An Economic Storm May Be Coming—Here’s What Trump Can Do About It: Jeffrey Tucker

[RUSH TRANSCRIPT BELOW] We’re launching a special “American Thought Leaders” series during this post-election transition period in which I will be interviewing topic matter experts and former and potential future Trump administration officials to understand what the incoming U.S. administration’s policies in 2025 may look like—for America, Canada, and the world.

Today, I’m sitting down with Jeffrey Tucker, founder and president of the Brownstone Institute. He’s also a columnist at The Epoch Times, where he writes daily about economics, technology, and culture.

Views expressed in this video are opinions of the host and the guest and do not necessarily reflect the views of The Epoch Times.   

RUSH TRANSCRIPT

Jan Jekielek:
Jeffrey Tucker, such a pleasure to have you back on American Thought Leaders.

Jeffrey Tucker:
Good to be here. Thank you.

Mr. Jekielek:
Let’s talk about the economic realities that are facing this incoming administration.

Mr. Tucker:
It is difficult. About a month ago, I would have said there’s a terrible storm coming and I still think there’s a terrible storm coming if not we’re in one already that has been unacknowledged by the media which is one of the peculiar aspects of this. As we approached the election the financial press was assuring us that everybody’s happy, everybody’s doing well, our incomes are up, the jobs are plentiful, production’s high. Then there was an intuition on the part of the public that none of this is true.

I’m not so sure about this. I’m not feeling exactly expansive in terms of my job opportunities. My income is definitely not up. Inflation seems terrible. I still can’t get used to the prices that are out there. I can’t get childcare. It’s inconceivable that I could ever move because I’m locked into a 30-year mortgage at three percent. Now they’re running at seven, eight, or nine percent.

So there is a real feeling of being trapped, and yet you’ve got the national media going on about the glorious economic recovery. So, you know, that was the peculiar thing as we approached the election. I think part of the results that we saw are a reflection of that people believe they’re evidence of their own eyes rather than, you know, the agency data and the true leaders on the national media.

Mr. Jekielek:
Well, and this is, you know, one of the things we discussed on the show recently about the economic realities, both with yourself and a few others is that there has been this sort of mismatch since 2020, since the COVID years between the indicators and the reality. At one point, they were much closer to reality than they are today. Even if it’s, you know, even if there’s sort of a deliberate attempt to…

Mr. Tucker:
I don’t think it’s all deliberate. I think part of it is a deliberate attempt to make everything as beautiful as possible. You know, that sort of civic pride at work here, we’ve got to recover from what we’ve been through. But partially, you know, I look at that data and I think there’s collection problems. We just don’t have the systems in place to collect the data as accurately as we used to. And lacking that, we find proxies for it and just throw it out there and wash our hands of it.

I have friends of mine that work in these agencies and that’s why they describe it. Ever since the lockdowns, really, things have not been normal. So we’re all just kind of in the dark, really, about what’s actually going on. And I’m intensely curious about it and in touch with people with better data chops than I have and recommissioned the study that The Epoch Times reported on very faithfully and beautifully, where I asked the number crunchers, let’s really examine industry data on inflation, include the things
that CPI excludes, and see if we can come up with a proxy for what these prices are like without all the hedonic adjustments, perhaps even including new fees and shrinkflation, which they couldn’t do. There’s just too many uncertainties.

But they bumped up against about three or four contingencies into the CPI and came out with numbers that were roughly double what the government’s reporting. And then they ran those up against conventional up against conventional GDP data and put that out in real terms and came out with a result that didn’t entirely surprise me which is namely that we’ve been in technical recession since the first two quarters of 2022. That sounds right to me and it sounds scary but that’s no more scarier than the reality that most people are faced with actually.

Mr. Jekielek:
One of the things that has come out is that a lot of the job growth has been in part-time jobs, jobs from people that are not native to the country. And in fact, when you look at those jobs, those have been on the decline. And why is that so important, that distinction?

Mr. Tucker:
Since at least the New Deal, the labor numbers have been extremely important to understanding where we are in the macroeconomic sense. There’s two aspects to this. One is output numbers, which are associated with GDP, which have to be adjusted against inflation numbers because you want real GDP, not nominal GDP. And then against that, you have the jobs numbers, which have been very important to economists since the Great Depression. So people look at that stuff really carefully.

Interestingly, in 2022, we had two declining quarters of a real fall in GDP just for inflation. It was not called a recession, even though the textbook definition of recession was two successive quarters of declining GDP. They say, oh, no, it’s not a recession. They say, it’s not a recession because the jobs are looking so good. Well, after this period, then the jobs numbers were revised and people began to look at the jobs numbers a little more carefully.

I got attentive to this stuff, I would say probably in late 2021, but the job numbers started to look a little bit funny to me. There are two general surveys. One is of households, call up the household and say how many people in your household are working. Then you have the numbers from the payroll numbers, you know, like how many people you are employing, the establishment numbers. Those are two different ways they try to come up with some approximation for the jobs, you know, because we just actually, there is no all-seeing eye out there that knows all things, so everything is an estimate, right, and subject to all the exigencies and uncertainties associated with statistical probabilities and all these things.

Well, there began to be this divergence between the household numbers and the establishment survey. They began to split further and further apart, and it turned out that a lot of the reason was that there were double and triple counting jobs in the establishment surveys. You know, you fire two part-time workers, two full-time workers, and hire five part-timers, that looks like an explosion in job creation. Well, not quite.

If you’re looking at the number of jobs created as a proxy for the well-being of the people, moving from full-time jobs to part-time jobs, full-time jobs for native-born workers and part-time jobs for foreign-born workers, that’s not an overall what you would call a picture of well-being, which is ultimately what we’re all looking for when we look at all this data. We want to know, are we improving as a people or are we not? Nobody says that, but that’s really what we’re looking at. All the rest is just gibberish.

And so we had these job numbers that looked like they weren’t too bad. Oh, here’s job creation, here’s job creation, here’s job creation. But then the numbers were typically revised. There’s a gap between the two sources of data that started to grow and grow and grow for the first time on record and nobody really knew why. And then you looked at the dramatic increase in multiple job holders. I mean, it’s not good news when you used to be able to pay the bills with one job, and now it takes three jobs.

And I started noticing this anecdotally, just hanging around the grocery stores and noticing all the people that tend to ask people questions when we’re shopping. The number of people that were out there doing work for Instacart or these other services, you know, there was just a lot. And then they otherwise had full-time jobs. So there were nights and weekends having to do this.

And I’d ask questions like, well, why are you doing this? Would you rather be home watching Netflix or something? Oh, sure, but I’ve got to have some way to pay the rent, which is going up, right? So this has been a problem. The other thing that’s interesting about this is I’ve been writing about this for years now, and I’ve never, I think, expressed it well. But economists tend to look at the numbers as they roll in month to month and say, oh, they’re up, oh, they’re down. But the psychological impact of inflation is a little slower than that. It doesn’t go month to month, it goes season to season.

When people go out to the store, they might buy a product in November, December and otherwise never touch it. And they come out next November and December and see it. It’s more expensive and smaller and it’s alarming. And so this, the slow dawning of the population that the purchasing power of the dollar has been hitting dramatically over four years has been slow and people keep getting angry.

I’ve lost count of the number of stories I see in that financial press. Why is everybody so upset about inflation? It’s mostly gone. I say not really. The psychological impact on this is just now hitting the population. And this sort of psychological effect has been made worse. And I think what I’m about to say you’ll understand. I think most viewers will understand.

The last four years have been extremely disorienting. We’ve lost track of time, we’ve lost connection to our communities, the stability of our life is so disrupted, our usual families have been disrupted, people have been moving all over the country. It’s been a real sort of sense of like, let’s just get through this and the sense of time has been lost on us.

Now that we’ve entered into a period of normalcy where we’re all better able to look around and remember what normal life is like. And we’re shocked to discover that everything is more or less 40 percent more expensive than it used to be four years ago, and that makes you furious. It doesn’t matter that the latest CPI report says that we’re only losing 2.2 percent of purchasing power a year in the last month.

It doesn’t matter if you’ve faced income losses that are the equivalent of 40 over percent four years with wage increases that are not matching those. It doesn’t matter if you get a raise, if your money’s worth less. You know people get angry about tax increases. They do. But inflation works exactly the same way as the tax increase. It means you have less wealth. And you’re being hit from every end. There have been a number of things about this inflation.

Is the public mood different today about this inflation in terms of discerning cause and effect today than it was in, say, the late 1970s. And I feel certain that the answer to that is that it’s different this time, that people really have a better grasp on the cause. They aren’t typically blaming the local grocery store for their higher prices. That’s not really what’s going on, which is one of the reasons I don’t think the campaign of Kamala Harris really got stuck and said, we’re going to crack down on price gouging.

I don’t think really people blamed their grocery store. They understand. I’m not sure why they understand it, and they didn’t understand it in the 1970s. I’m not sure why that is. But they understand that the grocery store, too, faces higher prices. Nobody really wants this. Your apartment owner doesn’t want to raise your rents. It’s not just greed or gouging going on. If that were true, why wouldn’t they have done that five years ago or 10 years ago?

They didn’t do it. They’re facing higher costs too. They have to pay more for the utilities. They’re facing higher rents. The cost of getting the electrician in to fix things is higher. Everything has gone up. This is what’s called general devaluation and the currency relative to goods and services purchased domestically.

That is what inflation is. It has greeted us in this brutal way for the first time in a generation, and it’s been extremely disorienting. Generally, my impression is that people are not blaming the producers, they’re not blaming business, they’re not blaming the gas stations. Far from it.

They have a sense that something has gone wrong in Washington. It could be the debt, it could be too much spending, it could just be out of control bureaucracy. My own understanding of it traces ultimately to monetary policy. But this intuition that many people have that powerful people are out of control.

Mr. Jekielek:
Well, we’re also in a much higher information society, where we’re kind of, you know, hearing all these different things, trying to sift them through. We have some people helping us sift.

Mr. Tucker:
I agree with that. I think that may be the reason. I mean, what information sources did we really have in the late 1970s when all this was going on? I mean, we got 10 minutes of national news a night on three different channels, and that was about it. We had our local newspapers, and then we had Reader’s Digest show up in the mail once a month. You think about it. That was the world we lived in, you know? And so we didn’t have access to a lot of information.

One of my favorite economists, who I had the pleasure of meeting before he died, is Henry Hazlitt. He wrote Economics in One Lesson which came out in 1946. It’s one of the best economics books ever written. He wrote it after he got basically pushed out, which is a nice way of saying fired, by the New York Times, where he had worked for the previous 12 years, because he was opposed to a lot of the postwar economic plans.

Anyway, he got so frustrated about the lack of public knowledge in economics that he wrote this great book called Economics in One Lesson. And people keep trying to write a better book than that, and somehow nobody’s ever been able to do it. I don’t know why. It’s probably the best-selling economics book of all time by this point. In the late 1970s, he was still working really hard trying to educate the public about the causes of inflation. He kept writing articles, and Reader’s Digest was always publishing them.

I remember a hilarious piece, I should probably republish it, called Inflation in One Page. He tried to explain it as clearly as possible. But that doesn’t seem necessary now. I agree with you. Maybe you’re right. It could just be that we’re surrounded by good sources of information in a way which we haven’t been in the past.

Mr. Jekielek:
You had a piece about a recession that will be backdated, meaning that we’ll really see it in 2025. But it really is just going to be a look back at the real numbers way back to 2022.

Mr. Tucker:
Yes, I think that’s going to happen. And the foreshadowing of that was actually the jobs numbers that came out a week before the election, if not a few days before the election, that showed catastrophic numbers. You know, I think the numbers were so low that it’s negligible. And it’s almost like we’re coming to terms with reality. And again, I’m not entirely sure this is, you know, corruption at the agencies.

There might be an element of that, but I think that as the data collection is getting more honest and recovering from the lockdown period and all the disruption, that we’re just getting better numbers. And the numbers look terrible. I fully expect we’re going to see some revised numbers going into next year, and they’ll recognize that we’ve been in a technical recession for the better part of two years, or three.

Mr. Jekielek:
Let’s lay out what this looks like. Your report is very interesting. 40 percent over the last four years basically is huge.

Mr. Tucker:
Yes, and a technical recession since 2022. I should add something very interesting. When I came out with that report, I fully expected people were going to tear it apart. And when I talked to the two economists who wrote it,
I said, you need to show all your work. I need full citations and everything of everything you do so that your results can be replicated. You know, we don’t want to be like epidemiologists here. We want to show our work.

Mr. Jekielek:
That’s a little dig there.

Mr. Tucker:
And so they did it. And I have to tell you, and that report has gotten vast amounts of attention, not one message, not one hint of dispute of these numbers has come along since we released that
thing.

Mr. Jekielek:
I think you’re postulating inflation is the big issue. Whoever it is that would have inherited this mandate is going to have to deal with that. And it’s not an easy fix.

Mr. Tucker:
It’s not an easy fix. Of course, on the campaign trail everybody says, I’m going to bring prices down. Well there isn’t a mechanism that the President of the United States has to do that. And we can explore various
ideas that have been thrown around out there and it’s fine. It’s fine. I understand.

Mr. Jekielek:
I’ll just throw this out. I think that one of the promises of this new administration, especially with the tech people, with Elon Musk involved, a lot of innovation, a lot of, basically the idea of unleashing prosperity, unleashing innovation, unleashing production. This is always supposed to somehow deal with economic problems, isn’t it?

Mr. Tucker:
You jumped to my conclusion, which is fine. My own view is that it is the best hope for reducing inflation.

Mr. Jekielek:
But that’s what one would think would be a conclusion.

Mr. Tucker:
You wouldn’t normally think that because I tell you, you read the financial press and if you have any point in the last 30, 40, 50 years, what you always hear is that inflation is caused by an overheated economy. You’ve heard this, right?

Mr. Jekielek:
I’ve heard that, but I’ve always found it to be bizarre. And keep in mind, just for the benefit of the viewers, I’m just in the process of learning economics through these wonderful little books like the one you described and
some giant ones like basic economics.

Mr. Tucker:
That’s a big one.

Mr. Jekielek:
But that never made sense to me.

Mr. Tucker:
I’m glad to hear that. I’m glad to hear that. I was hoping we would get to this topic because under the old Keynesian scenario, it was like upside down economics, really. The idea that the economy overheats is a metaphor you get in economics. Why are we talking about overheating? Overheating what? Was there a pan on the stove or something? Is the economy like soup? Anyway, overheating drives inflation. That is simply not true. And you just only need to look at the logic of supply and demand.

If you can increase the supply of goods and services and the same amount is being, and the demand remains the same, then that’s going to reduce the price. I mean, it just is. You’re going to get lower prices with more production rather than higher prices. That just remains true. A greater amount of productivity and growth is going to have overall an effect of downward price pressure. That’s a good thing.

Mr. Jekielek:
But what is this argument for overheating then? Because as I said, it doesn’t come intuitively to me to imagine that someone would. You said people would argue this, and you made an argument against it.

Mr. Tucker:
It has to do with what’s called the old IS-LM framework of Keynesian hydraulics.

Mr. Jekielek:
Way over my head.

Mr. Tucker:
Truly, you can read the general theory of Keynes’ book from 1934 and read all about it. But basically he turned classical economics upside down and shoved all sorts of new aggregates together that don’t belong together and posited a new operation of a new machine that would require experts to manage everything, whether it be inflation, unemployment trade-off with
so-called Phillips Curve, so you could drive one down by driving the other up. And just all these crazy things, aggregate demand, aggregate supply. And it just enraptured a generation of economists or two or three or four.
And we’ve yet to kind of unplug that from the public mind.

Mr. Jekielek:
But the bottom line, you’re telling me that there just isn’t a good argument for this. No. At all. So we don’t need to consider it.

Mr. Tucker:
No, I think that’s right. And if there’s one takeaway, I would say that economic growth mitigates against inflation.

Mr. Jekielek:
Again, but to me, that’s the intuitive, obvious thing that one might expect, right?

Mr. Tucker:
Yes, which reminds me, one of the raps against the Trump administration that I’m hearing right now, it whispered in my ear, he doesn’t have enough economists advising him. Now, you’d think my response would be, oh no, that’s terrible. Maybe that’s my first response. My second response is, hmm, maybe that’s not so bad. Do you know what I mean?

Mr. Jekielek:
You have people that are enthusiastic about building things. I mean, this is, well, here’s a huge topic, right? The gutted manufacturing sector of America that everyone that I’ve talked to that I’ve found credible
tells me, and again, it’s kind of intuitive, this must come back. There’s no winning scenario without that.

Mr. Tucker:
The manufacturing problem is a big problem because it traces back 40 years. And it’s fascinating to me that we’ve gone 40 years and gutted the country of dozens of industries for which we once had all the infrastructure, all the institutional knowledge, all the talent, all the skills, and all the markets, and all the supply chains, and now they’re all gone. That is an incredible thing to have happened to a country.

I look back at my own writings and with some degree of shock that I would write about this and I used to believe the old line that this is just free trade at work. I read it now and I can’t believe that I was the writer of those things, because it’s not correct. I’ve spent some time revisiting the works of David Ricardo and and David Hume, the early trade theorists, and then also a man who I count as a mentor, Gottfried Haberler, who was largely the architect of the General Agreement on Tariffs and Trade after the waning years of World War II, who gave us the free trade world.

They never anticipated anything like this would happen, because they expected there would be this sort of flow mechanism that would go back and forth, this specie flow mechanism that imports and exports would balance out based to the flow of gold would cause prices to rise in one country and discourage exports and then they would fall in another country to encourage exports. And so there would be this kind of flow mechanism that really did, it broke at the same time that American manufacturing began to leave our shores. And that would have been after 1970 or 1971.

Mr. Jekielek:
Well, when you’re talking about these flows, it reminds me of, if you read Robert Lighthizer, the former and possibly the incoming, I mean, if I was going to guess, I would guess he’s going to play a very important role in trade policy. But his philosophy is simply this, as I understood from his book and confirmed from speaking to him, is simply that if there’s a sustained trade deficit between two trading partners over time, of course, there’s going to ebb and flow over short time periods. But ultimately, then someone is gaming the system. You’re going to use the tools in your arsenal. One of them is tariffs. I saw a headline recently mentioning an arch protectionist.

Mr. Tucker:
These terms are thrown around a lot.

Mr. Jekielek:
But as I understand it, the tariff is simply a tool.

Mr. Tucker:
I would argue that it’s probably a bandaid. But it’s also an inevitable result. You’re going to have tariffs under these conditions. You’re just not going to continue to experience these kind of blood-bred increasing trade deficits
forever and see our country go from a nation of makers and doers into a country of debtors.

Mr. Jekielek:
You see why I’m discussing this topic, because you kind of need that for there to be economic prosperity in the first place. It seems obvious.

Mr. Tucker:
So I think what you really need is what the market asks for, but what I’m suggesting is that it’s an unnatural situation where you have a country with all the infrastructure, all the skill, all the markets, all the supply chains, and all the innovation, all the energy, and just be depleted like that. I mean, this looks like the work of some sort of mercenary army that came in and just gutted major swaths of the country. I have doubts that there’s any point in trying to restore it exactly as it was.

But nonetheless, there are ways in which we can inspire the creation of a new manufacturing sector, and I think we’re poised to do that. I don’t think tariffs alone are going to achieve that. And I’ll tell you, just very quickly, something that I think I wrote about in the article is that there are a number of motivations for tariffs. One is to raise revenue, and Trump’s talked about that, and mercifully even raised the prospect of going back to an 1880s, 1890s kind of situation where there’s no income tax and that all revenue funding the government comes from tariffs. And I have to say that sounds like a decent trade-off to me. But that requires a revenue flow.

On the other hand, the goal of protecting our industries from what people call unfair competition from abroad requires less trade. So if you’re doing the tariffs for purposes of revenue, that is potentially at some point working at cross purposes with your desire to use tariffs for protecting industry. You see what I mean? So the revenue requires a continual flow of trade. The objective of protecting your industry against low wage competition from abroad requires throttling down trade so there’s some magic point in there that you get the maximum of both effects which I presume is what Trump is going for I’m not sure that we know exactly where that is I certainly wouldn’t.

Mr. Jekielek:
The most memorable image to me right of the last I don’t however long is this 12-story rocket rocket landing in these calipers and the innovation that it took to achieve that. And the reason that it could exist, that there’s this thriving space industry in America, a significant portion, is because they protected them for the Chinese regime’s predatory practices
on everything else.

Mr. Tucker:
Are we sure about that? I mean, but that’s got to play some role, surely it does. But there’s also, you know, the innovation and the mind of Elon Musk.

Mr. Jekielek:
Well, no, so that’s all absolutely the case, right? But I think there’s, I think the way that the Wolf Amendment worked was it just said, you know, this is a very sensitive area of technology, you just can’t work with Chinese companies on it. So in other words, there wasn’t that technology transfer deal that happened every single time you made a partnership and worked together. It just kept that innovation at home a little longer.

Mr. Tucker:
Of course. Which I understand. Something like that happened with the steel industry in the United States in the 1880s and 1890s. But you know, we also need to, when we’re speaking about China, we should not forget the basis on which China is expanding its industrial capacity with a direct purpose of competing with the US with a low-wage, high-tech model to eat American industries. The basis on which they’re doing that is in large part, in substantial part, funded by their stash, gigantic stash, of US dollars sitting in their central bank, US dollar assets in the form of US debt. Those are serving as the basis of their industrial production model. They copied the whole scheme from Japan.

In both cases, they’re serving as collateral for expanding their industrial base, for their own form of industrial planning. And it’s a simple model and a cheesy one. What is America doing? Let’s eat it. That’s it. And that’s what’s happening right now with all the green energy stuff under Biden. The US decided gave up toys and shipbuilding and tools and steel and textiles and clothing and household appliances and semiconductors. Too bad.

But now, we can have solar panels and other things associated with clean, green energy like wind turbines. That has been fun, I suppose, while it lasted, but that’s not going to last very long. China is all over it. It’s crazy. That is not sustainable. We have to remember too, that all those industries in the US are entirely subsidized by the federal government.

Mr. Jekielek:
Including the EV market, I might add, which has, by the way, seen a ton of innovation that’s remarkable.

Mr. Tucker:
But not as much innovation as we see in China, reportedly. So I don’t know. And also that’s being dialed back because of the lack of market. I mean, Elon’s really the only profitable producer in this sector. But yes, I should have mentioned that. But I’m trying to figure out where the Trump administration is going to go on this. It’s a decent guess and assumption that they’re going to unplug all that stuff, because it’s only sustained by federal subsidies. That’s what he means by drill, baby, drill. It’s not just drilling oil, which he says liquid gold is under our feet, and it’s true.

I’m from West Texas originally. When I go back home, driving across all those miles for hours and hours and hours, knowing for sure that there are oceans of oil under our feet, over expansive, and seeing the landscape entirely populated by these wind turbines everywhere. What are we doing? We’ve got wind turbines all over the place killing the birds and everything else. Well there’s oceans of energy under our feet. It’s like on the face of it. It’s obviously crazy. Trump has talked about this openly. I’m guessing that we’re going to unplug the green energy stuff. But also the other thing is that once you end the market for that, that also unplugs China’s market for that nonsense too.

Mr. Jekielek:
Is it all nonsense, really?

Mr. Tucker:
Some people say it’s nonsense. It’s just overblown.

Mr. Jekielek:
The idea that it is subsidized for a good cause.

Mr. Tucker:
I don’t know. I have my doubts about central planning, that Washington knows what kind of energy we ought to use. I mean, it doesn’t really make sense to me. And by the way, I would say the same thing. There are some people that exaggerate the merit of oil and gas, you know, so-called fossil fuels. You can get carried away with that. I’m a believer in markets. Let’s let the markets decide. Let’s subsidize things as little as possible and see what naturally emerges in the most efficient production. But for the US, I don’t think it’s going to be wind turbines and solar.

Mr. Jekielek:
Actually, in the Biden administration, they have started making fossil fuels much more available. And I’ve been thinking about that because I don’t think a lot of people know that. And in a way, I felt like maybe they had to hide it from some of their base.

Mr. Tucker:
That was for one purpose only, and that was to dial back the public fury about the price of gas. That was it.

Mr. Jekielek:
I don’t know if it’s quite gotten to the drilling stage, but it seems like the Trump administration has a head start in this area now.

Mr. Tucker:
Which raises another point. It’s a point about which I could be by the wreckage of the energy markets, and those drove up prices, and those drove up the cost of production, and those prices bleed it out to all the other prices, and so on and so on. Okay, that’s a campaign trail, but that is not a rigorous analysis of the cause of inflation. And it follows that just by freeing up the oil markets and drilling, drilling that’s not going to drive down inflation. It’s not. So I would be critical of Trump for that sort of analysis.
It’s simply untrue.

On the other hand, Trump’s critics are wrong to think that his tariff policies are going to drive up inflation. You hear this all the time. Oh, Trump’s going to unleash inflation with his tariffs. It’s not going to increase inflation. It’s going to increase the price of relative goods and services by those goods that are most affected, namely imported goods. So that does not drive inflation. It’s not the way inflation works.

Inflation is a general rise in all prices due to dollar devaluation. It is not the increase of relative prices of this good or that good. I was alarmed the first time I looked about four or five months ago. I looked at the CPI for imports relative to the CPI for dollar-based goods, and CPI does separate these things out. The CPI for imports has gone up just a tiny fraction relative to, I can’t give you the exact numbers, but maybe it’s been 8 percent over four years relative to 40 percent for dollar-based production and consumption domestically.

The import prices have not gone up. They’re still relatively cheap and they’ve not been subjected to nearly a degree of inflation. The reason is that inflation has affected the dollar, but it’s not affected the value of the dollar relative to other currencies. So with dollars, if you’ve got a handful of dollars, you can decide what you want to do with it. You could save it, you could spend it on goods, spend it on services, or you could buy other currencies.

Inflation measures the value of the dollar relative to goods and services that you purchase with it. But if you decide to buy currencies, that’s a different price system entirely. In that sense the dollar has only risen in value and it’s been rising a lot recently, especially, gosh, the election caused a soaring in the value of the dollar relative to other goods. And by the way, people are to be forgiven for understanding this. Like they open up the financial press and they say the dollar’s up. Oh, the dollar’s down. The dollar’s weak. No, the dollar’s strong. What are they talking about? It depends on what you’re buying.

Mr. Jekielek:
The irony of this is too that it only functions if there isn’t inflation on the imported goods. And I think I remember I was thinking about this earlier. It has the further impact on hurting local production and development and innovation and so forth. So how do you kind of have to exit this weird structure? I guess this is what we’re talking about, structural problems.

Mr. Tucker:
Yes, and I have to say, I’ve been getting texts from a lot of people, and by the way, you know, the religion of free trade is very much a central doctrine of all economics and has been for many hundreds of years. And I think it’s true enough that free trade is extremely important. But everything can be exaggerated. You know, it may not be the first and only principle, and terrorists may not be the worst thing that ever happened in the history
of humanity.

Mr. Jekielek:
But it’s also fair. I mean, again, I’m thinking that this is what I learned from Lighthizer’s writings about trade. It’s not about, it’s about having a fair relationship. Sure, we could absolutely have free trade if we’re working with the same rules and you’re not really trying to take advantage of me. You’re looking to profit and you’re hoping I succeed as well, and vice versa. It’s not a zero sum.

Mr. Tucker:
The problem is that you have the US swearing to provide liquidity to the world as the world reserve currency, and swearing that we’re going to be the strongest currency. Well, all trade models show you that as long as you’re the dominant currency in the world, and the dollar’s wildly overvalued relative to every other currency, you’re going to get massive imports. That’s just one thing that follows the other. So at some point we’re going to have to revisit the role of the dollar in the world economy.

Mr. Jekielek:
I’ll tell you something else. I keep thinking about conversations with Robert Lighthizer, but he doesn’t care, from what I recall, about the US dollar being the reserve currency.

Mr. Tucker:
I’m so glad to hear that. So that is an extremely taboo subject.

Mr. Jekielek:
I know. I was actually kind of shocked.

Mr. Tucker:
He’s right. And I’ll tell you somebody else who’s right is JD Vance. He’s figured this out. So there are a few of us writing about this. Like I write about this in The Epoch Times, I always put it at the end of the article.
Value readers, really make one, revisit this question of the US dollar as the world reserve currency. It’s not working out for us. So it would be nice to have a regular currency, a real currency.

I don’t think there’s anything to regret about this BRICS problem. And we’re going to have to confront this at some point. You can still have a big military power, you can still have a big influence on the world, you can still be the United States of America and be great without always having to face this obligation, be the source of monetary liquidity for the entire planet Earth. We can let go of that one.

Mr. Jekielek:
It allows you to sanction, instead of going to war, for example.

Mr. Tucker:
Right. But that comes at a cost too because look what happened when the US demonetized Russian assets some years ago.That was a shock to the world. Like part of the deal you’re making, it’s like a social contract. When you’re agreeing to be the world reserve currency, you’re not going to shut off the spigot based on your political preferences.

Mr. Jekielek:
The reason that sanctions are used is because this tool exists to avoid having to use more coercive measures. I don’t know, I haven’t thought it through. I haven’t thought through the ramifications of that. But in some cases, what do you do? If there’s actual genocidal behavior, do you treat someone that’s doing that? We do that with Communist China. We seem to do that when we say, okay, we’ll just keep trading.

Mr. Tucker:
Ideally, the best way to influence other nations in the world is to be wealthy and to have an awesome spiritual presence in the world,
to be a light unto nations.

Mr. Jekielek:
I’m with you on that.

Mr. Tucker:
Yes. For good and ill, the world follows the US I mean, it’s just true. I mean, the US has this sort of strangely mystical presence on the planet as the home of liberty, you know, the Bill of Rights and the Declaration of Independence. These are still very meaningful documents. And, you know, America grew implausibly from a tiny little colony of Britain to be this great nation a little over 100 years later. And the world is still in awe of that.

And now, fast forward 150 years after that, and a lot of people looked around and wondered what happened to this country. They’re seeing strange things going on and the election gives a lot of people on the planet the real hope that things can right themselves. And my mind went back to this Mancur Olson book from 1982 where he has a very surprising thesis.

He says the main reasons that nations stagnate in wealth is they turn inward and they get dominated by what he calls distribution coalitions. These are tight networks of industry lobbyists, major leaders in industry, working with regulators very tightly who then turn to have tight relations with media influencers and politicians. And they’re revolving doors between them. They all know the rules, and they’re all paying each other, and they’re all members of the same clubs, and so on. This happens again and again throughout history, according to Olson.

And this is what he calls distribution coalitions, and what they do is they cut off the blood supply to the rest of the country. They kind of rig the system for themselves. These are not bad people, it’s not evil. It’s just a lucrative way of operating. It’s what, for lack of a better term, the establishment is. But the problem is the establishment has their own rules of acting, and a lot of times the rules they construct for themselves come at the expense of everybody else.

They know the game. They have institutional knowledge. And it’s hard to enter into it, it’s hard to disrupt it. And not even a new birth and death of the ruling class, not even a new political party taking power can interrupt it. And he says this is what causes nations to decline. And his analysis is that when nations get really wealthy, these distribution coalitions become affordable, and they become organized, and they shut everybody else out, and they drive a nation into stagnation. The question is, how do you get out of them?

He says you have to break up those distribution coalitions somehow. And what I’m about to say, don’t be alarmed by it, because it’s just a historical analogy that he uses in the book. He looks at Japan before and after World War II. It was a nation in decline, filled with distribution coalitions. Everybody knew everybody. They knew how the system worked. And society began to eat itself from within. They went to war. They lost. There’s a cruel policy of unconditional surrender.

But the point is that Japan emerged out of the war with the entire establishment totally wrecked and all the distribution coalitions completely shattered. They’re starting fresh. And that gave rise to a generation of entrepreneurs and small businesses and new innovators working with new technology, with new ideas and a fresh outlook on life and not facing interminable bureaucracies and thick family networks of established interests and things like that. In other words, they had freedom.

Over the next three decades they built an awesome, globally influential, wealthy society that even crushed the US and a whole range of industries, right? And so it was amazing to watch. And he also gives the similar analogy of Germany after World War II, which is what we call the German economic miracle. The reason that happened is not just because we got wise finance ministers like Ludwig Erhard, who was a genius, no question,

But beyond that, what happened is that the industries that had dominated in the war, that had risen up with the rise of the Nazis, were all destroyed. And suddenly you had opportunities presenting themselves after the war for small business, for manufacturers, for new ideas, a new generation coming along with a brighter outlook on life and a determination to remake the society, right?

And we saw growth like we’ve never seen before in Germany, and that lasted for, again, 20 or 30 years. It’s a little bit of a shocking story and it’s a disorienting kind of theory because it doesn’t fit into anybody’s models. In other words, it was created by shattering the old distribution coalitions.

Mr. Jekielek:
Another term that comes to mind is you’re leveling the playing field.

Mr. Tucker:
Yes, so to speak.

Mr. Jekielek:
But the Japanese had one extra bonus. The Japanese generally like their way of doing things. For anyone that’s been to Japan, that’s very obvious. However, if you demonstrate unequivocally that you’re better, then they just say, okay, we’re just going to adopt your system. They did that with the Americans, just like they did in the Nara period, corresponding to the Tang Dynasty in China. They adopted the religion and they adopted the architecture.

Mr. Tucker:
But they were free to do that, right? You can’t adopt a new system if you’re stuck in that old way.

Mr. Jekielek:
It’s fascinating. But there is also this horrible destruction part to it.

Mr. Tucker:
That’s right. But also, I don’t think it would have ever been possible for Japan to engage in this mercenary trade behavior were it not for the dollar liquidity that they figured out. But that’s a separate subject. I think this Mancur Olson story of the stagnation that comes about from too tight an establishment that’s sort of rigging the game for themselves, and then the consequences of an explosion that blows it all up, could also be applied probably to Korea, probably to Vietnam, probably to many different countries.

Maybe that’s applying to Argentina right now, I don’t know. Maybe we’re seeing that’s where it’s at. He died a long time ago. Mancur Olson died a long time ago. But this book, I think, is really interesting because it goes against all the models, right? I mean, because what you’re talking about
is an unpredictable wealth effect from institutional disruption. It’s like, wow, now opportunities are presenting themselves. Where are all the rules? They’re all gone. How come somebody threw out half the federal registry?
I mean, the federal code, which they’re talking about, just doing a bonfire of the vanities over this kind of stuff. If that’s true, we could see an explosion of wealth in this country like nobody is predicting. They’re not going to be in any of the forecasts. I hope that some people within the Trump administration revisit this book and gain some inspiration from it. Because this country is filled with brilliant, passionate, ambitious, entrepreneurial people who are just waiting to do great things. And they haven’t been allowed to.

A lot of what we’re faced with right now is like what Vivek Ramaswamy talks about. It’s just this terrible thicket of compliance. If we can revisit that thing and really do something dramatic and big, which the Trump administration is talking about, we could see all the problems with inflation, with the factoring problem, with the growing budget deficits and the trade deficits and all the problems that people talk about.

We could see all that just pushed aside and overwhelmed by an explosion of wealth creation and entrepreneurship and innovation and optimism and happiness and joy that comes with that old-fashioned idea of freedom. So if that happens, the Trump administration in a few short years could go down in history as having been the shepherd of the greatest economic recovery and comeback, certainly in the 21st century, but maybe ever.

Mr. Jekielek:
As a biologist having grown up in the biology mentality, you’re never really taught or at least maybe I missed it. You’re not taught that you can increase the size of the pie. There’s very limited resources, unlimited growth is impossible. You’re just going to run, you’re going to deplete everything. It’s going to be a disaster, it will be Easter Island, all that kind of stuff.

Mr. Tucker:
Yes, you think like an accountant rather than an entrepreneur.

Mr. Jekielek:
Exactly. But isn’t the whole point of prosperity increasing the pie?

Mr. Tucker:
Yes. This is a great question that it occurred to Adam Smith to ask. He called his book The Wealth of Nations, and that was the question. There was an inquiry into how it is that when nations get wealthy. Britain was already a century-and-a-half into rising wealth, but now there’s a middle class. And he was insightful enough to understand that just because the cities are not as beautiful as they used to be, it may not indicate they’re less wealthy.

It may in fact mean that more people can survive off the existing system, so people get older, live longer than they otherwise would. People who otherwise would have been sick and rotted are somehow well and walking around. The lifespans were increasing, income was growing, everybody was moving to the city out of the country because they had money to spend for the first time, an opportunity, and they had houses to move into.

Mr. Jekielek:
There were vacations all of a sudden.

Mr. Tucker:
Yes. It was just unbelievable. A move out of the transition from feudalism to modern capitalism in the 18th century was a dramatic one. But, you know, it took several hundred years. But Adam Smith’s answer was fascinating. That’s why the book is so fascinating. His answer is ultimately just so nerdy and boring. His conclusion is that wealth comes through what he calls the division of labor, which is that we learn to cooperate better with each other.

That type of human cooperation is made possible through things like the institution of money, the building of factories, specialization, getting better at certain tasks, and relying and depending upon other people to do things you really don’t have time to do, and making your work contingent upon their completing their tasks. This gave rise to this bourgeois spirit, so that was his answer to visual labor. In the meantime, we have other pieces to the answer. One is entrepreneurship.

Mr. Jekielek:
Ultimately, technology is a highly cooperative endeavor, over generations.

Mr. Tucker:
Yes, it’s remarkable. The growth of knowledge. Hayek says this is the ultimate form of knowledge. What a thinker. But his answer is the growth of knowledge, which is multi-generational and embedded in the structures around us. That is how we get smarter, maybe not as individuals, but as a people. That’s where wealth comes from.

I feel the need to jump back to Mancur Olson. I’m afraid that the way I
presented his thesis is a little alarming, like we have to have a nuclear bomb drop on us before we can get wealthy again. That’s not what I’m saying. You see it in microeconomics too. Look at what happened to Twitter after Elon took over.

He walks in the front door with a sink, which I think was supposed to be like, let this sink in or something. I’m not sure. He’s got a funny sense of humor. He goes in and over the several weeks fires four out of five of the employees. Now, this is insane. Who has ever done this?

Now I can promise you every CEO in the country is looking at this going, I wonder if I can do that too. But the beautiful thing was, yeah, there were some hiccups and disruptions along the way, but in the course of what, I think it’s been about a year since then, so now X is the number one news app in the world.

He’s got an open source AI language model running out there called Grok. He’s paying all the creators. Arguably, a lot of people think it’s the most important news social media platform in the world, hands down, just by eliminating the censorship and cleaning out what programmers
call the cruft in the company, four out of five employees.

Cruft is the word that programmers use for old code that is no longer necessary. This happens when you’re coding programs. You write some code, then you write more code, you write more code, and then pretty soon the program’s operating off all the new code, but the old code’s not gone. So it’s there, and it’s mucking up the efficiency of the new code.

So a major job of programmers is to dig through the old code without disrupting the new code. That’s called decrusting. You know, you want to get rid of the cruft in the program. It’s not always easy, sometimes it’s dramatic. You have to see what you break before you can really fix it.

The experience at Twitter, turning it into X and becoming this awesome thing, is an example of what Mancur Olson talks about, and the need for profound disruption of existing distribution coalitions and networks that are ruining the company. I mean, you hire more employees, you think you’re going to get better. What if you’re just piling cruft on cruft on cruft, and then pretty soon the thing doesn’t work anymore? And that’s where we were. But there seem to be plans for something very similar applied to the public sector.

Mr. Jekielek:
Right. There’s a lot of excitement for some, and there’s a lot of alarm for others.

Mr. Tucker:
Well, I think there’s ways to mitigate this, and Vivek Ramaswamy has thought about this a lot. I think it’s this very interesting idea of severance that would last 18 months for the employees of agencies that are eliminated, whole divisions gone. And that sounds right to me. That sounds right to me, 18 months is plenty of time for talented people to find other ways.

But something has to be done to achieve this Mancur Olson effect on this country, which is just overburdened with so many regulations, so much confusion and contradictory rules everywhere. Nobody can possibly keep up with it. And you can’t fully appreciate it until you’ve tried to go into business and you’re just faced with an unbelievable thicket of compliance that’s just overwhelming. So I think a Trump administration may understand this.

I just finished a piece on this Olson book as I was getting off the train. I couldn’t wait to tell you about it because I knew you’d be excited to hear about it. I just hope that the Trump administration revisits this classic work, which I think is unnecessarily obscure and hasn’t been sunk deep enough into the mind of economists in this country who are obsessed with the models and their numbers and their overly rationalistic comprehension of the way the world works. Sometimes a little bit of chaos can lead to glorious results. Elon proved that at Twitter. Maybe Trump’s about to prove that vis-a-vis the public sector too.

Mr. Jekielek:
Jeffrey Tucker, such a pleasure to have you on the show.

Mr. Tucker:
Thank you, Jan.