Pres. Trump’s Surprising Impact on the U.S. Economy

PAULA NEWTON: So, as the world watches the twists and turns of the war with Iran, the global markets are mirroring that chaos. The price of oil plummeted and the stock market soared on Monday after Trump’s announcement of positive talks with Iran. But Iran’s denial of any communication caused the price of oil to creep up again. Fears are mounting that this economic volatility could create major long-term damage. Well, former top economic adviser under President Obama, Jason Furman, argues it might not be all that bad. He tells Walter Isaacson that while the war could spark short-term pains, the future impact will be much less dramatic. And he explains how the U.S. economy has fared so far under President Trump.

 

WALTER ISAACSON: Thank you Christiane and Jason Furman, welcome to the show.

 

JASON FURMAN: Great to be here.

 

ISAACSON: You know, a few months ago, a lot of people, I think even you, thought that in order to tame inflation, we might have to get to above 6% unemployment, but now inflation seems to be tamed. Have we come to a soft landing and how did we pull that one off?

 

FURMAN: Yeah, we’re in better shape than I thought we would be. We’re not all the way there yet. Inflation is still a little bit higher than it should be. My hope is that it’s painless to get the rest of the way. And you know, a lot of this is a combination of the Fed acting decisively getting a little bit lucky and having just a credible system where people really believe there’s gonna be 2% inflation and it becomes self-fulfilling.

 

ISAACSON: But when you look back at it, was this inflation then mainly caused by overspending and overheating, or was it sort of supply chain and other issues that were transitory?

 

FURMAN: It’s both. And some of the spending itself was transitory. Large checks went out to people in 2020 and 2021. No one’s gotten checks since then. So some of that money faded, but also the big supply chain problems faded and solved themselves as well. And the labor market is actually looser. There are fewer job openings and a little bit higher unemployment rate today than was the case two years ago.

 

ISAACSON: In general, though, we’ve got inflation pretty well tamed or pretty well, you know, down. Unemployment is down, the stock market’s way up. It seems good, but people don’t feel good. Why is that?

 

FURMAN: Yeah, the United States economy is the envy of the world. There’s no other country in the world that wouldn’t rather have our growth rate, our inflation rate, our unemployment rate, everything we have right now. People have gotten more positive over the course of this year about the economy. Some of it is we went through just a terrible experience with inflation. You know, whoever’s fault it was, it still was bad for people. It still was hard for people. We’re only digging out from it now. I think part of it though is when people say the economy, they mean something that’s much broader. There’s some other set of things they’re upset about that aren’t quite the same as the recent macro data.

 

ISAACSON: But you look at one of the factors, which is housing costs. And the news this week is that existing home sales in the US have gone down more than any time in the past 30 years. And this is two years in a row, we’ve had a decline in home sales. That seems to be part of the affordability crisis people are thinking about.

 

FURMAN: Yeah, it’s no accident that housing is a big issue in this presidential election in the way that it hasn’t been for a while ’cause house prices are up quite a lot and as you just said, the volume of sales is down. We’re not making as many houses as we ideally would be making, we’re not making them in the right places where people most want to live. And so, yeah, this is a bigger issue today than it’s, than it’s been for a long time.

 

ISAACSON: Well, you teach economics 10 at Harvard, and I guess everybody knows the laws of supply and demand, but tell me, why are house prices at a persistent high. Is it basically that we have too few housing units in America?

 

FURMAN: Yeah, supply and demand is a big part of it. And one thing is, especially in some of the places that people most want to live, which is a lot of the coastal cities, that it’s hard to build. You can’t build as high, maybe you need extra parking spaces. Maybe you need an extra set of permits. Places like – and by the way, including Minneapolis, that have made it easier to build have not seen the same, you know, huge increase in rents that you’ve seen elsewhere. So supply is a big part of the answer, and a lot of that supply reflects local choices.

 

ISAACSON: And when you say supply reflecting local choices, is it the cost of construction or is it that we have just too much not in my backyard type regulation and too many building code regulations and it just gets too complicated to build affordable housing?

 

FURMAN: Yeah, there’s a little bit on the cost side. A lot of what we do, you know, making a car or a watch today, we make it with many, many fewer people – where enormous, enormous productivity increases in manufacturing. To make a house takes about the same amount of people, about the same amount of time. The tools aren’t that much better than they were 30 or 40 years ago even. So there is on the cost side efficiencies that we haven’t had. And maybe things like more prefabricated homes for more affordable housing could play a role there. But the big thing is the nimby, the not in my backyard, the government creating constraints on supply.

 

ISAACSON: So what constraints would you take off if you were housing czar?

 

FURMAN: Well, here in Cambridge the city council is doing a terrific reform. Cambridge is not known for its deregulation and the like, but they’re gonna hopefully make it so you can build up to six stories anywhere in the city. You can build multifamily housing. For everything you build, if you build, I believe 10 or more units you’re gonna have to have 20% of it be affordable and they’ll get rid of a lot of the other rules like setbacks and the like. And my hope is that we do that here in Cambridge. We get more houses, those houses are more affordable, more people can come live here.

 

ISAACSON: I was reading in preparation for this, Kamala Harris’s very detailed plan for housing in America. And even I got totally confused. I mean, $25,000 credit here, but first time home buyers and you have to figure out who’s a first time home buyer and then it goes up in different ways. Do you think that plan is too complex?

 

FURMAN: Look, I think her core motivation is we need 3 million more houses. Completely agree with that. She has a $40 billion fund to give incentives to cities across the country to do what, as I said, Cambridge is hopefully doing right now. So I very strongly agree with that. All of these different tax credits – I agree with the thrust of your question. I think they’re quite complicated. Some of them could be counterproductive. If they raise demand too much, they’ll actually increase house prices, not lower them. And at this time –

 

ISAACSON: Well gimme, gimme an example of one of her suggestions that you think might be counterproductive.

 

FURMAN: I think a $25,000 first time home buyer credit, it sounds great, but you’re gonna see a lot of homes go up in price, maybe even by the full 25,000. So you’re handing money to homeowners, not home buyers. And look, everyone in our country could use a bit of money. I’m not against that, but we have a large budget deficit. Our scarce resources I think are poorly spent with something that’s a transfer to existing homeowners, just not something we can afford given all the many priorities we, we need to put ahead of them.

 

ISAACSON: I was also looking at Trump’s policy about housing and it wasn’t very specific like, you know, Kamala Harris’s plan, but part of it was just get immigrants out of this country, send them back home and that’ll open up housing. Does that make any sense? And are there any other proposals from the Trump side that you would think are reasonable?

 

FURMAN: Yeah, I haven’t seen anything from Trump on housing besides this assertion about immigrants. In general, there is evidence that when you have more immigrants, it on average drives up house prices. But it’ll do different things in different neighborhoods. Immigrants also play a role in the building industry and constructing houses. And overall, even if it was the case that expelling large number of immigrants with lower house prices, it would only lower them by a little bit at what I think would be an unacceptable cost in terms of both humanity and decency as, as well as other issues in the economy.

 

ISAACSON: Well, immigration and what to do about immigrants and asylum seekers and undocumented workers is a huge issue as you know, pretty much driving a lot of this election. And you wrote that immigration is actually one of the reasons we’ve had a strong economic performance. Explain that.

 

FURMAN: Yeah. We’ve had 3% growth. We’ve had tons and tons of jobs every month, you know, hundreds of thousands. And that would not have happened without this big influx of immigrants. The reason is the American population would be shrinking were it not for immigrants, that’s in part because the fertility rate is below the replacement rate and in part because the population is aging and more people is retiring. So we’re an economy that really depends on immigrants. We all benefit from them. But I do not think it’s an ideal system that you’re basically relying on something and need something that you don’t have a formal legal process to do. We basically have a set of laws that if they were fully enforced would be inhumane and uneconomical. But you know, but we, we – but not enforcing the law isn’t into good answer either.

 

ISAACSON: Now you’ve written about how immigration is helping propel our economy, and of course Donald Trump is saying that immigrants are taking your jobs. Is it true that immigrants are taking people’s jobs?

 

FURMAN: No. if you look at the employment rate for people between the age of 25 and 54 – and the reason economists like to look at them is above that you might not wanna work, you might be retired or below that, you might not wanna work, you might be in school. So we look at 25 to 54. It’s a very good way to measure these things. That employment rate is a decent amount higher than it was before Covid, in fact, it’s the highest it’s been in about 25 years. So immigrants, if anything, maybe seem to have been creating jobs for people by increasing demand, by working well together, and the like. The, you know, we have a very high employment rate right now and, and might be worse without immigrants.

 

ISAACSON: The other big economic issue in this campaign is tariffs and a great divide between Donald Trump who seems to like tariffs almost for their own sake… I mean, not just as a weapon to try to protect small segments of the economy, but thinking tariffs are generally good. And I think it’s right to say Vice President Harris as part of the more mainline consensus that free trade is good. Do you think we have to rethink our resistance that the political establishment has generally had a resistance to tariffs?

 

FURMAN: I don’t think we need to rethink it very much at all. There’s a set of tricky issues around China, which does abuse aspects of the international system. I think you need to deal with that in a targeted and focused way, and tariffs might be part of the answer to that. But more broadly when we’re talking about buying stuff from Australia, Germany, or even the majority of what we buy from China, the benefits of free trade are that you get better variety and lower prices for consumers. You also end up with more exports and more higher paid jobs in the export sector. And you know, I’m not sure how much we need in terms of manufacturing beyond a defense space, but regardless, tariffs actually haven’t helped manufacturing jobs in this country because, for example, if you put tariffs on steel, you might help some steel workers, but then you end up hurting some auto workers because you use steel to make cars, it makes American cars more expensive, we can’t sell as many of them around the world. So tariffs are just a terrible way to protect manufacturing jobs since an awful lot of them are intermediate inputs into the manufacturing process itself.

 

ISAACSON: Well, let me push back a little on the manufacturing jobs issue and tariffs, because even economists like David Autor who works near you have talked about the China shock and that we lost half a million manufacturing jobs when we brought China into the WTO. Maybe in theory tariffs are bad and free trade makes sense. But to a guy who was – or a gal – who was in a factory working and those factories are now gone isn’t that a real blow to our economy?

 

FURMAN: Look, there’s this study about the China shock and I think it finds something correct that you lose jobs when those imports flood in. There was another study that used the same technique, by a great trade economist, and he found a similar and perhaps even larger number of jobs were created in exporting. And so what you see is that China – and by the way, it was mostly China’s growth, not the China’s entry to the WTO that was, mattered here. It created jobs in some areas, lost jobs in other areas. And by the way, you know, it does that at a much, much bigger scale is technology. All the time technology is destroying some jobs, adding some jobs. And if we had kept the world frozen the way it was 50 years ago, a hundred years ago, 200 years ago, we would all be much, much poorer. So I agree, we need to think really seriously about what we can do to help people, but if your answer is tariffs, you are going to end up helping some jobs, hurting other jobs and the net will be a negative.

 

ISAACSON: One of the other proposals that Vice President Harris has made is a wealth tax, and it hasn’t been totally clear how that would be done whether you tax unrealized capital gains, but tell me how would you structure a wealth tax? Or would you just say that’s a bad idea?

 

FURMAN: Yeah, so I think there is room to raise taxes on high income households beyond what we’ve already done. There’s a limited amount of room there, by the way. There is not enough taxes that we could raise from the rich to pay for everything that Harris would like to do, everything that the Democratic party would like to do, and also put our debt on a sustainable course. But there’s some money there. You know, the easiest things are just raising the tax rate a little bit, raising the tax rate on capital gains a little bit, plugging some of the loopholes, like the way people pay themselves as passed through entities in order to get a lower tax rate. There’s another proposal regarding tax and capital gains before the asset has been sold as the gains have been accrued. I think there’s some merit to that, it’s worth considering, but there’s a lot of places you can go before you get to that.

 

ISAACSON: One of Donald Trump’s ideas and now very specific proposals for dealing with the deficit is really a slashing of the federal government getting rid of education departments, cutting the bureaucracy. He’s even talked to Elon Musk who is used to firing 85% of the workforce in some of his companies when he feels things have gotten too flabby. Do you think there’s a, either a possibility or makes some sense to see if we can really do what, say President Milei is doing in Argentina, which is slashing government spending?

 

FURMAN: I don’t think that Donald Trump’s approach to that will work. And if it did work, I think the consequences would be terrible. First of all, most of our government spending is on things like healthcare and social security, and he’s basically taken all of that off the table. So he’s starting with a minority of where we need to go. There’s certainly some fraud, waste and abuse in government, but it’s, it’s hard to tackle, you know, that fat without getting to, you know, a lot of what people really, really care about. And, you know, education, you know, research and development, medical research, these things have incredibly high returns. It would be a real tragedy to see a big cut in any of them.

 

ISAACSON: You know, when it comes to foreign policy, there were a lot of people in the first Trump administration who acted as guardrails. You know, General Mark Milley, chief of staff, John Kelly. And there’s a worry that they’ve disappeared and will not be there if there were a second Trump administration. Is that true in economic policy as well? That a, if there were a second Trump administration, the people who provided sort of a guardrails of stability wouldn’t be there now? 

 

FURMAN: Yeah, I’m very worried. There’s both fewer Republican friends of mine who are willing to serve in an administration and it appears that there’s less demand for the sane, rational people from the Trump side as well. And even within his first term the direction of economic appointments went towards ones that were less constraining on the raw instincts of Donald Trump. And I’m afraid we could see the same thing on the economic side this time around.

 

ISAACSON: Jason Furman, thank you so much for joining us.

FURMAN: Thank you