It's the Economy

show me the money supply

Jun 22, 2025

In Jay We Trust

Trump is very mad at Jay Powell, which could have been a headline in any of the years Trump has been in office since he himself appointed Powell in 2018. Like this time in 2018, 2019, this other time in 2019, 2020, 2024, and earlier in 2025.

Trump seems to be mad that US interest rates are higher than in some other places.

This is, of course a mistake, and a misreading of the situation.

Interest rates are very complicated, and to paraphrase Scott Sumner, we cannot reason from a price level — that is to say, we cannot know whether low or high rates are good in and of themselves or whether they indicate a strong or weak economy, in a vacuum.

The best reading of the facts, in my humble opinion, is that we have higher rates than other developed countries (e.g., Europe) because we have had a much stronger economy, especially better monetary (i.e., the Fed) and fiscal (i.e., spending bills) policies than Europe, really since 2008, but especially since COVID.

Proof? Just look at these cute lil guys with their GDP that’ll crack $20T a mere 3 decades after breaking $10T.

The “europoor” memes exist for a reason!

But, that cuts two ways, if you have a really terrible economy, you get to have lower rates without causing inflation! We Chads in the USA have to settle for having higher rates to keep a lid on things.

It’s sort of like Trump is complaining that we, the US, professional athletes, have to spend time in the gym to maintain our peak physiques, while the slow flabby Europeans can sip wine and smoke cigs at lunch and maintain theirs. But Trump wants a ciggy with his mimosa.

This brings me directly to another pet peeve of mine. A bunch of silicon valley-types have been hot on the idea of doing some industrial policy at the Federal level so that we can get some of that sweet success that China has had.

But the Chinese economy sucks! China is very poor!

Yes, they’ve had impressive growth on a year-over-year percentage basis, but it has started from such a comically low base, it was not hard to do! It is true that other countries have done worse, but lots of countries are run by very stupid people!

China does not have some secret sauce that we want! You cannot take the things that give 8% GDP growth to a very poor country and port them over to the richest economy the galaxy has ever seen and expect to juice growth rates!

China has a very big GDP because they have lots of people! And they have managed not to completely self-destruct their economy in the past several decades. That’s the story.