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Good Friday Morning! Except for the men who are somehow being scammed out of money by a Japanese app selling ultrasounds. The Mercari App was forced to take down a listings on its site where people were selling ultrasounds showing a baby.
Some enterprising scamming women were buying the ultrasounds and then claiming child support from men who fell for it. How’s that for a Maury or Jerry Springer episode? Not only are you not the father, but there’s also not even a baby.
Wild.
This week, I’m reviewing the shifting Trump economic plan and how the White House is ending its fight against inflation – links to follow.
Quick Hits:
- Supreme Court takes up the tariffs case. The Supreme Court is likely to take up Trump’s tariffs case. I’m still working on the opinions on this on the appeals level. SCOTUSBlog has a great writeup. There are decent arguments as to why Trump lost on the appeals level. However, the libertarian argument that Trump has no powers to declare emergencies and use tariffs is shakier than they’re letting on. Jonathan Adler, a law professor who disagrees on the tariffs, wrote a piece in the Wall Street Journal on how Trump could win the case.
- The American Almanac is growing! Hundreds of thousands of people now read us daily. I want to express my sincere gratitude to those of you who subscribe, share, and help us grow. You can subscribe here for free. Additionally, please check out Capital Digest (finance/economics), Conservative Legal News, and Real Talk Digest. There are more projects in the pipeline. If you don’t see anything in your inbox a day after signing up, check your spam folder.
Where you can find me this week
Please subscribe, rate, and review The Horse Race on YouTube — the reviews help listeners, and readers like you find me. Make sure to sign up for the Conservative Institute’s daily newsletter and The American Almanac.
Who Was Running Robert Mueller’s Probes? – Conservative Institute
England Has Become The Banality Of Evil – Conservative Institute
Democrats Have Conspiracy Theories Explode In Their Face – Conservative Institute
The Inflation Fight Is Over: Welcome to High Inflation + High Growth
We’re headed into a new economic reality. Whether or not it works remains to be seen, but Trump’s push on the Federal Reserve is the key to understanding where we are headed. The fight over inflation is over. The Federal Reserve will not bring it under or near the 2% target.
I’ve said for a while that inflation isn’t solved. It is my general belief that the only way to solve our inflation problem is to replicate the Volcker/Reagan playbook of 1980-82: trigger a recession via high interest rates and unleash supply-side economics as that recession unfolds to create an economic boom. You kill the drivers of inflation by killing demand, and the supply-side is encouraged to grow from that destruction.
Biden rejected this path. Ironically, if he triggers a recession in 22/23 to kill off inflation, and then spent all that cash through his legislation, he may still be president. Trump is rejecting this path as well.
In my view, this is like creating a fire break to kill a wildfire. You set the line where inflation ends and calm the economy down with a reset. That Volker/Reagan combo led to incredible economic growth, which continued, albeit with normal business cycle recessions, until 2008. We’re repeating a Nixonian playbook from the 1970s.
Leo Nelissen wrote a great piece in Seeking Alpha that encapsulates most of what I’ve been thinking:
Essentially, I believe the administration is looking to run the economy hot, which my friend Albert Marko made clear in a recent article as well. I used the quote below in my “The One Call […]” article as well:
[…] the Trump administration appears to be embracing that reality with a high-stakes gamble, as it is likely to target (or accept) 4% inflation and high single-digit nominal GDP growth.
While I may sound a bit dramatic, I believe this is a full-blown paradigm shift, one that could—and likely will—renew markets for years.
For investors, this means adapting to a world where cyclical stocks, hard assets, and value will likely outperform growth. – Albert Marko
These comments make sense, as the economy isn’t doing too well. See, while GDP growth itself isn’t in bad shape, most of it is driven by AI spending. As we can see below, consumer spending, which has weakened substantially, now accounts for a smaller part of GDP growth than AI-related spending.
Trump’s new strategy is to run the economy hot, ignore inflation, and try to outgrow the problem.
Will this work? That’s a massive TBD. I have my doubts.
Nelissen notes that the White House can point to some positives:
[I]f we get an environment where higher inflation is tolerated to boost economic growth, it may work out for the administration.
- Deregulation from the One Big Beautiful Bill is already positively impacting small business sentiment.
- Lower rates could fuel housing demand and real estate investments. It would also increase prices, which means employment needs to be supported as well.
- Lingering tariff risks could kickstart global trade.
So far, we’re seeing green shoots.
Nelissen is an investor, and so he uses this theory to invest in stocks that align with his thesis. “I am very bullish on industrial stocks, including infrastructure. Many of these companies benefit from AI, including data center suppliers, grid hardware suppliers, general engineering firms, and companies like Class I railroads that benefit from pricing power and a potential recovery in cyclical demand.”
It’s worth noting that Warren Buffet is also high on things like railroads. Whether it’s the same reason, Buffett did say he wasn’t going to buy another railroad. Still, he is working with them on working better together.
I’m not saying this to tell you what to invest in, but rather to point out that smart money on Wall Street is making a move on this line of thinking.
Economically, I understand the theory being put forward. I remain skeptical for one reason: the assumption that higher inflation can be tolerated. I view high inflation as corrosive to the political order. We witnessed this first-hand throughout Biden’s presidency, that everything people were dealing with was amplified by inflation.
Democrats lost in 2024, with inflation being a primary driver. Kamala Harris understood this point and tried to discuss higher prices, but was shouted down because it was the first time she or any Democrats had acknowledged they’d messed up on prices. The key word in these theories is inflation being “tolerated.”
Trump is in his second term and can’t run again. He only needs to survive the upcoming midterms, and then he’s on a glide path out of the White House and will focus on his legacy. Running the economy hot can help him in that endeavor.
However, it still doesn’t address the overarching problem: inflation persists. That’s why Jerome Powell has fought rate cuts since the election. Powell’s Fed has been the only entity in Washington D.C. to take inflation seriously. No one else has. And the Fed has made numerous mistakes in that fight, as I’ve detailed here for several years.
But the fight over inflation is over. Trump is choosing a path that leads to higher inflation while aiming for higher growth in the process. The AI bubble can help in this process, but it’s not everything.
When Trump entered office, there was talk that he was planning to trigger a recession with Bessent. I took that talk seriously and leaned into it. That was clearly wrong. Trump doesn’t want a recession, and every time the stock market or the data suggests slow growth, he pivots hard. The TACO trade has a point.
That brings us to the new path: run things hot with higher inflation. Prices won’t change, but we’ll see if Trump can stimulate the economy to push it along.
Links of the week
I just got arrested again: I arrived back in London to discover the UK is still a police state run by trans activists – The Glinner Update
The Story of How PA Turned Red—But Will It Last? – RealClearPolitics
Trump’s drug war looks like a real war – Axios
Redistricting Isn’t the Democrats’ Problem. Democrats are the Democrats’ problem. – The Liberal Patriot
Why are we telling women that motherhood will make them miserable? – Deseret News
Democrats pulled the greatest political con job ever on Americans. It’s finally unraveling – Fox News
Israel’s Loudest Critics Have No Facts and No Shame – Commentary
When Artificial Intelligence Goes Nuts – Commentary
X/Twitter Thread(s) of the week
Catherine Herridge on the Comey files and handwritten notes.
Satire of the week
Study Finds Ultra-Processed Foods Make Up Over 50% Of Americans’ Thoughts – Onion
Man Who Needs To Wake Up Early Sets Dog To Vomit At 5:00 AM – Babylon Bee
REPORT: Ankle Socks Only Used When All Other Socks Ripped, Burned, or Otherwise Dead – Reductress
Aging Millennial Sadly Realizes He’s Now the “Them” Bubble Tape Is Not For – The Hard Times
“Our Story” Section of Wedding Website Doubles as Historical Fiction – The Hard Times
I Read Josh Gad’s Memoir So You Don’t Have To – The Hard Drive
Microphone Waving Media Burst Through Local Man’s Front Window After He Jokes To Wife ‘Maybe I’ll Run For President’ – Waterford Whispers News