Bloomberg Audio Studios, podcasts, radio news, long agoing far away. A wonderful person who was a great supporter of mine in the early years at stan Freeburg was Fred Burston and he was at the Peterson what became the Peterson Institute. The toughest job was to pick up from Fred, and that is what Adam Posen has done with grace. To say the least. The only one working harder than Adam Posen at the Peterson Institute is Chad Bone, who hasn't a day off since time began. As we look at
this trade mess, we're in bonus round. Adam Posen is expert on the German political economic experiment. Doctor Posen, thank you so much for joining us today. If Doug err went up at Dartmouth was to rewrite his history of the tariffs and all, what would Doug Irwin? What would Adam Posen be writing right now?
Thanks Tom for having me back. And everyone should read Chad Bound and Doug Irwin's new piece and Foreign Affairs that just came out on tariffs. Doug has made the point repeatedly their charts on THEEPIE website that this is historically unprecedented. You really have to go back one hundred years, ninety plus years to Smooth Hollie to see anything like this in terms of the size scope of tariffs. But
even more so, this is much more uncertain. As he's pointed out Chad, Mary Lovely and I in various ways, this is an exercise of discretionary presidential power. I'll leave aside the constitutionality or the issues of politics, but just from an economic point of view, in the past, when there have been large moves of tariffs, it's mostly been
in the US because Congress has authorized them. This is being done day to day or as justin Wolfer's joked intra day changes on presidential whim, and that creates even more uncertainty. Take them what Doug would say, We're in new territory and at ain't pretty.
Professor Erwin joining us from Dartmouth will do that on Friday here in Bloomberg Surveillance. Doctor Posen, as simple as I can. Krugman with his Nobel speech would look at the microeconomics of the moment and it'd be a lot of fancy Adam Posen talk. Forget about it. What's the dead weight loss for our audience right now? Our audience in Winnipeg, our audience in Wisconsin. What's the dead weight loss given all of.
This on the order of one thousand plus dollars a year for the average household, higher for lower income households. And that doesn't include the hits to retirement funds or the going forward the lower opportunities because investments getting chilled. Direct hit is on the order of one thousand dollars per household. You could argue if the tariffs get stick or if they put on the across the board tariffs, it gets closer to fifteen hundred to two thousand dollars a household.
Adam, I'm hearing the recession word more and more over the last several weeks. Is that in your cactus anywhere?
So? I've been saying for a while, the hell did. I was expecting a large boom and then fed induced bust under Trump. But I always held out that this was a radical enough program that it was bimodal, meaning again simple talk, it wasn't going to end up in the middle. It was going to be one of two outcomes. I had the recession probability only at like fifteen plus percent,
so no different than anybody in a normal time. But what I kept saying, and this may have been a hedge, but it turns out to be reality, was if Trump administration overdid it on tariffs, on migration, on fiscal follies, that that would swap us into the tariff around the xused me into the recession camp. I've up my recession subjective probability to thirty percent. I still think it's more likely than not we get a boom bust. But you throw in the geopolitical shock, which is enormous and which
really changes the game for Europe and for everybody. And then you throw in the fact that Doge shutting down environment education in USAID. I may not like, but I expected that throwing a miasma of similar uncertainty overall government contracting, all government workforce has huge effects. So, yeah, the recession risk has gone way up.
From some of President Trump's policy people, We're starting to hear more and more discussion that what the President is aiming to do is to kind of reshape the US economy to bring more manufacturing back to the US, and some folks are concerned that that's kind of counter intuitive to what we've experienced over the last fifty sixty seventy years of more of a globalization and and at least in the US economy, focus on the services part of
the economy. How do you view this potential pology policy shift for the US.
I view it as a very mistaken policy shift for two reasons. First, in line with what you said, increasing manufacturing employment or literal production within US borders isn't necessarily
a good thing. If they want to force Americans to do rare earth's mining or production of generic pharmaceuticals, those are steps backward for US workers, and so you would either have to vastly overpay, which then makes it totally uncompetitive internationally and totally in inflation for the domestic household, or you're just subjecting American workers to bad jobs that were too well endowed and skilled to do. The second reason, though,
is it's just not going to work. My colleague Robert Lawrence, who's at Harvard and Peterson Institute, had a book out fall called Behind the Curve, which I think established brilliantly that even if you fantasize about going back to nineteen fifty eight and a bunch of guys getting to be big bread owners, breadwinners, for their families with no education,
which there's reasons you might like that. It's just not going to happen because the total taste of the world and the movement of technology for that globalization has made it impossible to create large numbers of manufacturing jobs of that sort. So it's a bad goal and it's not going to work.
We continue with Adam posing the Peterson Institute again. Doug Irwin with us on Friday from Dartmouth. Breek Krona coming up as well from Wellington. Good morning across the nation. Good Morning ninety two to nine FM in Boston, and I'm down to ninety nine one FM in Washington, DC as well. Adam. We got a good amount of time here. I want to slip this in. I think it's so important.
Robert Zelik is somebody that I think more than anyone, takes our international economics and our sense of constructive globalization and folds it into American business. He's been on fire recently. What's the message you've taken from one of our trade giants.
I agree Robert is Bob Zelek is here out of me and is a statesperson of the longtime ideal for the US and he integrates diplomacy, history, security economics like nobody.
Okay, here's a sentence, and here's a sentence. The zero sum logic reverts back to a view in the nineteenth and eighteenth centuries called mercantilism. Is that's from Zelek? Is that where we are this morning?
Yeah, that is where we are. I mean when you listen to the president, President Trump give the rant he gave yesterday about Canada was very unfair. You EU is terribly unfair, on and on an on again. I don't presume the tok psychology, but as a matter of economic facts, it's just a completely self polluted view. It's not true on the facts, but it only makes sense if you have the mercantilist blinders on, which means you see trade
as negative some not even zero sum. And you see, again going back to the previous comment that only making physical stuff matters, and this is just not true. You can make national security arguments and Bob would allow for this too. That specifically referspect to China or given industry like semiconductors. You don't want to have too much concentration
risk dependence on a particular thing. Even there though you don't want to be putting up barriers around, so you're dependent on some American company that happens to be a friend of the president's and is overly protected, too big to fail and makes plains to drop out of the spy or semiconductors don't really work right, So you know,
this is a huge step backward. Where I think Bob is much more articulate than I'm being is the international systemic part of this, right, There is a feedback loop for the US, and this is what I think Trump and his and Bessentin has it. Whether they know it or not, whether they think it's a means to an end or not, I don't know, but they're ignoring that.
The US, as I argued in Foreign Affairs a few years ago, was chairman of the club and therefore got to set the rules, got to self deal, got to determine who was members, but it had to behave within some reasonable set of rules and provide the club some benefits. And once the US just says I'm a member and a member who may even leave the club, the club goes on without you.
YouTube live chat, thank you out on YouTube. Huge audience this morning. Paul Sweeney, Tom you need a beard like Adam posts.
Oh there, I mean there it is.
Adam's not shaven until the red sox in first place. We'll see when that happens.
Continual, sustainably in first place.
Sustainably in first place. Hey, Adam, I think most Americans would agree that this US government, federal government is bloated, it's bureaucratic, wh's red tape, all that good stuff. Is Doge. The way to address that.
Not so far. I mean, Paul, You're right, most Americans would agree, and there's certainly a point there. I think what I tried to say to people before Doge got started was the issue with government isn't so much waste fraud. It's that because of politics, every task has seventeen key performance indicators, has seventeen different constituencies, and then gets funded to seventy five eighty percent of what it needs to do. That at best, and so what you needed to do.
And this is the place where I think an outside government reform effort could have been good is saying, let's prioritize, not let the accumulation through the years of individual, little congressional or special interest moves determine our budget. Determine our priorities. So again, I'm not in favor of getting rid of education, and I'm totally against getting rid of USAID. But in a sense, as a process, if they had just come in and said we're taking out this whole department and
we're doing this instead, that's okay as a process. It's not okay to create terror across the workforce. It's not okay to make government contractors not get paid for stuff they've already done and not know what they're going to get. It's not okay to blow up whole ecosystems just because
they're in government. And most of all, if you did it by priorities, things like energy grid, nuclear power experts, air traffic control, and NIH directly into World R and D, those things would have been spared because they're directly helpful to the economy.
Adam, I got to do an audible here before we let you go. And you know, we all know in academics that you are expert on Germany. Let's go back to June in nineteen sixty three, when time stop. President Obama reducts JFK's unbelievable speech in the heart of the Cold War, want ready for my German Paul I nailed it, not even close. Oh I got a D minus there, But the professor got hockey tickets, so it worked out.
Adam Posen, you are expert on this. Is this a Germany in this new Germany with Conrad at an hour and Villi Brandt, would they recognize it?
They'd have trouble, and that's a good thing. They would have trouble imagining a Germany that pursues security without being totally reliant on the US. They would have trouble imagining a Germany that does use it fiscal capabilities more more than not. And they would have trouble with the Germany that explicitly is going to rearm. But I think it's the right move for Germany. I mean, you've seen the
meme on Twitter Tom that Chancellor Chancellor Merits incoming. Chancellor Merits is shown with the big smartest face, and then the blurb is when you realize you can borrow just like any other European country. You know, this is genuine progress. It's sad that it took the threat to NATO and the threat from Russia in the US to make it happen, But I think this is a genuine leap board as opposed to previous Chancellor Schultz. Site and benda changed, changing time. This is the real one right now.
Generous conversation, Thank you so much. Folks. Look at Chad Boone and the rest at Peterson Institute for terrific thought provoking essays in the chaos of where we are now.