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Grocery prices are going up, we may be dealing with another pandemic, Trump is threatening draconian tariffs and we’re on the verge of deporting the vast majority of the agriculture workforce. So the economy is getting more fragile by the day.
One of Trump’s answer to all that is “drill, baby, drill.” Krugman takes a look at that in his newsletter today:
Basically, any large decline in energy prices would lead to a fall in production, driving prices right back up. In today’s world, U.S. shale oil drillers are the marginal producers — the producers whose decisions set both a floor and a ceiling on overall oil prices. As I write this, the benchmark price of U.S. crude oil — the West Texas Intermediate price — is just over $70 a barrel.
And here’s the thing: any substantial decline in prices from this point would make drilling new wells unprofitable in many U.S. oilfields:
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This doesn’t mean that production would stagnate; it would decline, as older fields get exhausted.
So even if you believe, wrongly, that regulation is a major barrier to energy production, there’s no way Trump can engineer a major decline in prices.
Meanwhile Trump is demanding a reduction in interest rates which won’t happen if inflation persists. At least if the system we now have is still functional. Krugman again:
Right now the Fed is a quasi-independent institution run by technocrats, who set interest rates based on their assessment of what the economy needs rather than taking instructions from the executive branch. But Fed independence rests on political norms rather than any strong legal foundation. Given the fact that Trump has already shut down USAID, a blatantly illegal move, and effectively shuttered the Consumer Financial Protection Bureau, which also looks illegal, it’s surely possible that he can find a way to force the Fed to cut interest rates even in the face of rising inflation.
Critics will point to the example of Turkey, whose authoritarian leader, like Trump, insisted that rates should go down, not up, in the face of rising inflation; the Erdogan regime didn’t reverse course until inflation was above 80 percent. But Trump surely won’t listen.
There’s also another thing populist regimes do when inflation runs hot: lie about it. While Trump isn’t a “populist” in the sense of caring about the working class, he does have a populist-style disdain for expertise. And one way to deal with bad economic numbers is to order the statistical agencies to produce better numbers. Most famously, in 2014 Argentina admitted that it had been deliberately understating inflation for the past 7 years.
Anyone who says “But they wouldn’t do that!” has clearly been living under a rock the past few weeks. We’re already seeing efforts to suppress bad news about infectious disease. Why assume that the same can’t happen to bad news about inflation? I’m just waiting for the day when Elon Musk declares that everyone who works at the Bureau of Labor Statistics is a Marxist who hates America.
I’d guess that’ll happen within the month. Trump said a couple of weeks ago:
“I think I know interest rates much better than they do, and I think I know it certainly much better than the one who’s primarily in charge of making that decision,” Trump said, in an apparent reference to Powell, while speaking to reporters from the Oval Office Thursday.
He took over the Kennedy Center, why not the Fed? He’s a real renaissance man.
I would have thought that the Big Money Boyz would be just a little bit skeptical of anything like that since their own businesses and the markets depend upon accurate information. But so far they’re so excited that they don’t have to think about hiring black people and they can say “pussy” again that they’re fine with whatever Trump is doing.