*** The next step for Trump's economic policy ***

President Tump loves tariffs.
Tariffs are taxes on the consumption of imported goods.
What about boldly following through and... extending his favorite policy tool to all goods?

Hear me out…

Required reading from @r2rsquared.bsky.social on what lies behind r* personal.lse.ac.uk/reisr/papers... "This paper first documents the differing trends of these four R-stars in the quarter-century before the pandemic. Then, it proposes a general framework to make sense of their joint evolution"

The direct, fast, and large impact of the tariff hike is to raise US inflation. The hike may also cause a recession. There is too much focus on the latter and neglect of the former.

This "partisan bias" in the data mattered during Covid in 2021-22:
"...had all expectations become as unanchored as those of Republicans, average inflation would have been two to four percentage points higher for much of the pandemic period"

www.sciencedirect.com/science/arti...

There is *a lot* of useful information in the disagreement that we see in the expectations data. Which of it is useful depends on the question you are asking.
Recent references for those interested:
-- bfi.uchicago.edu/wp-content/u...
-- personal.lse.ac.uk/reisr/papers...

Measuring inflation expectations would be futile" *if* there was FIRE. Because people do not have RE, these measurements are potentially very valuable, and it turns out indeed they are very useful data for modeling and forecasting inflation.

Under full information rational expectations (FIRE), these data would be "solely a mirror of the outcomes that we could measure in the aggregate data. Measuring expectations was as futile as measuring utility." A picture like this suggests a rejection of FIRE.

Making an effort to migrate into there from X, this figure sent by Torsten Slok made the rounds yesterday:

I see you have €1 saved earning interest.
That's right.
Please give it to me and I'll pay you the same interest.
Ok.
Actually, paying you interest is subsidising you, forget about it.
Uh?
I'm the govt, I could require you to give it to me.
🤔

cepr.org/voxeu/column...