Government deficits directly drive up national borrowing, increasing financial inflows from abroad (due to upward pressure on US interest rates), which are the flip side of the trade deficit. (We buy more imports than we earn from exports by borrowing the difference abroad.)
Terrific piece from my coauthor Maury Obstfeld, examining the claim that dollar centrality lies at the heart of US current account deficits.
My favorite line: "That this proposition is wrong has not prevented its confident assertion."
(Applies to so much these days.)
www.piie.com/blogs/realti...
Thanks to @stanveuger.bsky.social for his work on this important effort.
Huge congratulations to @ludwigstraub.bsky.social for winning the Clark Medal. He is not only brilliant and original, he is also at a commensurate level in kindness and humility.
Last week, I outlined questions I would be looking to have answered when the President’s budget is released.
Now that we have the full proposal, we can now answer them.
Hint: It fails to offer affordability solutions to make life more affordable while raising the risk of hasty, harmful cuts. 🧵
NDD less VA medical, 1986-present. roughly flat-ish until 2020 around 3%, and then down down down down to 2% last year. And then Trump is proposing taking it down to 1.7%.
Here is my thread on Trump's budget request, which I'll update throughout the day.
He calls to cut domestic discretionary funding to the lowest level in the modern era.
Trump's budget reimagines Americans' relationship with our govt, and proposes a country that does less to help people get by.
The Fed won a sweeping court victory Friday. But the fact that it needed one tells you everything about how much has changed.
The unsealed filings are something else—the Fed catalogued 100 Trump attacks on Powell.
Fed independence used to be protected by norms. Now it’s depending on judges.
The economic case for Congressional action is only getting stronger.
The serious price pressures in energy markets are adding to the stagflationary headwinds of the tariffs.
A challenging time for the central bank.
(1/2) Your daily reminder that Congress has the power of the purse. They control these delegations of authority, and they have the ability to curb/end them.
SCOTUS has done their job standing up for separation of powers. It's time for Congress to do theirs.
www.nytimes.com/2026/03/11/b...
Corruption and influence-peddling have long been major problems with tariffs, and they may also help explain why Trump so loves them: gathering in his hands total ongoing discretion over every tariff gives pretty much every important business and nation a strong ongoing reason to court his favor.
"Until Congress reasserts its constitutional authority over tariffs and other policy matters, the institutional decline and corruption enabled by Mr. Trump’s agenda will continue," write Shane Ball and Kimberly Clausing.
Today w/ @shaneball.bsky.social in @nytimes.com.
I used to think the Trump tariffs were about not understanding economics.
Then that they were about disguising a shift in tax burdens.
Those may both be true; yet the dominant aim may well be power/corruption.
www.nytimes.com/2026/03/02/o...
JCT is live streaming its 100th birthday celebration on March 4. (I'm on the panel) www.jct.gov/live-stream/
CBAM backsliding would provide only minimal price relief to farmers, while hurting the prospects of EU fertiliser producers, argue @kclausing.bsky.social, Ignacio García Bercero, @mpereboom.bsky.social & @cwolfram.bsky.social
🔗 buff.ly/HdgPdrT
#EconSky
New piece out @bruegel.org with Ignacio García Bercero, @mpereboom.bsky.social, and @cwolfram.bsky.social.
In which we describe why exempting fertilizer from the EU's CBAM will do little to nothing for farmers, while weakening an important climate policy tool.
www.bruegel.org/first-glance...
(6/6) Finally, at more length, we discuss whether it makes sense to think of the United States as having balance of payments problems.
In short, it does not.
See the piece for all the details.
www.piie.com/blogs/realti...
(5/6) And Trump has plenty of cards to play with trading partners.
(4/6) But there is also bad news.
Tariffs will continue, alongside distortion, business uncertainty, consumer costs, and rampant opportunities for corruption and rent-seeking.
(3/6) These tariffs also expire in five months, unless there is an Act of Congress. Calling the question with Congress will not be successful, especially given the fact that this is a midterm election year, affordability is front of mind, and tariffs are deeply unpopular.
(2/6) Another good and important development: the President’s tariff cudgel is weaker. An even across-the-board tariff makes it hard to play foreign governments off each other.
(1/6) In my recent piece with Maurice Obstfeld @piie.com, we describe features of today’s US tariff environment. There are three bits of good news and bad news, but it is clear that Section 122 doesn’t apply.
Most Important Good News:
The Court defended separation of powers.
The president’s own lawyers argued in the IEEPA case that Section 122 was no substitute for IEEPA, since balance of payment deficits are conceptually distinct from the current account & trade deficits that Trump has characterized as an emergency. By @kclausing.bsky.social & Maurice Obstfeld:
My blog post today with Maurice Obstfeld.
We discuss the Supreme Court ruling, the pivot to Section 122, why that too is inapplicable, implications for trading partners, and what next.
What the Supreme Court's tariff ruling changes, and what it doesn't www.piie.com/blogs/realti...
A must-read in Europe and beyond.
Persuasive commentary from my terrific coauthor @cwolfram.bsky.social .
Everyone can, if they are willing to get pre-screened, which would speed up travel for the whole system. For people who travel very infrequently, though, the pre-screening may not be worth their time.
It's unclear how making the most prepared and screened travelers spend more time in screening saves staff time. (Or even helps Noem convince the public that she's not part of the problem.)
wapo.st/4aw9RZ2
I haven't seen, but it certainly strengthens their hand, a large reason to rework or cancel. (A good thing.)
By 6-3 decision, tariffs struck down.
