U.S. Economy Shrank Slightly in Q1

That was fast. Many economists have been predicting a recession as a result of Donald Trump's tariffs. The most widely accepted definition of a recession is two consecutive quarters of negative GDP. Now we have the first quarter in the books. During Q1, GDP dipped by 0.3%. That's not much, but it is negative. If Q2 is negative as well, we will formally have a recession. Here is the quarterly annualized growth rate since Q1 2022:

All recessions are equal but some recessions are more equal (or less equal). If the only people who are aware of the recession are the green eyeshade folks with Ph.D.s in macroeconomics at the National Bureau of Economic Research, there won't be much political blowback. But if we get a humdinger of a recession, with huge job losses, then some folks will sit up and take notice. If a big recession is combined with inflation, then pretty much everyone will notice and Donald Trump will have some explaining to do. He is already blaming the Q1 negative growth on Joe Biden, but we doubt that will work. A recent Marist College poll shows that already 60% of Americans think it's Trump's economy, not Biden's.

This GDP stuff is a bit arcane. There was a big increase in imports in Q1 as businesses and retailers ordered large amounts of stuff to beat the expected tariffs. Imports count against GDP because, well, economists say it does. In the end, what matters is not the arcane math, but whether unemployment goes up and whether inflation goes up. Historically, they usually go in opposite directions most of the time. When people are unemployed, they buy fewer products and companies are forced to lower prices to entice buyers, so prices go down when unemployment goes up and vice-versa. But once in a while, that doesn't hold due to special circumstances.

Not all economic indicators are negative, though. Consumer spending and business and residential investment are up 3%. Personal consumption expenditures are up 1.8%. One indicator that works out differently for different people/groups is the value of the dollar. It dropped about 10% against the euro in Q1. A cheaper dollar makes imports more expensive but American exports cheaper. Walmart does not want a cheaper dollar but Boeing does.

What happens in Q2 will depend a lot on what happens with the tariffs. Will the Dealmaker-in-Chief make a deal with Chinese President Xi Jinping? Who knows? Xi has plenty of cards. (V)

House Bill May Give Trump Sweeping New Powers

The Everything Bill that the House is working on is hard enough to put together as is, but House Judiciary Committee Chairman Jim Jordan (R-OH) is working to make it even more complicated. He wants to give broad new powers to Donald Trump in addition to the tax cuts, immigration, and energy provisions. Jordan wants to weaken the independent agencies, like the FTC, and make them less independent of the president. He also wants to give the president the power to overturn vast numbers of regulations the agencies have written over the years.

Specifically, Jordan wants to turn the regulatory process on its head. At the moment, Congress gets an opportunity to overturn an agency regulation within a certain period of time after it is proposed. Jordan wants to change that to require Congress to affirmatively approve the regulation in advance. For example, if government scientists had strong evidence that some chemical being dumped in the environment by some industry causes cancer, the EPA couldn't ban it. It would have to get Congress to agree to that in advance. This new rule would basically make it nearly impossible for any of the agencies to ban anything, no matter how harmful. Many industries would like that very much, thank you.

Jordan is trying to sell this reversal as limiting presidential power because it reduces the power of Executive Branch agencies and increases the power of the Legislative Branch. It would put rulemaking in the hands of completely unqualified members of Congress, rather than agency experts. It would mean Congress gets involved in every rulemaking decision. Congress can't function as it is, so giving it more things to do would mean no rules ever get made. For many industries, this is a feature, not a bug.

One key issue here is how Jordan wants to do this. If he crams it into the Everything Bill so it can use the budget reconciliation process, Senate Parliamentarian Elizabeth MacDonough might say "Nope" since it is not a budget issue. If Jordan tries to pass it as a stand-alone bill, the Democrats will filibuster it. This problem is why it hasn't passed yet. But a guy can dream, can't he? (V)

Trumponomics Is Filled with Internal Contradictions

Donald Trump's economic policies do not have any consistent vision behind them. In fact, they are contradictory in numerous ways. Here are some of those:

• Are Tariffs Permanent?: Trump has long been a big supporter of tariffs but his reasons keep changing. Worse yet, he claims they are the solution to all (economic) problems, even when the goals are contradictory. On "Liberation Day," Trump claimed that the big beautiful tariff wall (that Mexico would pay for) will bring jobs home. In theory, if done right, that could be true. Then the markets tanked. Trump quickly changed his tune and said the tariffs were merely a negotiating tool to get other countries to reduce their tariffs on American products, even though most countries have almost no tariffs on American products.
  
  These two theories are deeply in conflict. In order to get American companies to build big factories in the U.S. to make iPhones and all kinds of other stuff, they will have to invest billions of dollars and wait 5 years to get them up to speed. If they know the tariffs are permanent (for example, are written into law that no president can change) they might go for it. But if they see tariffs as a temporary bargaining tool that could vanish as soon as the other side makes an adequate concession, no company is going to build a new factory only to see it fail as soon as the tariffs are lifted. Either the tariffs are permanent, to block foreign products for decades to protect investments in new factories, or they are a bargaining tool that will soon be gone. They can't be both.
  
  
• Are Tariffs for Revenue?: Similarly, are tariffs for getting new factories built or for revenue? If Trump makes the tariffs permanent, then U.S. companies may onshore production. But if they do that, there won't be any imports anymore and thus no revenue from tariffs. Getting big revenue from tariffs long term works only if imports continue long term. If American companies build factories in America that can compete with foreign products, then people will buy the American-made products, there will be no imports, and thus no revenue. You can't have products made in America by American workers and also collect tariffs on the foreign imports. Jobs and tariff revenue are inherently in conflict. You can have either one, but not both. What does Trump want, actually, jobs or revenue?
  
  
• The Deficit vs. Spending: Tariffs aren't the only place where Trumponomics has deep conflicts. Trump wants to eliminate the federal deficit. But there are only two ways to do that: spend less or tax more. Trump said he will protect Social Security, Medicare, Medicaid, and defense. If he does, there is not enough spending to cut, so the deficit can't be cut. There is no way to cut spending to eliminate the deficit if all the big items are off the table.
  
  
• The Deficit vs. Tax Cuts: The other way to eliminate the deficit is more tax revenue. But Trump wants to cut taxes, not raise them. He specifically promised to eliminate taxes on tips and overtime. So that approach doesn't work either. In other words, reducing the deficit is impossible if both cutting spending and raising taxes are off the table.
  
  
• Will DOGE Save or Cost Money?: The DOGEys have saved very little so far and one of the cuts they made will probably make the budget deficit worse. They cut IRS staff by 40%. A small IRS will collect a lot less in taxes due to greater cheating and less enforcement. This will increase the deficit.
  
  
• Whither the national debt?: During his 2016 campaign, Trump promised to pay off the entire national debt of $19 trillion. During his first term, he added $8 trillion MORE to the debt. In order to pay it down, the government has to run a massive surplus for years on end. Given that doing it for even a year will be nearly impossible, paying down the debt will be impossible.

It is probably a safe bet that most of Trump's "principles" will be thrown out the window in the end. Tariffs will be reduced to back where they were mostly and the deficit will still be there. Few manufacturing jobs will come back to America and those that do will be in fully automated factories, so labor costs are irrelevant. Taxes will be cut and the deficit will go up. Then Trump will declare victory and go home. (V)

Judge Orders Release of Columbia Student Arrested by ICE

Mohsen Mahdawi came to the U.S. in 2014 and is now a legal resident with a green card. He is a student at Columbia University and took part there in pro-Palestinian demonstrations. On April 14, ICE arrested him at his naturalization interview and has held him since, pending deportation based on a law that allows the removal of a noncitizen deemed to undermine U.S. foreign policy. Mahdawi has not been charged with any crime.

Mahdawi's lawyers challenged his arrest and pending deportation. Yesterday, U.S. District Judge Geoffrey Crawford, a Barack Obama appointee, ordered Mahdawi released immediately while his habeas corpus case continues. Crawford likened the current climate to the McCarthy era of the 1950s. At a packed hearing, Crawford said the government had failed to show that Mahdawi was a danger to the community or a flight risk. Crawford noted that over 125 letters from Mahdawi's neighbors, professors, and friends, some of them Jewish, had been submitted to attest to his commitment to nonviolence. The government complied with the judge's order, so Mahdawi is free for the moment, but his deportation case continues. After leaving the courthouse on his own, Mahdawi said (to Trump): "I am not afraid of you." (V)

Republicans in Disarray

"Democrats in disarray" is "dog bites man." "Republicans in disarray" is "man bites dog." David Axelrod once said: "Presidential campaigns are like MRIs for the soul." Bill Scher thinks the budget reconciliation process is an MRI of the soul of a political party. In the next few months, we will find out what the Republican Party actually stands for. Is it only tax cuts for rich people? Is that the only thing all Republicans can agree on?

In 2017, many Republicans wanted to repeal the ACA. But one critical Republican, John McCain, didn't and they didn't repeal it. There are differences between the Trumpy Republicans and the normie Republicans, but given the small margins, anything there is no consensus on can't be included. Cutting $880 billion from Medicaid might pass the House but is unlikely to pass the Senate. In fact, there is no consensus at all on health care among Republicans (or Democrats, for that matter, but they don't have to draft a bill now).

A complicating factor is Donald Trump. Even if Speaker Mike Johnson (R-LA) pulls off a miracle and gets Reps. Chip Roy (R-TX) and Mike Lawler (R-NY) on the same page about SALT and health care, Trump could swoop in at the last minute and demand something other than what they agreed to. Then it will be back to the drawing board. The reality is that the Republicans really aren't in agreement on a lot except cutting taxes for rich people and reducing the deficit, which are mutually contradictory. One way out is magic accounting, but Roy and the Freedom Caucus don't want that. Actually, even writing a bill that can get 218 votes in the House won't be easy. (V)

COVID Is Still with Us--Only Not As You Think

Political scientists and sociologists often group people by age. For example, Gen X'ers were born 1965-1979, Millennials were born 1980-1994, and Gen Z'ers were born 1995-2012. The assumption behind the grouping is that people born in the same span of 15 years or so had the same experiences and tend to think alike and vote alike. Some new data from the Yale Youth Poll suggests that a more fine-grained approach may be needed, at least for Gen Z. Politico has an interesting article analyzing the results of the poll with respect to the voting behavior of Gen Z'ers, who were 12-29 last year. Since the 12-17 year olds couldn't vote, the voting-age Gen Z'ers were 18-29 last year.

What the study showed is that the 18-21 year olds supported Republicans by 12 points while the 22-29 year olds supported the Democrats by 6 points. That kind of kills the theory that each cohort is homogeneous. The younger Gen Z'ers are much more conservative than the older ones. They are less likely to approve of trans athletes in girls' sports, less likely to support Ukraine, and more likely to support Donald Trump. In fact, 51% view him favorably (vs. 46% of the older Gen Z'ers). Each of these subgroups has a different worldview than the other one.

The article calls the 22-29 year olds Gen Z 1.0 and the 18-21 year olds Gen Z 2.0. Their experiences are different. Here are some of the differences:

Gen Z 1.0	Gen Z 2.0
Age 22-29	Age 18-21
Voted for Harris by 6 points	Voted for Trump by 12 points
Graduated high school pre-COVID	Graduated high school post-COVID
Had flip phone before iPhone	Know only smartphones
Grew up with Instagram, no TikTok	Used to Snapchat, TikTok
Started college in Trump v1.0	Started college in Biden era
Women's March, March for Our Lives, Black Lives Matter	Resistance to COVID masking, MAGA/Trump is the counter-culture

Gen Z 1.0 was out of high school and tasted independence prior to COVID. Their coming of age was during Trump 1.0 and all the resistance movements. Gen Z 2.0 had to deal with COVID in high school and it disrupted their lives then. When some of them went to college, it was Zoom U., a completely different experience than what the older Gen Z'ers had. With Biden in power, for many young men, Trump seemed like the counter culture and they fell for him, hard.

The gender gap has been analyzed to death, but in Gen Z, it is more subtle. Women 22-29 have a net negative view of Trump while the younger women are split more evenly about him. Women of color 18-29 were overwhelmingly for Kamala Harris, but white women in Gen Z split 49-49 between Trump and Harris. This is a huge change from 2020, when young white women voted for Joe Biden over Trump by a 15-point margin. So it wasn't only young men who moved toward Trump in 2024. So did young white women. This could be because some of the Gen Z experiences, especially the pandemic, cut across gender lines.

Throughout history, young people haven't liked being told what to do and the Gen Z 2.0 group was told what to do about COVID, including masking and not going to parties. They perceived these orders coming from the Democrats and rebelled against them. Is this the whole story? Probably not, but it could be a start. (V)

People Want Their Own Facts

The Washington Post and the Schar School at George Mason University did an interesting poll of swing state voters to ask about where they got their information and how much they trusted the media. They plotted net trust in the media against net support for Trump and got this scatterplot:

What the scatterplot shows is that there is an almost linear correlation between supporting Trump and not trusting the media. What it can't resolve is whether people who like Trump don't trust the mainstream media because he tells them it is fake news or people who don't trust the media are ill-informed, get their news from Fox and eX-Twitter, and hear how great Trump is from them. It is clear that eX-Twitter and its owner, Elon Musk, were key drivers of misinformation. Only the cause and effect are hard to separate. (V)

The IRS Might Be Opening a Can of Worms If it Kills Harvard's Tax Exemption

Someone in the Trump administration sent Harvard a letter basically demanding that it turn over control of the university to the administration. Harvard refused. Then Trump upped the ante. If Harvard refused to obey him, he would strip its tax-exempt status from it, which would cause huge financial problems for the university. It is interesting to note that Trump always thinks in terms of money. When he wants to punish someone or something, it almost always involves money. The only exception is people who don't have much money, like immigrants.

Could Trump take away Harvard's tax-exempt status? In the end, it will be up to John Roberts. Everything is up to either Elon Musk or John Roberts. But if Trump orders the IRS to strip Harvard of its tax-exempt status, that could set off a chain of events that he might not like. There is some precedent for that.

The Civil Rights Act of 1964 barred federal funds to segregated institutions, including universities. In 1970, the IRS revised its regulations to determine that private schools practicing racial discrimination were not entitled to a tax exemption. One of its targets was Bob Jones University, an evangelical university in South Carolina, which banned interracial dating and admitted Black students only if they were married to other Black people. This reduced the opportunities for interracial dating (but increased the opportunities for interracial extramarital affairs).

BJU objected and this led to a long court battle. The government kept up its case across the Nixon, Ford, Carter and Reagan administrations. It wasn't a partisan battle. In 1983, the Supreme Court ruled 8-1 to uphold the IRS' decision to strip BJU of its tax-exempt status. BJU didn't give in. It paid $1 million in back taxes but didn't change its policies until 2000.

Richard Viguerie, a leading conservative fundraiser and activist, described the case and the decision as: "It kicked the sleeping dog." It galvanized the religious right. Before that, they were interested in saving souls. After that, they got into politics.

What happened was that by using tax exemption as a cudgel, the IRS turned a ragtag collection of evangelicals and conservative Catholics into a serious movement that is still around today. The movement used "government overreach" as a unifying cry and morphed into a powerful political force.

Could this happen again? There is a large group of people who care about medical and scientific research. The elite universities have many alumni now in powerful positions. There are many people who effectively use the services the elite universities provide. Harvard alone is affiliated with 15 hospitals and research institutes. The patients who use those hospitals are aware that they are getting good treatment due to the Harvard connection. Harvard also provides 7,000 units of affordable housing, operates free legal and health clinics, and partners with many nonprofits. Those people will not be happy to see Harvard go down the drain. The city of Cambridge is well aware of the employment Harvard creates—at all levels, down to food-service workers and janitors. Other universities have similar networks and constituencies, even the big state universities. If Trump decides he wants to be known as the president who opposes universities, it might galvanize an opposition that is already a lot more powerful than BJU ever was. (V)

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