Kentucky.

Tonight I'm Renee Shaw.

Tonight we're joined by economics and business experts of different perspectives as we discuss the current state of the U.S.

economy and the impact of recent tariffs and the federal government shutdown, which is in its 13th day.

How have Kentuckians, including Kentucky's federal government workforce, been affected by the shutdown?

How have tariffs affected Kentucky industries like soybeans and bourbon?

We have four guests in our Lexington studio to talk all about this.

We start with Charles Hall, vice president of policy and head of the center for Policy and Research at the Kentucky Chamber of Commerce.

Doctor Thomas Lambert, professor in the College of Business at the University of Louisville.

Doctor Mike Clark, director of the center for Business and Economic Research and associate professor of economics at the University of Kentucky's Gatton College of Business and Economics.

And Jason Bailey, executive director of the Kentucky Center for Economic Policy.

We certainly want to hear from you tonight, and you can send us your questions and comments.

By X, formerly known as Twitter at Pub Affairs KET.

Send an email to KET tonight at ket.org or use the web form at ket.org tonight.

Or you can simply give us a call at one 800 494 7605.

Welcome to all of our guests.

We appreciate you all being here on this night.

Doctor, all I want to begin with you first, because we've had several government shutdowns over the last several years, right.

If we date back into the 70s and before the most recent shutdown, December 2018 through January 2019 lasted about 35 days, was the longest in history.

The five week impasse cost the U.S.

economy an estimated $3 billion in lost GDP, according to the Congressional Budget Office, and it was a partial government shutdown then.

Right now, there is no partiality.

It is full.

So talk to us about what you're watching right now as you see this unfold and the potential impacts that we should brace ourselves for.

>> Yeah.

Well, first of all, Renee, always thank you for having us.

Absolutely.

Oftentimes these shutdowns sort of depend on how long they last.

And you pointed out with the shutdown going back to 2018, 2019, that $3 billion, that's $3 billion that the economy never quite recovered.

And that's a significant hit to overall GDP, especially at a time when we have an economy that I think, as we'll talk about, is we're kind of getting mixed signals from with some some significant signs of concern from the perspective of the business community, these government shutdowns are never good.

These are things that we would like to see taken off the table.

You know, we elect our members of Congress to work through difficult questions and to enter into negotiations with each other.

We would like to see them do that.

Businesses in Kentucky and throughout the rest of the country depend on various government services for a variety of different things.

So you can think about federal contractors.

You could think about things like seeking IPO approvals for through through the SEC.

>> IPO stands for.

>> Initial public offerings, as well as simple things like asking questions at government agencies, because when the government shuts down, the rules are all still there, right?

The questions are all still there.

And so this is another one of those things that can create even more slowdown to an economy.

And so it is something that we're concerned about.

And our message to Congress is to do your job, go in, negotiate, figure these things out and get the government back open.

We would like to see Congress, as well as the white House, engage in these meaningful discussions and not let this flounder for for too much longer.

As you noted, just a partial shutdown alone led to significant hits to overall economic growth.

And when we have a shutdown on the scale that we have right now, that really can cause some significant damage.

And I think one of the things that we're most concerned about right now is there's not really an end in sight with past shutdowns, you could sort of point to different benchmarks, for example, things like military pay.

Those were moments where you tend to see members of Congress sort of move a little bit more.

Now we're hearing from the white House potentially paying troops.

That's on the whole, we want to see that happen.

But at the same time, that's this is another way that they're kicking the ball down the road and potentially extending this even longer.

So it's something we certainly want to see remedied as soon as possible.

>> Yeah.

Jason Bailey, how do you view it.

And perhaps we're Democrats because we've talked about the political blame game, and we've handled that with poli sci professors about where goatthe ssiesorc ngsso tt.

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ds gngo heanvellegiv iaconf of that one particular item?

>> Absolutely.

The the expiration of the subsidies for the Affordable Care Act insurance that people buy on the exchange, the marketplace in Kentucky, we call that connect those subsidies expire at the end of the year.

And so 20 million Americans, nearly 100,000 Kentuckians, will see their health care costs more than double if those subsidies are not extended.

And that begins November 1st.

The open enrollment period starts November 1st.

So it is not a thing you can do later on.

It has the action has to happen now, and it coincides with the debate over the federal budget, where the Democrats have some leverage because it requires 60 votes in the Senate to to pass a budget, and the Republicans only have 52, 53.

So it's a critical issue.

The subsidies are applied to people who can't get health insurance in other ways.

They don't get it through their employer.

They work for a small business or they're self-employed themselves.

They're an independent contractor.

We're talking about people who work for nail salons.

We're talking about farmers who get their health insurance on the exchange, salespeople, people from all walks of life.

I looked at some numbers just in Kentucky, 1102 people in Henderson County, 1028 people in Marshall County.

I mean, it's it's people we know in our neighbors.

So health care is one of the biggest burdens that Americans face.

Costs have been going up for everything, and the cost of living is probably the number one issue facing Americans.

And there were real, real improvements that were made when these subsidies were expanded back during the American Rescue Plan Act, and then continued during the Inflation Reduction Act.

To let that go away, I think to say, trust me, we'll do it later, is is not a smart move because the majority could have extended these subsidies, made them perfect in the budget reconciliation bill, the H.R.

one one big Beautiful Bill act this summer.

They chose not to.

So they already indicated that they don't want to do that.

And so I think it is, you know, a government shutdown is painful and it needs to stop as soon as possible.

But doubling of your family's health care costs is the difference between whether people get life saving care or not.

And in a in a state that has so many health health challenges already.

I think moving back on that and increasing our insurance rate is a big problem.

And one more thing I'll say about this.

I think it's important to have a fight about health care now.

And there's an opportunity to because this is just the beginning of what will be a serious rolling health care disaster.

To be quite frank, if H.R.

one continues to be rolled out, we expect over 200,000 Kentuckians to lose Medicaid because of the requirements that will go into effect, the work reporting requirements that will go into effect next year.

We expect to see huge cuts to hospitals and providers that in Kentucky, we have 35 rural hospitals at risk of closure if those payments go into effect, payment cuts go into effect.

That's more than any other state.

So now's the time, and now's an opportunity to have a fight about health care.

And I think it's the right thing to do to do that.

And all Congress has to do is extend the subsidies, which are very popular.

78% of Americans.

According to one poll, 59% of Republicans want those subsidies continued.

All they have to do is agree to do that, and the government will open back up and we will prevent all those problems that would happen from a shutdown.

>> Doctor Clark, how do you see things?

And there are also implications for the financial markets.

I mean, this is a big major juggernaut here and it has so many ramifications.

So talk about how you see this shutdown's impact.

>> Well, certainly like doctor mentioned a little while ago, you know we're we're looking at kind of mixed messages when we look at kind of the status of the economy and what we've been seeing here over the last few months is that we've been seeing employment growth really slow down as you kind of look back at where we expected the economy to be as we enter 2025, we're kind of expecting that, you know, we were expecting employment to slow down.

We were expecting manufacturing employment in particular to slow down, maybe even contract.

And we've been we've been seeing that.

But we'd also expected inflation to really start to slow down as well.

And you know, we're seeing inflation go up and kind of the situation we've kind of got to is in terms of employment, we're basically just kind of flatlined.

Now.

You know we are seeing some growth.

We did see kind of a month back in June where we saw actual decrease in terms of employment.

But basically, you know, employment is just kind of kind of virtually no change, particularly when you look at in terms of the margin of errors.

And so when we start thinking about the impacts of a shutdown, again, a shutdown can be very minor if you're talking about just a couple of weeks.

But as that shutdown starts to extend and you start seeing issues in terms of people not getting paychecks, people start cutting back on their spending as a result of of, you know, not seeing that paycheck contracts.

You know, if you have a government contract, you start to get worried about whether or not you're going to be able to pay your employees.

So you start to see kind of a you here, we're kind of at this place where we're just kind of barely positive and any kind of of disruption, any additional shock to the economy can kind of tip us over to the point where we actually turn negative.

And that could be really problematic for the economy as we kind of move forward.

>> And we know that the September jobs report was supposed to come out last Friday, and that didn't because the lights are off at the Bureau of Labor Statistics.

But there has been some other jobs data that has come from other entities that have kind of said the US labor market is losing some steam, and so we'll certainly get that iju a u.ow do you see?

Yeah.

Our pleasure.

How do you see this shutdown and what are you most concerned about at this juncture or beyond?

>> Well, I would agree with what's been said so far.

And I would also add that there are also ripple effects at the local level.

Some estimates I did earlier this year, you know, for every $1 million.

This was the estimates I got from a modeling system.

For every $1 million in federal funding lost, you have about a total of $3 million lost contractors, suppliers to the government, and then the employees of the government not being able to spend as well as the employees of these suppliers to the government, whether it's someone who sells linen or other things to a parachute manufacturer.

We have a couple of apparel manufacturers for the military here in Kentucky.

I don't know how badly the military is going to be affected, but that's a that's a key supplier.

Humana does Tricare insurance for the United States military.

It also is a is a medicaid provider, along with anthem and a couple of other major insurance companies.

So when you have cuts or rollbacks and spending, it has a ripple effect.

And that affects local restaurants, landlords for people who can't pay their rent, can't pay their mortgage or what have you.

And it also impacts local property taxes, sales taxes, etc.

as that spending dries up.

So you only have you not only have the initial impact of of either cuts or freezes in federal spending because people aren't getting paid anymore or certain bills aren't being paid.

But you also have these consequences at the local level, somewhat of a ripple effect as well.

So you could see that play out in the state sales tax, local property taxes.

If this continues much longer, it will have a more significant.

>> And as we're on the cusp of iss meinth sulkyminseio Tt'rit.

mn,ouseth sulhao alit ou, atheyokn,a pa o the reason there's a showdown around this right now is that the government has not been fully operating for the entire year.

So we're talking about a shutdown, but in fact, there have been partial shutdowns of different parts of government for months and months.

And that's part of what I think the Democrats in Congress are saying.

Is that, okay, we agreed to a continuing resolution, but then if the president then chooses not to spend the money that's appropriated, then what are they agreeing to anyway?

Right.

So sort of part of the push is not just to prevent health care costs from more than doubling for 20 million Americans, but also ensuring that when funds are appropriated, they're not then impounded or these pocket rescissions, these sort of weird terms that basically mean article one of the Constitution says that Congress has the power of the purse.

And I don't know how many Kentucky legislators I've seen on here who say, you know, on this show that we have the power of the purse.

The same rules apply in federal level.

And so why would they agree to a continuing resolution if the president is just going to spend only what he wants to?

Department of education has been cut in big ways.

They laid off 4000 workers on Friday, big cuts to National Institutes for health.

Obviously federal research funding.

We've seen cuts to Job Corps.

You know, we've seen cuts to AmeriCorps.

We've seen cuts to PBS right through this, through this process.

So I think there's a there's a we shouldn't talk about this as a normal situation, a normal shutdown debate like the 20 we've had before.

This is about whether the Constitution is going to be followed regarding Congress's ability to direct how much and what is appropriated.

And so, you know, I think that's that's a debate worth having.

>> Is there a debate worth having?

And do you all see it the same way as Mr.

Bailey?

>> Well, I think there is a debate worth having in terms of when you go through and you look at these various types of government programs.

Policymakers have different opinions about the benefits and costs, about different programs.

And so there's important debate to have about how big will that safety net be?

Because we are talking about reductions to benefits that will affect a number of people.

But there are also costs associated with that.

So with any government program, you've always got to look at the cost and benefits.

But it's not obvious to me that that's what's really going on here in terms of, you know, going through and looking at our are we providing services where the benefits are greater than the cost?

You know, there was some discussion early in the year about government efficiency.

And that's a good thing to discuss.

You know, I don't know of anybody who is opposed to government running more efficiently, but it gets more complicated when you actually start getting into these different types of government programs and thinking about, well, what exactly types of services should they be providing?

We're making this type of investment.

What returns are we gettingor olisef isssgtSoI in ites tsth u ve l odiertdt, ea Dto a y hechnereir seomvaatns anhi to carry on?

>> I would add.

The only thing I would add to that is I certainly think that's a debate worth having.

And Congress needs to have that debate.

And they should have it in the context of an open government, ideally.

And that would be representative of a functioning Congress.

And I think that in a lot of ways is a big part of our problem right now is that, you know, putting a government shutdown on the table is something that we need to get out of the habit of.

And if you look back at, say, the past ten years of policy making out of Washington, this is increasingly becoming a habit and it's becoming somewhat normal.

And so we'd like to get to a point where, yes, have these debates.

I think the debate that Jason just pointed out surrounding things like rescission votes, for example, that's a debate that they need to hash out.

That is their job.

That's the thing they need to lean into and figure it out.

But they need to do that against the backdrop of an open government.

>> Yeah.

So let's talk about interest rates.

Right.

So what does this do to that if a prolonged shutdown continues, what does it do to the idea that the fed could cut interest rates beyond December.

Is that bleak become bleaker.

>> No, I mean I think when you start looking at how a fed excuse me, how a government shutdown plays into the overall economy, if it does slow things down, then, you know, that may prompt the fed to look at this in terms of how do we prop up the economy.

The fed, of course, has this dual mandate.

You know, they want to maintain stable prices, low inflation, low inflation and full employment.

And so, you know, for some time now we've been fighting the inflation part of that.

And so we've had high interest rates which are really designed to slow down spending.

The idea is if you increase interest rates you make it more expensive to fund consumption because that those interest rates are higher.

So if you're funding that through debt, through your, your, your credit card, or if you're purchasing a house and you're looking to to get a loan for that, that makes it more expensive.

So that slows down consumer demand.

And when you slow down consumer demand, that eases some of that price pressure.

So I think if the fed looks at the situation in terms of a government slowdown, then what they're likely to see is that that could be affecting jobs.

And so they might look to kind of prop that up and maybe actually lower interest rates a little bit more aggressively than what they have.

>> One of the challenges with this, of course, is that all these decisions are tied to high quality government survey data.

That's a good point.

And this is where we're really going to start entering into a big problem.

Already.

The fed will be operating so far without September jobs data.

We are getting to the point soon where the survey gathering process that the Bureau of Labor Statistics goes through to, to gather that data for the current month that we're in, we're getting close to that, the start of that process.

And so that will start to have this ripple effect where the fed will be in a position where it's trying to make very important decisions, as Doctor Clark just pointed out,eled erisomprriar daegog bdog whli okt tngliDPthc menvtmt rm have started producing estimates, and other firms have started looking through a bunch of different metrics.

But, you know, our government survey data has always been very, very high quality and has always been the linchpin for how the fed makes a lot of these decisions.

This will also spill into a lot of decisions at the state level.

So if you look at our consensus forecasting group in Kentucky that makes projections around revenue growth and revenue expectations, they use a number of different inputs, including things like good high quality government survey data.

And so the fed is really going to find themselves.

They're already in a very difficult situation as they're trying to balance their dual mandate, but now they're going to be potentially doing that with far less quality data than they normally do.

>> Not only because of the government shutdown, but also, you know, there's some threats around the politicization of the data.

I mean, the Bureau of Labor Statistics commissioner was fired because the jobs report was not satisfactory.

And so there's a new BLS commissioner.

So even when we do open the government back up, there's also pressure on the fed, you know, fed board members.

So you know, it's it's an economy that is slowing down.

Job growth is weak to nonexistent.

It's also a very imbalanced economy in the sense that about half of the consumption right now is happening is is coming from the top 10% of people.

Wealthy people are doing very well because the stock market is soaring.

There's an AI boom in the in the tech stocks that are producing AI data centers are being built.

There's a good argument to be made that there's a bubble developing in the AI industry.

Also in in crypto, we know how that turns out.

We've had bubbles before in recent history in the.com bust, in the housing bust, if that is, if that continues to develop, it's something the Federal Reserve will have to deal with.

But if it if it breaks, then we're in bad trouble.

And you know, for the those people at the top are doing very well for the bottom 80% of people.

They're not they're not keeping up with pretty much keeping up with inflation at this point in terms of their income.

There's not real wage growth.

We're seeing a rise in youth unemployment rate.

The black unemployment rate is going up.

Most people are are struggling in this environment.

So if we're if we're looking at a situation where prices may go up because of tariffs, where there's additional economic loss from these, you know, budget cuts, you know, I'm very concerned about how the average Kentucky and the average American will fare.

>> Yeah.

Doctor Lambert.

>> I was just going to to to add to to what's been said the first quarter of this year, we had negative economic growth, a contraction in GDP.

Second quarter was better.

We had growth.

So we avoided a recession.

So the fed is rightly concerned about rising unemployment, a soft economy, stagnant economy.

But at the same time, I think the August inflation report was 0.4%, which if you multiply that times 12, you don't compound it.

You just take a simple average would work out to be about 4.8% a year, which is fairly high.

So the the tricky problem for them, I think, is to avoid some type of stagflation where you have some type of high unemployment and high inflation at the same time, like what occurred during the 1970s of the tariffs exacerbate this problem of inflation.

It cuts across all income levels, basically.

And with the announcement yesterday, maybe two days ago, of 100% tariffs now on China, with so much being brought in from China, you know that that's really going to make this a tricky situation to try to, I don't know, for a better term to have some type of soft landing or steady growth.

But it's yeah, you want to try the Fed's operating policies.

It's difficult.

You can attacked one.

You can attack.

You can attack ryifcu.t se te ment or you can >> We do want to have a conversation about tariffs a little deeper here in just a moment.

But I do want to go back to how the markets are performing, and they are seemingly to remain optimistic.

If we can define what optimistic means, maybe there's a good metric or definition of that.

What is that?

And that gold is on a bull run, right.

So what what explains that.

So the markets are responding perhaps differently than the American consumer and the confidence they seem to be having that's that's declining.

>> Well, I think you know the markets are looking past kind of some of this short term uncertainty that we see here.

You know, so when you think about the value of a stock, it's not just the value that it has today.

It's the value that it's going to have into the future.

So so when investors are looking at this, they're looking for an opportunity to buy something that they think is going to perform well into the future.

And so that all gets kind of baked into the price.

And yes, you know the stock market has been doing very well.

You know, we've seen a few days where, you know, we've we've seen some pretty significant decreases as the market responds to the news of the day, but generally, you know, we you know, as we saw as we were coming into 2025, you know, there was a lot of uncertainty.

You saw the market reacting to the the announcements of additional tariffs.

And, you know, it responded negatively to that because that was affecting the potential for businesses to make profits.

And so, you know, that caused a devaluation of the market.

Since kind of that initial reaction, we've seen the market do very, very well.

You know, it does seem to be suggesting that that investors are fairly optimistic or, you know, see an opportunity long, you know, after kind of kind of this immediate situation that we're in as far as the gold situation, you know, there's a lot of folks who are looking to kind of hedge their bet.

And traditionally, what tends to happen is that when you start to get concerned, when some people start to get concerned about the the economic situation, they look to gold as a safe haven.

And so you're seeing some investors trying maybe to diversify, trying to kind of get ahead of what they perceive as as some concern.

And you're.

>> Thinking about you're not buying bricks of gold, right?

It's a little different.

>> It is a little different.

But but essentially you are making investments in the gold market.

And that has been driving some of that price up.

>> Yeah.

This question real quickly before we talk about tariffs.

This is Martin Rivers from Lexington.

He says quote, Kentucky has a hefty budget reserve trust fund and some want to use it to help various programs.

Would it be wise to hold on to the trust fund until federal until federal budget issues are resolved?

What do panelists believe is the right percentage to hold in the ndr.ivs,oo qstn.Reserveru chas Ble, u' bnh onhiprratoal about what that adequate number is.

What's your thoughts?

First before I go to well.

>> You know, a budget reserve trust fund is first and foremost a rainy day fund.

So when it rains, you need to be able to pull it down to help fill gaps in in funding because of economic conditions that are temporary.

And to the extent that when the when the legislature meets and develops the next two year budget, there are holes in that budget that are are the result of an economy underperforming due to the impacts of all the things that we're talking about.

It is it is absolutely imperative that the legislature use portions of it to to do that, because to fill those gaps, because services are going to be hurt, people are going to be laid off.

And it's at a time when if the economy is hurting, those services are even more important.

So it it plays a countercyclical role.

There's $3.7 billion sitting in there.

That is a that is a very large sum of money that's much larger than the benchmarks around what states need to prepare for recession.

So there's ample room to use that to help fill the gap.

I don't think it's the only thing that that they can do or should do, because it's not the only reason we have a $300 million shortfall.

And the biggest reason, or at least as big a reason, is the impact of the cuts, the individual income tax.

Our largest revenue source is, is, is, is being reduced.

It was at 6%.

It's going to be 3.5% on January 1st.

It was almost half of our revenue at one point.

You can't replace that.

And so there's going to have to be something done on the tax side as well.

But absolutely in the short term you should be able to use you should use it is the responsible thing to do to H dyoee dto A us >> Yeah, $3.7 billion is a very significant amount of money, but it could be eaten up extremely quickly depending on how it gets utilized.

And so the legislature has been very, very cautious with utilization of those funds.

And we should point out that we don't normally have budget reserve trust fund balances.

That is a fairly a fairly new phenomenon within Kentucky.

And I think it's the result of a lot of hard work of our General Assembly to make sure that they have been taking these excess dollars and putting them in a budget reserve trust fund, so that we can use them not only for rainy days like we've discussed, but also for opportunities.

One of the things that doesn't get talked about quite enough, I think with that budget, with the budget Reserve trust fund, is that it's also a revenue generator.

And so that's something that has also been generating revenue through interest.

And so that that's been another nice benefit.

We saw a very large expenditure from our budget reserve trust fund in the 2024 budget cycle.

And we'll likely continue to see returns from those investments.

They spent money on things such as infrastructure, health care, education, a whole range of things where I think we need to be very cautious, though, is taking funds from the Budget Reserve trust fund that will essentially be reoccurring expenses.

And that's something where I think they need to be very, very careful.

>> And they haven't really done that.

They've one time.

>> Money that they have absolutely avoided that.

And I think that's the right thing to do.

I would anticipate there will be a robust conversation heading into the 2026 session, where we might see a similar piece of legislation to what we saw in 2024, where they made a series of very targeted investments that will also provide a return for Kentucky taxpayers down the road.

But when it comes to using those funds for reoccurring expenses, that's when we might be putting ourselves into a fairly dangerous situation down the road.

And keeping in mind, again, those dollars can get consumed very, verquklf Bgebuetg pbaythe pef rpes 'srahtit a stsfpocyke he dan giin.

You know, it starts off with you mentioned the consensus forecasting group.

It starts off with an estimate, and it is just an estimate.

With our forecast, we never are spot on.

It's going to be off to some degree.

And so when we start thinking about what is an appropriate amount for the budget reserve trust fund, it really comes down to what level of uncertainty do you have, not only your estimates, but in how things play out throughout the budget period, where you start seeing expenses come in higher than what your anticipated tax revenues come in, maybe lower or higher than what you anticipated.

So a budget reserve trust fund is a really key element to managing that uncertainty.

How big that should be?

I mean, you know, there are some guidelines out there, but it really comes down to kind of your your appetite for risk.

How much do you have in there kind of reflects how much risk you're willing to tolerate, what sort of other types of tools you have to address this?

Are you willing to make cuts in terms of programs?

As you start to see that you don't have enough revenue, so they really have to balance a lot of different things when they think about how much should we actually put in terms of these funds that we have, how much should we set aside for these rainy days?

And then utilizing those, as you mentioned, gets really tricky because you don't know how long that uncertainty is going to last or how long those, those lower revenues are going to last.

So you've got to make some really hard decisions about should we actually make cuts now, maybe a little bit more moderate level, or should we use the rainy day fund because we think maybe this is going to be a temporary thing that we can get through relatively easily.

So it's it's a really difficult balancing Tsueio Gahead,lymer Doctor Lambert.

>> I was just going to say quickly that I think next year, Frankfort is going to have a lot of people going to them with their hats in their hand because of federal budget cuts.

Working with.

I'm working with a group of graduate students at the University of Louisville.

We're looking at a mental health organization that serves the Louisville area, as well as other counties surrounding Louisville, and they're worried about the effect of Medicaid cuts having to turn people away.

And when you do things like that, you get into, well, well, some people lose their jobs if they don't get the appropriate mental health treatment.

So I think the next year and of course, Congress, some congressmen have even said that the states have to pay a bigger share of certain programs like Medicaid, and that they need to pony up more money.

So I think.

>> Congressman Brett Guthrie has said that he.

>> Wasn't going to mention his name, but.

>> He said it on this, on these airwaves several times.

This question from Dwight and Jefferson County.

And he's talking about he says, House Bill one, H.R.

one, actually at $3 trillion to the national debt.

Did that happen?

And where did that money go?

>> Yeah, I mean, H.R.

one was not at all about reducing the deficit.

It increases the deficit because of the enormous tax cuts that are in the bill.

Two thirds of the tax cuts go to the wealthiest 20% of people.

So those that were skewed to to those who, you know, are the those folks who have seen their stock portfolios grow, have seen their incomes grow dramatically, and the cuts that they made to Medicaid and to Snap is the other big cut that's being passed off to the state where we're having to pick up a portion of the Snap program costs for the first time in the history of the program.

That's going to be it could be hundreds of millions of dollars a year in the next budget.

And we're likely not going to have revenue growth because of the sagging economy and the income tax cuts.

Where's that going to come from?

If we're not willing to tap the rainy day fund and do other talk about other ways to generate revenue?

But yeah, I mean, I think that those cuts were huge, but they only partially offset the cost of the tax cuts.

So we continue to grow the national debt.

That's going to be a problem.

At some point we're going to have to raise taxes, especially at the top.

And in the near future it's you know, that's on the on the agenda.

>> So at the time we have remaining, we want to shift and talk about tariffs and how it hits Kentucky homes and particularly Kentucky's farmers.

So it's harvest time for Kentucky's grain farmers.

But they'll find and they'll find they're going to be hard pressed to turn a profit because China is not buying American soybeans.

It's gotten so bad that President Donald Trump says a government bailout for farmers could be announced soon.

Our June Leffler talked to farmers a couple of weeks ago, and they say they need help now.

>> It's warm and dusty in the soybean fields for two months round the clock, Matt Gieseke will run the combine.

It cuts the stalks and separates the beans from the pods.

His farmhand collects the beans and carries them over rolling fields towards the road.

>> Put it on a truck and send it to Jeffersonville, Indiana to consolidate grain and barge.

They put it on a barge and ship it down to the Gulf.

>> But the going price for soybeans is low and likely won't rebound soon.

>> It's a free market, and so the price is decided by trading.

And, you know, it's just like anything else.

You've got too much supply and not enough demand.

The price is going to be low.

>> Why the low demand?

China isn't buying.

>> So 25% of our soybeans in general from the United States are exported to China.

And basically this entire year, China has not bought a single soybean.

>> President Donald Trump's trade policy has meant reciprocal tariffs between China.

So the soybeans China needs to feed its pigs are coming from Brazil and other South American countries.

Instead.

>> Running quick calculations on Soybean Acre this year and estimate losses for each producer to be somewhere between 100 and $200 per acre.

>> With that math, Isaac could be missing out on more than $100,000.

>> So that's causing a lot of stress in farm country across the US, because the prices are just depressed right now, to a point where a lot of people aren't making any money.

>> Prominent Kentucky Republicans do not support Trump's trade war.

US Senator Mitch McConnell says it's hurting customers and businesses, including farmers.

But Kentucky's top agriculture official supports Trump's moves.

Commissioner Jonathan Schell says, quote, for decades, our trade deals left America at the mercy of countries that didn't always have our best interest at heart.

When you look at China, for example, it's not just about buying soybeans, it's about intellectual property theft, buying up farmland and creating instability around the globe.

The president's approach is about protecting our sovereignty while still working to expand markets for our farmers.

This farmer says he can't wait for a trade war to become a trade deal.

>> Whether you support him or not, there's things that you can agree with and disagree with.

And I'll say that that, you know, a lot of his trade policies right now because it's hurting the farm country so bad.

I'm kind of I'm at a point where I'm, you know, I'd say disagree with them.

I know President Trump had put out a tweet or whatever you wanna call it, that he's going to meet with China in four weeks.

Four weeks is a long time away.

>> The strains of farming are here and now.

Inflation is high and so are loan interest rates.

>> Because we buy things and our input costs are up 60% since 2017.

And our and then we're receiving prices for the crop that, you know, are back in the 70s, 70s and 80s kind of prices.

>> Farming associations are looking for more soybean markets at home.

That means expanding biofuel consumption, something that's in progress.

>> But every other country that bought beans in 2022 only made up 61% of China's demand.

So China is the large player.

If we're trying to piece a bunch of exports from different countries, I don't think we ever get to the demand we saw from China, or at least not this year.

It would have to be the long term gain, and we'd have to see demand from those countries increase over time.

>> The future of agriculture weighs on the farmers of today and tomorrow.

>> You know, people want to be a doctor and I want to be a farmer.

And they're like, oh, that's easy.

It's a lot harder than it looks.

I that's exactly what I want to do.

That's the only thing I want to do.

>> Sebastian Giglio is a high school senior debating taking up a trade, going to college or farming.

>> You have to put food on the table and you don't really get paid much for it.

And most of the time you're losing money.

So how do you how do you figure out how to do that?

I guess that's the hard part.

>> Farmers in Trump went through a trade war before in his first term as president, the government bailed out farmers then, and Trump has suggested doing that again.

>> While we don't want government payments, we need some help at this point.

>> But reports say that likely won't happen until the federal shutdown ends for Kentucky tonight.

I'm June Leffler.

>> Thank you so much, June.

I want to come to you, Doctor Lambert, because this is kind of your wheelhouse here on ag policy when it comes to this.

So tell us what you think and what you heard, your response to what you heard from those farmers.

>> Well, I it's a tremendous problem.

And again, yesterday, the passage of or the enactment of 100% tariffs against China is not good news.

Apparently they thought they were going to be able to work out a deal.

Now they're not going to be able to work out a deal with the Chinese.

This also helps our foreign competitors with certain products.

I was in Glasgow, Scotland last summer and took a tour of the Highlands.

Some of the Scottish whiskey manufacturers there, the distilleries, and they thought it was good news that, you know, United States and this applies to Kentucky, Kentucky bourbon, you know, whiskey made here in the United States was going to face retaliatory retaliatory tariffs from our trading partners.

And they saw it as an opportunity to to gain in sales.

So we not only have the problem of not being able to export and to make money, but again, we're losing out to foreign competition.

They're going to gain market share.

The other thing with with tariffs, if you do see the foreign goods coming into the United States many times, many corporations, instead of trying to keep their prices the same and gain market share, they just raised their prices to match the foreign competition once they got.

Once, the goods get here.

So whether the consumer often doesn't benefit from this, and oftentimes the jobs never come back.

They're in manufacturing.

We won't have manufacturing like we had in the 70s and 80s, which I think a lot of people imagine where you're going to have thousands of people, again, working at GE Appliance Park, like when my mother worked there in the 1970s, almost 25,000 people, six buildings going almost seven days a week, year round.

It won't be like that.

There's more automation, there's artificial intelligence.

So.

Tariffs.

Economists traditionally agree that most economists have agreed over the years that they they usually don't work out too well.

>> Do you all agree.

And it seems like that the Treasury secretary says that, you know, he's denied thatarfsre >> Tariffs are most definitelyn.

attacks and they do affect consumers.

And trade wars are not good for the economy on both sides.

Economists generally tend to indicate that free trade among countries is beneficial for both countries.

In most situations.

We can talk about some exceptions here in just a minute.

But but the idea is it really gets down to the issue of comparative advantage.

We can can produce certain things here in terms of goods and services, very, very well.

We can specialize in that.

And other countries can specialize in the things that they have comparative advantage in.

And in total, what ends up happening is we increase overall production by specializing in the things that we're really, really good at.

As a result of that, our quality of life goes up.

We have more goods and services available and they tend to be cheaper.

So when we enter into a trade war, we tend to disrupt that and we end up actually reducing the amount of goods and services that are being produced.

Now, that's not to say that there aren't some winners with that, right?

Because we can see that, you know, if we increase tariffs on some particular good from a foreign country, we're protecting some of the domestic industry potentially.

So they might see, well, the foreign competition has become more expensive.

So they may see an increase in demand in terms of their what they're producing.

So that can be good for some industries.

But generally these tend to be things that are very costly for both businesses and for consumers.

For businesses, we import a lot of the materials that we actually put into the things that we produce here.

You know, even in Kentucky, we bring them from Mexico, we bring them in from Canada.

So when we put tariffs on those, those items, we increase the cost of the things that we're actually doing.

So that could be harmful for those businesses.

For consumers it increases the cost.o Yh.

t eno.

e n >> Ihi t pce tt uju r, ne Ihinks just a great example of how these tariffs actually affect people in their daily lives.

And they also illustrate why these tariffs are such an awful, awful economic policy concept.

To help put these things a little bit into perspective, this is real money on the table.

We often think about these things in abstract concepts.

But so far this year, the federal government has raised around $195 billion in tariff revenue.

And that's about twice what we raised last year.

Those are real dollars that are being paid by households, primarily because oftentimes when an importer picks up these tariffs, they eventually pass them down and those fall eventually onto consumers.

And this is coming at a time, as we've already been dealing with really significant inflation.

And as Jason rightly pointed out, really high cost of living, fully phased in.

I think that's one of the things that's important to remember about the current tariff situation is a lot of the tariffs that have been proposed going back to a Liberation Day have not actually been fully phased in, if fully phased in.

Some of the estimates out there suggest that they could run as high as 24, $2,500 per year per household, and that's a really significant hit.

And I think one statistic I do want to throw out here, to really illustrate the significance of this shift in domestic economic policy, is the calculated average effective tariff rate A wt ds ateaaround 1to2% xe They fall at differente rates on different products coming from different places.

And so it's really hard to say here's what the average tariff rate is right now.

So they calculate an average effective tariff rate.

And that is the highest that it's been going back to about the 1940s.

If fully phased in the tariffs the president has discussed, we'd be looking at an average effective tariff rate closer to around 17%.

That would be the highest it's been since the 1930s.

So if you're trying to think about the direction of economic policy under this new tariff regime, we are essentially taking economic policy back almost 100 years.

And that tells you a whole lot about what's going on here and just how archaic of a concept is that is at play here.

>> Yes.

Go ahead.

>> Jason, I just want to add that it's part of the problem with the tariff policy is and we've made some reference to it is the the on again, off again chaotic nature of it.

I mean the, the 100% tariff on China that was threatened.

I think they're rolling back.

They're, they're backing off on that today.

We've had rates up to almost 200% on China that were then dropped down.

If you create that kind of uncertainty as a business, you're not going to be able to make investment decisions because you have no idea what actual tariffs are applied to, to which country and which product.

So the the the chaos is part of the problem.

The blanket nature is part of the problem.

I mean, we're we've got a 35% tariff on Canada, you know, close trading partners.

I mean it's sort of all across the board.

That's a problem.

Having said that, I will say we need to think about why we got how we got to where we are, where this sort of policy can be promoted and in some cases be popular.

The way in which we have pursued kind of a globalized economy, where we put down these barriers on tariffs, have allowed people to buy cheap things at Walmart, but have created real painful job loss in the Rust Belt and in manufacturing communities that we as a country did little to nothing to help those people.

Right.

So the way in which the economy was globalized was deeply harmful to, you know, lots of people gained a little bit.

A bunch of people gained lost a lot.

And and those folks are frustrated by that, and they want a different policy.

I don't think we're going to go back to what we had in terms of entire free markets.

So there is a role for tariffs, but it's a strategic role for tariffs.

It's in particular industries.

You know every country that's wealthy used tariffs at some point to help become wealthy.

And in this country we're at risk of becoming an entirely post-industrial economy where we do no manufacturing where and, you know, where we don't have access to semiconductor chips, where we, you know, we don't have the innovation that comes off of manufacturing.

So there is a role, but it's not this this is chaos, and this is just raising the prices for for Christmas toys at a time when people can't afford them and threatening industries like, like soybeans that are facing it is turning into a trade war that is harmful to both countries.

>> I was going to say Halloween decorations have gone up quite a bit too.

If you go to Home Depot or a place like that, because so much of that comes from overseas.

Jason is right.

We have never adequately funded, funded these job training programs, which are supposed to help people who have lost jobs because of plant closures or business closures.

That's been a constant criticism ever since.

Those programs, I believe, were first enacted.

I'm not 100% sure, but were first enacted in the 1980s that that they exist, but they have never been adequately funded to take care of people, retrain them, etc.

And getting back to the point about business uncertainty, earlier this year, Churchill Downs announced in Louisville $900 million investment in redoing its facilities.

More places for people to watch the races, etc.

and then all of a sudden, because of the economic uncertainty over unemployment, tariffs, etc.

they rolled that back significantly.

So there we lose a lot ore iesen beusofhi uerinecom cma.>>ocr are of the reasons that we heard from the Trump administration about their trade policy is that it will encourage companies to shift and that they will diversify their supply chains and they will onshore their production in the U.S.

Has that ever happened?

And is that a possibility that it would.

>> We see some of that.

But I think the uncertainty that Jason mentioned is really going to limit the degree to which we see any real reshoring based on the policies that have been implemented so far this year.

It's not clear whether or not these tariffs are going to hold up to legal challenges.

It's not clear whether or not they're going to be sustained by the next administration.

Given that uncertainty, I think a lot of these businesses are going to be really hesitant to make substantial changes to their supply chain until they really understand how that is going to play out.

So in theory, it could potentially bring some of these things back, but it's not necessarily clear that that that's entirely a good thing because it's going to be costly to bring those jobs back.

You know, we we did lose if you go back to the 1990s, you know, Kentucky had a lot of of textile textile manufacturing.

And we lost those jobs.

And those were painful job losses for those who were in that industry.

But what we actually gained with free trade was advanced manufacturing.

We gained jobs that were much required, much higher skills and paid much better wages.

So we were able to actually, in Kentucky, you know, do really well in terms of manufacturing that I think overall has been good for the state.

When we talk about exceptions where where maybe there are there is some some valid use of, of increasing tariffs is when other countries are engaged in other types of unfair trade activities.

And China has been, you know, a player in this, you know, there was some discussion of rare earth elements and, you know, in the 100% tariff on China as a result of some policies they're making with rare earth elements.

You know, rare earth elements are critical to a lot of the consumer goods, a lot of the military goods.

And to the extent that China reduces the rest of the world's access to some of those materials, then maybe it makes sense for the US to think about what appropriate policy would be in response to that.

Is that tariffs, is that subsidizing development in the US?

Those are our policy discussions that I think the US should be thinking about, and I think they are thinking about things.

But yes, there are some instances where it is appropriate to look at what's going on with a trade partner and maybe respond in kind.

>> Yeah, doctor, all.

>> I think as Mike said, you know, you probably will see some examples of domestic reshoring.

And proponents of tariffs will be really quick to point that out.

What they won't be quick to point out, though, are also the job losses that will absolutely outpace any form of domestic reshoring that we have, especially at a macro level when we look at the whole picture.

And so that's something we need to be careful about in this conversation, is to to be cognizant of what the data is showing us, what the overall picture, because you will see these little hints here and there where companies are able to make that work.

But those will generally be few and far between.

Our argument at the chamber in this instance, would be that there's better ways to achieve those goals of reshoring a lot of these manufacturing jobs by doing things like having a favorable regulatory environment, having a pro-growth tax climate, having reliable and accessible energy, a strong competitive workforce.

Those are the types of things that we need to have in place to which.

>> The Trump administration would say they're doing as well.

Yeah.

>> So you have, on the one hand, some of this pro-growth policy that would help facilitate.

And then on these, on the other hand, policy that absolutely negates what the other hand is doing.

And I think that is in a lot of ways reflective of kind of what we're hearing in economic data these days, which is sort of this floundering economy.

And so I think if you pull back on those tariffs created a lot more certainty in government, I think we'd be on a much brighter trajectory right now.

ou wree' headed.

Doctor Lambert.

>> A little pessimistic to a certain extent.

I know that, you know, the Trump administration is is arguing for tariffs, a path, a certain path to go down.

Excuse me.

As far as keeping the economy going or keeping it on a on a good path, I would argue that in some economists like Larry Summers and James Galbraith have argued this as well, that we're in some type of period of secular stagnation in our economy, and we're not investing enough.

And we can debate about welfare programs, Medicaid, Social Security, etc.

but put that aside for a minute, and let's look at whether we're really investing in our roads, bridges, etc.

And there's the argument among those folks and others that that were not.

And that's why our economy is is so stagnant and so slow.

Since the 2008 2009 recession, we don't have enough investment in research and development technology.

People will tell you we're investing plenty now, but these folks are arguing that we could do even more, given the amount of savings out there and the amount of surplus that's being generated.

>> Yeah, well, we'll leave it there.

Good conversation.

This was right on time, and I hope that your students will go back and watch this, perhaps for some extra credit and viewers at home as well.

And we thank you for joining us tonight.

Make sure you join us each weeknight at 630 eastern, 530 central for Kentucky Edition, where we'll show you more great stories like what June Leffler brought us about the soybean situation and the tariffs there.

And then, of course, Bill Bryant and a team of journalists will be in this studio to discuss the news of the week on comment on Kentucky Friday at 8:00 eastern, 7:00 central next Monday night.

A great goody for you, the 250 years of Lexington.

Lexington 250, a three hour documentary will air in this time slot.

It will start at 7 p.m.

eastern time next Monday.

So we won't be with you, but we do hope you'll tune in for that wonderful documentary by our producers here at KET.

Thanks for watching, and I'll see you tomorrow night.