I don’t know how you undo the new nervousness that we all seem to be feeling. There’s also another way that data can degrade, which is the Bureau of Labor statistics has seen fairly large attrition, 20 percent 20 percent This has been amidst Donald Trump and DOGE declaring war on the administrative state, and plenty of people not really wanting to work for them. And then you just imagine that Trump puts in charge, even if they can’t do all that much damage, just some right wing member of Congress who is primarily known for being a lickspittle to Donald Trump. And you might just see a lot of good people leave and the people would be coming in would be less good. Because the reputation of the Bureau of Labor Statistics would have degraded to the people who it needs to attract, which is very, very, very literal minded statisticians who believe very heavily that the integrity of data collection and data inference is like the highest good in an advanced democracy or an advanced society. And what you do is you just begin to break the talent there and you demoralize it and you dispirit it. And if you do that to any organization that does anything whatsoever, you will get a worse output. You will get a worse product. And in this case, the product is economic data. So I am so worried about that. And you’re already starting to see it happen across government and particularly with respect to the BLS, as statement that they make, which tells you a little bit about the temperament of the people who work there is they won’t tell you whether a glass is half empty or half full. What they’ll say is that 8 ounce glass has 4 ounces of liquid in it. So that is the degree to which they do not spin in any direction. And they take that responsibility so immensely seriously. And it’s one of the things that makes government like a remarkable place to get to spend some time is to be around these civil servants who take so much pride in the work that they do and the contributions that they make to our ecosystem. BLS has already lost a very significant share of the labor force, and its data collection efforts have already degraded, so it’s already the case that certain aspects of price indices that they used to collect in certain parts of the country. They don’t have the capacity to do that work anymore because they’ve already suffered. It’s also the case that response rates for the survey that I was describing, they’ve actually gone down post COVID. And that’s a problem from about 70 percent to 40, right. And particularly for small businesses. So response rates have declined. And so I do think there’s some deep irony here. The survey responses are in a situation where we would like to see improved response rates. And it’s something we would like to see the BLS invest in. And yet precisely those aspects of government that we want to improve, we are simultaneously taking away their resources and capacity to improve. We are making them places where civil servants don’t want to work because Russ Vought promised, every day that they wake up is a nightmare. And so I think these things, they have longer term repercussions beyond this administration. We are so lucky to have people who could get paid much more if they go to the private sector, feel like they’re dedicated to government statistics or to improving tax collection in this country. And we’re chasing a lot of talent out the door in ways that are really going to redound and make some of the problems that have rightly been identified by this administration much worse Among things that depressed me about this episode. One of the ones that was high up there was Kevin Hassett, the head of Donald Trump’s Economic Council, endorsing the decision. And a lot of reporters who have covered economic policy in Washington for a long time, I’ve known Kevin a long time. He’s very much a part of the Washington economic policy community. And the Kevin I knew for many, many years. And I believe the Kevin who existed even during the Biden administration, if Joe Biden had done this, Kevin Hassett and others, frankly, in the Trump administration would have lost their minds correctly, correctly. And so on the one hand, I don’t really think that the replacement of the BLS lead is going to change economic statistics that much. And then at least in the near term. But it was the bottomlessness of complicity that disturbed me most, because there are things that you can politically influence, and some of them are very big and well known and happen in public. Many of them don’t happen in public, and they’re smaller, and that there’s just no line for people in this administration that the nature of being the administration is that you do not have a line. It is very worrying. And I know I can imagine how you would rationalize it to yourself, say Donald Trump is a president. If he doesn’t like the Bureau of Labor statistics commissioner we get rid of them. That’s his prerogative, right. And I’m sure he’ll replace him with someone good. But this world where you fire people because data came out that you don’t like, that is a terrible regime. We’ve seen it in many other countries. It does not work well. And lots of the people in Congress, in the administration know it and won’t say it because of the rules of being a Republican in good standing are whatever Donald Trump does. You stand up and you clap. I am of the view that it is impossible to defend these types of decisions, and I hope and feel confident, frankly, that if I were ever around them, that this would be the type of line that would mean that you no longer are going to be serving in an administration in this capacity. I understand why. If you were so short termist that you are thinking tomorrow maybe you tell yourself like this chart looks cool or these numbers are good, but if no one believes it, and if in a year or two years you’ve denigrated the US economy a little bit, you have to ask yourself for what. Well, I think in the case, we’re talking about I think that for what is there are a lot of people who would like to be fed chair. I think Kevin Hassett is one of those people. You’re not going to be fed chair if you oppose something Donald Trump does. And maybe that’s a good bridge to the Fed, which is another place Trump has been attempting to exert some pressure. There was a burst of news that maybe you try to fire Jerome Powell, which, as you noted, he doesn’t really have the authority to do. Then there was maybe he will accuse him of a form of fraud related to the re habilitation and refurbishing of the Federal Reserve’s headquarters, which, as you can imagine, I’m sure Jerome Powell spends a lot of time thinking about. The specific contracting decisions being made in that, and it seems to have blown over. But Powell’s term is limited. His term is up in 2026. And behind this is Donald Trump. And the administration really want interest rates to go lower. I guess a good place to start here is first just on the merits. Are they right. We are seeing the economy slow down some. Maybe the Fed should lower interest rates. On substance, I think the Fed actually has a bit of a hard task ahead of it because they’re in a situation where we started in this conversation, the tariffs are the most inflationary policies of our lifetimes. So every model, our models, everyone else’s external models are predicting that inflation is going to rise as a result of tariffs at these levels. And remember that the Fed just had a very significant bout of inflation, that it hadn’t even fully managed back down before this next round of inflationary policies kicked in. And until this jobs report, by the way, the Fed was operating with a fair bit of let’s wait and see with respect to the economy, because the labor market looked quite strong. And so if the labor market is strong and you’re anticipating inflation, there are real reasons to think like this is not the environment in which to cut interest rates. And you see that there is actually room for debate on this particular topic. The Fed made its last interest rate decision ahead of the most recent jobs estimates. But you saw two governors dissented and kind of explained their dissent as exactly about this. They were looking at indicators that were suggesting that the economy was slowing down, and they were of the view that it was time for the Federal Reserve to cut rates. I will note their view was to cut rates by about 0.25 percent and the president has been calling for a decrease of around 2 percent which would be a lot, which would be a lot. What would happen if they did that. Let’s imagine next meeting. Yeah Chair Powell just comes in and says 2 percent cut. Which would that be the biggest cut in history. We should look I’m sure ish I’m sure. Yes I’m sure it’ll be huge Yes What would happen if he did it. So there’s a difference between the interest rate that the Federal Reserve sets, which is the interest rate that impacts how banks lend to one another and borrow from the Fed. And then there’s interest rates in the economy that you and I and others care about your mortgage rate or your student loan rate or your small business loan rate. And there’s not a direct translation between those two objects, but they are connected to each other. They’re connected to each other because of a belief that when interest rates go down, the Fed there they are telling us a story about the direction the economy is going. But the thing that’s perverse about the idea of tomorrow we wake up and the Fed funds rate is 1 percent is if it was 1 percent what the world would understand is that interest rates over some relatively short, medium term, long term horizon are going to have to go way back up because we’re going to get a ton of inflation. And the result of that is going to be that you are actually not going to see translated into your mortgage rate or into your small business loan rate, anything like a 1 percent interest rate, even if magically the Fed turned on and said that’s what the interest rate should be. So there’s a perversity in all of this that even if the Federal Reserve did, in fact, what the president seems to be asking them to do, it wouldn’t actually deliver the type of economic benefit in any real horizon that would be meaningful to households. And in fact, the reason I know that is because we have played this game before in the US. So Nixon had a Fed Chair named Arthur Burns, and he ahead of a presidential election, put a ton of pressure on Arthur Burns to get the rest of the FOMC to lower interest rates dramatically. And in fact, they did. And what happened as a result of those types of politicized decision making by the Federal Reserve is that we had inflation in this country go up. So the idea that this is somehow going to accomplish anything positive for the economy is like silly. It’s like nonsensical. So the Trump administration is doing something really dangerous, which is they’ve got a bunch of policies that are slowing down the economy and a bunch of policies that are pushing prices up in the economy. And if you have a slow economy that’s not really adding jobs, not growing that much, and you have inflation going up, what you have is stagflation. Yes And then the Fed doesn’t really have an obvious move because if it lowers interest rates to speed up the economy, it pushes up prices. If it raises interest rates to bring down inflation, it slows down the economy. In the past it has broken stagflation by raising interest rates. So high it pushed the economy into a recession, which I also think the Trump administration would prefer to have not happen. But I’ve heard a lot of people saying that the way to think about the economy right now is we are in a mild stagflation, and that if that continues and gets worse. If the things we are talking about here happen, the terrorists begin to pass through even more. The big beautiful bill is highly inflationary. It’s putting a huge amount of money on the National Credit card, a bunch of tax cuts that you look around and the conditions are there for us to get into something that is pretty tricky to break. When we get into it. I think that is true. When I’ve been saying that we’re starting to see, I don’t I’m nervous to say it’s like The West Wing episode where they won’t say recession. Like, I don’t want to say the word stagflation, but stagflationary signals or stagflationary adjacent type of information from. You can tell when economists don’t like something when they treat its name like Voldemort. Yeah, exactly. I can’t say it. Don’t even want to invoke. It’s like. But I will say that something that’s kind of frustrating is like, this isn’t a crisis that has dropped from the sky. We’re not in COVID or even a financial crisis. We have gotten ourselves from a economy that was rip roaring, just let it go, and inflation coming down to strongest, strongest economic recovery out of the pandemic to the S word adjacent by a set of policy choices that have been made that didn’t have to be made this way. And ultimately, we couldn’t even articulate exactly what they are meant to accomplish. And so I guess maybe that should make you a little hopeful, because in some sense, when markets have gotten shaky or the bond market with its disciplining device has gotten nervous, you’ve seen some pullback from those types of policies. But it also makes you kind of dismal about the ways in which mistakes are being made that seem so obviously avoidable. I think the question it raises is what happens if you have an economy that has this much uncertainty in it, this much weird policy in it, and then you had some kind of external crisis. It is actually hard to manage in the way that the inflationary shock was hard to manage in the post-pandemic period, in the ways that many of the things that have caused recessions the dotcom bust, was hard to manage. I mean, maybe you can say the Trump administration has given itself a lot of tools to manage it because it could turn down the tariffs and that would be stimulus. But it, it has added a lot of stress in a pretty good scenario that has gotten us to a point where people have begun at least talking about to use your terminology, recessionary signals, if not a recession. And there it seems to me they’re hoping for a lot of luck here. Well, I don’t want to be overly pessimistic in that. I think that I hope we are. I don’t think we are in a recession. I hope we are not in a recession. The probability of a recession is declined, actually, since liberation day, as measured by market indicators. But we have done a lot of self-inflicted harm here. And there’s no doubt about that. I guess it could be worse, because the part of what you’re worried about is this fiscal situation becoming even more untenable. And eventually you hit a fiscal crisis and everything was deficit financed and the big beautiful bill. And so that’s really concerning. But you should feel a little bit less bad about that than you would have baseline, because it is true that the tariffs are bringing in some revenue. And I guess it could be worse because we talked a lot about AI and the possibility of AI. And absent that hope in the economy and whether or not it actually is realized, things could be worse. But it’s kind of a weird place to be from an economic policy perspective to continually be saying, I guess it could be worse as your barometer of progress. It is interesting to think about the tariffs as a pay for the bhb’s tax cuts. I have been thinking a lot about the tariff revenue because again, it’s like $3 trillion over the decade. It’s roughly the size of the bill that was just passed. And, I wouldn’t have used the deficit reduction from the tariffs to do a bunch of tax cuts that disproportionately benefit the top and safety, social safety net cuts. But just from a fiscal perspective, and you’re also in a situation where let’s play out the scenario where it’s 2029 and these tariffs have been in place for a while, and for whatever set of reasons that have come, maybe the economy has absorbed them. Maybe there’s been a slight downturn but then an uptick maybe I something but they’re in place in that universe. I think the revenue is somewhat sticky right. I think the tariffs are terrible. I think they’re a very bad way to raise revenue and a very inefficient way to raise revenue. But they are a $3 trillion tax increase that has been essentially not even legislated. It’s been sine of a pen put into law. And so where do you go from there. Because can you turn the tariffs into something like a destination based cash flow tax. Like nobody knows what that is. I’m going to help. I’m going to do. Can you turn the tariffs into a progressive consumption tax or just any kind of consumption tax, frankly. Walk me through this. So I am a weirdo about this. I love progressive consumption taxes. I’m like an old devotee of Robert Frank books, the economist, who’s like a progressive consumption tax obsessive and has been for decades. So I’ve always thought that’s a kind of interesting tax structure. So the theory of a consumption tax is by taxing consumption more particularly among rich people get more kinds of saving and investment, which is good for the long term growth rate of a country. So one, do you think we actually need that. It doesn’t really seem like we don’t have enough investment. The stock market is booming. The other thing is are there other things we should want to tax, both because they raise revenue, but also because they discourage the thing pollution in the form of carbon online gambling. Yeah there are externalities. Yeah externalities as the economists like to put them. Are there parts of a code like this that you think could raise substantial money. But also, nudge, nudge us in a better direction. Auchincloss likes the idea of taxing digital advertising. That’s monetizes our attention. You could come up with a lot of things like that. But the idea, the reality is, if you ask any economist what the right tool is to try to deal with the fact that there are too many carbon emissions, they are going to tell you that it is carbon tax. And so I am very and one of the benefits of some progressive consumption tax version is you can imagine layering on a very small, by the way, carbon fee to that and rebating it and doing all the stuff. The idea of trying to think seriously about what the types of activities are that you might want to another one, the soda taxes, right. The types of activities where we’re trying to get people to America healthier. Yeah, exactly. I think there’s a lot to that. So let me start bigger even. There’s a real revenue challenge that this country faces, which is that we basically don’t have capacity. Republicans have said no tax increases on anyone, ever. And Democrats are actually I don’t like doing on the one hand. On the other hand, because Democrats have identified $3 trillion ish of tax increases over a decade that they would like to see levied at the top. But if you’re trying to have a social. But they said no tax increases on people making under $400,000, which is not a good way to think about the tax code. No, I pledges are not a good way to think about the tax code. And frankly if you’re trying to have a social safety net that looks like other countries social safety nets, they have higher taxes on a much broader swath of the population than people making $400,000 or more. And so in that environment, if you think about the tariffs, they’re kind of like a workaround for this stuff. Because like it was the case that the Republicans said no tax increases on anyone whatsoever. But here’s $3 trillion of tax increases essentially. And they’re in the system and in the world in which we’re talking about 2029 and a new world order where we’ve had the tariffs in place for years, they have become a revenue source. And a meaningful one. And by the way, tariffs are consumption taxes because they are a tax on a thing that is imported and then consumed. They’re not as good would as an actual consumption tax, because they are going to raise prices for consumers more than they raise revenue for the United States, because they are going to also increase the price of domestic goods that aren’t hit with the tariffs. The way that you get from a tariff, though, to something that looks like in my dream, progressive consumption tax is you start to follow the playbook of Speaker Paul Ryan in 2017 when he proposed what. And I gave you my acronym, the destination based cash flow tax. What it essentially was that rather than having to figure out what corporate income is and it’s a concept and where does it sit-in a worldwide system, he said, let’s just do cash flow taxes, which is kind of like what other countries do with a VAT. And the concept except was that when stuff is, it is then taxed in the US, and when stuff is sold outside of the US, well, those cash flows accrue outside of the US. And so it is pay taxes on it outside of the US. And that kind of structure sounds a lot like a tariff. And the complaint at the time, there was a fair bit of support for it at the time among Republicans, the complaint was really the retailers in the US who said, wait, the Walmarts and the Home Depots, that you’re going to way increase the cost of goods to consumers by this new type of tax. But the tariffs are already doing that. And so I wonder whether you don’t manage to shift the tax base in the direction of a better designed consumption tax and better than the version I hope in 2017, because we managed to find a way to make it progressive. Is it a rebate to people for their consumption tax adjacent thing. I don’t know. I kind think that there might be more to that idea than I had been grappling with previously. So we are in a world where the tariffs are raising a lot of money. So the big budget bill, big beautiful bill is not as much of it is not quite the fiscal disaster we’d have seen if it were just alone. Yeah that’s true. And so we’re just kind of in a new world around all that. I am eternally looking for reasons to be optimistic. And the reality is that finding $3 trillion of tax revenue that we didn’t previously have any way of raising is from a deficit perspective and accomplishment. Let me ask you something. Let’s say it’s 2029. If a Democratic president came to you and said, Natasha, I just want to propose root and branch tax reform in a way that would be really good for the economy. I want to raise the amount of money we need to raise, but I want a healthier economy. The tax code is a huge lever. I want it to be simple. I want it to be explainable to people. I want it to be progressive, and I want it to be good for the long term future of the American economy. What in a no, tax codes are complicated, but in a stylized way would you tell them to try to do. It’s such a I’m so happy with this question because it would be nice to dream a world in which a lot of this was possible. The way you would start, the way I guess you would start is you would start with the principles that we need to raise enough revenue. We want a tax code that is simple. And we want a tax system that is competitive. And we want to minimize distortions in the economy. And right now we have a tax code that does none of those things. And particularly what you would I think be concerned with is the idea that over time what’s happened is that the economy has grown more complicated. Just to take advantage of opportunities that complexity poses in the tax code. So for example, if you are a corporation, you pay a corporate income tax. But if you decide to structure yourself like a partnership or a pass through get a totally different tax structure because your income is taxed at the individual level. And often, frankly, not taxed that meaningfully at all because of the ways in which you’re able to characterize it. The other thing I would do after trying to streamline the code, is I think we’re too rich of a country to have so many children living in poverty. And the interesting thing that I realized when I was in government, and I knew it before, but kind of got to see it on the ground in a meaningful way, is the IRS is a really important administrator of federal benefits. A lot of them run through the tax code. And a super important one is the child tax credit. But because it runs through the tax code, in part because the IRS is quite good, despite having very few resources at administering things, you only really get the full value of the credit. If you’re rich enough to have $2000 or $3600 at times. When I was in government to deduct from your taxes. So like the poorest people are being helped the least by our benefit system. That seems nuts. So obviously it is the case that you should design a system that lets us do more for those who need it most. And the third thing I would say, in this magic world, of being able to think seriously about tax reform from scratch, is that so much of the tax code has been distorted because there happened to be particular interests that are able to get an exemption here, or a carried interest loophole there for their particular pet type of income or type of benefit. And I think we really need to find a way. And this is true writ large, and is why this exercise is more of a dream than it is in practice. You really have to find a way to push against the impact of those constituencies, because there isn’t a counter constituency to say no, that’s really bad. And I think that’s a pretty fundamental problem. All right. I’m going to leave it there. Always our final question, what are three books you’d recommend to the audience? It’s good because we were just talking about tax reform. I’m teaching federal income tax this fall, and I was prepping around the 1986 Tax Reform Act, which was a time when we thought seriously about tax reform. And “Showdown at Gucci Gulch” is one of my all time favorites and a great read, and will leave you hopeful for the possibility of this type of reform effort. I also just recently had twins last year — I was telling you before — and so have been slow to be able to do that much reading for fun of recent. So I just recently picked up “Remarkably Bright Creatures,” which is this lovely story about a woman who finds companionship with an octopus. And it sounds kind of wild, but in a world that’s feeling intensely more isolated, it brought me a lot of joy. And I also really love. We talked a little bit about economic models and the ways in which we try to measure and derive truth about the world. There’s a great book by Michael Lewis called “The Undoing Project” that’s about the relationship between Danny Kahneman and Amos Tversky, but also the ways in which the field evolved that I think is pretty profound and a great story. Natasha Sarin, thank you very much. Thanks so much for having me.