A Nobel Prize winner has suggested “nobody knows what’s next” for the economy under Donald Trump’s administration.
The president has struggled to tackle the cost-of-living crisis, prompting Paul Krugman to point out that the economy under Trump is hard to pin down. Writing in his Substacknewsletter, the award-winning economist claimed the Trump tariff policy had made businesses across the country “reluctant to make commitments” for fear the economy could massively change again.
He wrote, “The key point about Trump’s tariffs and to some extent his other policies is that they keep changing, and nobody knows what will come next.”
“This uncertainty makes businesses reluctant to make commitments, including the commitment involved in hiring new workers: If you hire workers based on current tariffs, what happens if the Supreme Court rules those tariffs illegal, or the Trump administration picks a different country or countries as enemies?”
Krugman went on to say Trump is “largely, though indirectly, responsible” for a K-shaped economy. Krugman explained the “K-shaped economy” is one where “incomes and wealth are rising only for those at the top”.
The economist added, “So the K-shaped economy is a real but relatively recent development. Why is it happening? The proximate cause of the K-shaped economy is a weak job market.”
“As I’ve written repeatedly, the U.S. economy has not (yet) experienced mass layoffs. Employers have, however, become very reluctant to hire new workers.” A Gallup poll citing how Americans felt about the job market showed fewer people were finding it easier to find a job.
Krugman added, “Gallup’s result, consistent with other surveys like the Conference Board, shows that Americans are very pessimistic about the job market.”
“Trump may claim that we are economically “the hottest country in the world,” but the truth is that we last had a hot labor market back in 2023-4. At this point, by contrast, we have a ‘frozen’ job market in which workers who aren’t already employed are having a very hard time finding new jobs, a sharp contrast with the Biden years during which workers said it was very easy to find a new job.”
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