What Derek Thompson Is Missing About the Trump Economy
Plus, Talmud on Harvard President Garber; Fed blames tariffs for its cost overruns
A Substack writer named Derek Thompson is getting a lot of traffic with an article headlined “The US Economy Was Supposed to Be in a Recession By Now. What Happened?” He has a four-part answer that boils down to some of the Trump tariffs haven’t yet gone into full effect, the tariffs aren’t large enough to kill the whole U.S. economy, Fed Chairman Powell has heroically combated tariff inflation, and the predicted recession is on the way and eventually will arrive in force soon as Trump’s tariff policies take full effect.
It’s funny, because to explain what is going on, Thompson goes back to the same crowd of so-called experts who were incorrectly gloomy.
Here are 12 factors that support an optimistic outlook for the economy and that Thompson does not mention in his article:
I group them broadly into two factors—Trump-related and non Trump-related.
Trump related:
1) One Big Beautiful Bill tax cuts encourage capital expenditures by businesses (full immediate expensing) and put cash into pockets of consumers, encouraging work (no tax on tips and overtime) and purchases (auto loan interest is tax deductible). Individuals and businesses will use the money better than Washington politicians.
2) Generally pro-business and deregulatory climate relative to previous administration.
3) Energy exploration (“drill baby drill”) and Trump support for nuclear energy lowers energy costs, as does Trump-Israeli removal of Iranian nuclear threat.
4) At some point Fed Chairman Jerome Powell and his board will either cave to Trump’s pressure and to reality and cut interest rates, or they’ll be replaced or supplemented by other board members who do cut rates.
5) The Trump tariff deals are also opening other markets for U.S. exports.
6) A lot of the negativity was just partisan noise from people in demographic groups (college graduates in coastal cities) who don’t like Trump and whose economic forecasts were skewed by their politics and amplified by a press that shares the hostility to Trump and benefits from negativity bias of readers more likely to click on bad news.
Non-Trump related:
7) Wealth effect from two-and-a-half years of stock market gains boosts consumer confidence.
8) Artificial intelligence and smartphone/mobile app revolution fuel productivity growth. As I mentioned the other morning on Fox Business’s “Mornings With Maria” show, I was in a Walmart last weekend in Ware, Massachusetts, and I asked an employee where I could find a laundry bag, and she took out her cellphone, said “laundry bag” into it, and it spit out the exact location in the store where it was along with directions on how to get there. Even the non-tech companies are now tech companies.
9) Many of the other places in the world are doing worse than America is. Many of them are shrinking demographically because of a birth dearth, with declining working age populations trying to support lots of retirees. Europe is struggling with socialist legacies and restive Muslim populations. Russia has sanctions issues and a costly war in Ukraine. China has the burden of Communism and the drag of the U.S. finally moving strategic supply chains elsewhere. So America remains an attractive destination for global capital and investment.
10) Rise of non-bank lenders means growth capital is dynamically available.
11) Labor is also dynamically available. Even with Trump immigration enforcement, people can pick up extra work by driving for Uber, shopping and delivering groceries with Instacart, putting together Ikea furniture with TaskRabbit, delivering packages with Amazon Flex.
12) GLP-1 inhibitors creating a more healthy population with less diabetes and obesity.
None of this is a guarantee of never-ending strong U.S. economic growth or no recession. There are also potential negative surprises and trends that I am not mentioning here. And there may also be some positive surprises and trends I am not mentioning here (the comments are open for paid subscribers to add their own). But there’s a lot going on in America and the world beyond the Trump tariffs. Thompson gets at this a bit when he mentions that the U.S. economy is large and resilient relative to whatever drag the tariffs are imposing, but that point is somewhat in tension with his claim that a tariff-induced recession is just around the corner.
Anyway, I’m not a huge tariff fan or a Trump-can-do-no-wrong person. I was bullish even before the Trump administration. See this January 2, 2023 New York Sun column, and this one from March 19, 2023, headlined “Pervasive Bearishness Looks To Be Unwarranted.” (See also, “Trump and Vance Could Crash the Stock Market,” July 18, 2024, which said, “People said before the last Trump administration that it’d be disastrous. Apart from the pandemic, which was beyond Trump’s control, his first four years turned out better than the press and the ‘experts’ predicted, which is one reason Trump now appears to be cruising to a win over Biden. Some of the warnings this time around, too, are surely overstated. With luck, the Trump positives on lower taxes and less regulation, including opening up more domestic energy production, will far outweigh the possible negatives. That’s the likeliest scenario. But it’s worth understanding the other scenario, too. It’s lower probability, but if it happens, it won’t be pretty.”)
Juxtaposition of the Day: From Franklin Foer’s July 18, 2025, Atlantic article profiling Harvard president Alan Garber, “Can This Man Save Harvard?”:
As provost, Garber rarely voiced his concerns about the emerging zeitgeist. And the lesson of Larry Summers—the Harvard president overthrown in 2006, in part for his criticisms of the campus left—suggested that challenging the prevailing politics might doom a career, or become an unhappy headline. So instead of acting on his convictions, he largely kept them to himself. He played the part of loyal deputy, helping presidents—Drew Faust, Lawrence Bacow, and then the hapless Claudine Gay—execute their chosen policies, which included robustly defending affirmative action and expanding the university’s diversity, equity, and inclusion apparatus. In 2019, when university administrators modestly defied progressive orthodoxy by denying tenure to an ethnic-studies professor, they sparked a sit-in and a controversy covered in the national press.
During Garber’s time as provost, he told me, he developed a nagging sense that the campus was losing its capacity for difficult political conversation. As the social movements of the day—Black Lives Matter, #MeToo—took root, he grew alarmed at the tendency of students to demonize ideological opponents.
From the Babylonian Talmud, Avoda Zara 18a, recently covered in the “Daf Yomi” cycle of page-a-day Talmud study: “the Sages stated: Anyone who has the capability to protest effectively the sinful conduct of another and does not protest is punished for that person’s sin.”
Tariffs and the Fed renovation: “Federal Reserve staff blamed tariffs and inflation for the high cost of the renovation of the central bank’s headquarters on Thursday,” the New York Times reports, “The project is about $700 million over budget.” Axios has a similar report that “Central bank staff also told reporters that tariffs and inflation helped drive up the price of the project.”
It seems odd for the Fed to claim that it’s too soon to cut interest rates because the full effects of Trump’s tariffs on prices is still unknown, while also blaming the Trump tariffs for a $700 million cost overrun on their headquarters renovation project. It’s now a $2.5 or $3 billion project. A lot of the cost must have been imported materials for these tariffs to have had any significant impact on the overall cost. The Fed website says “Materials and equipment for the project are sourced from 32 states and the District of Columbia. For example, structural steel for the project is being supplied from firms in Arkansas, Alabama, Indiana, Ohio, South Carolina, and Texas. Pipe and iron fittings are being supplied from California and Pennsylvania. Electrical and lighting equipment are being supplied from California, Illinois, Maryland, Massachusetts, New Jersey, New York, and South Carolina. Heating, ventilation, and air conditioning equipment are being supplied from Arkansas, California, Florida, and Illinois.” It also says the project “will use new domestic marble.”
Anyway, Ph.D. economists of the sort who staff the Fed do not like tariffs, and it looks like they’ll take any opportunity available—even the fight over the Fed’s headquarters cost overrun—to blame them for adverse outcomes. Instead of applying skepticism to the tariff claim or asking for evidence about the amount of imported materials and the level of the tariffs, the Fed press corps seems content to let the Fed staff just provide this spin on an anonymous basis. It seems petty and political. Instead of taking responsibility for its own cost overruns, the Fed tries to blame Trump’s tariffs for them.
This is something the Fed and Derek Thompson have in common. Anything bad, they can blame on the tariffs. Anything good, it’s because the tariffs haven’t yet fully kicked in. It works conveniently as a retrospective explanatory framework, but it is significantly weaker when it comes to predictive power.
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I’m glad you walked into a Walmart once- they’ve been a technology company for a very very long time. Check out Clayton Christianson’s classic “The Innovator’s Dilemma”- in his thinking, what we think of as the core of Walmart is a disruptive technology.
I know you know people who are actually involved in manufacturing (hi!) have you actually talked to any of them? Six months is far too short to really evaluate any of this, but if you build anything of any complexity, your supply chain is global. I’m all for strengthening US manufacturing, but so much of this approach actually weakens US manufacturing, and the uncertainty makes investing in US manufacturing really tenuous.
Another positive: Rapid increase in the number of dropouts from public education, fueled by school choice and parental rights legislation, will increase literacy and numeracy rates in the younger generation, increasing productivity. The classical education movement emphases character formation and love of Western and American traditions, which should increase the performance of the workforce in other ways. Though increasing productivity is not the purpose of classical or traditional liberal arts education, it nevertheless has positive effects on the economy.