Why Trump’s ‘golden age’ has tarnished the middle class

0:00Justin Wolfers:Support for NPR and the following message come from the William and Flora Hewlett Foundation. Investing in creative thinkers and problem solvers who help people, communities, and the planet flourish. More information is available at hewlett.org.

0:16Jonathan Weil:WBUR Podcasts, Boston. The tax cuts for the rich are permanent. So this is a gimmick that gives you a talking point, but it doesn't deliver meaningful long-term tax breaks for middle-class Americans.

0:30Justin Wolfers:How the president gets away with boasting about the economy, while economists say his policies redistribute money from the poor to the rich.

0:47Justin Wolfers:It's Wednesday, February 25th, and this is Here and Now Anytime from NPR and WBR. I'm Chris Bentley.

0:57Justin Wolfers:Today on the show, there's a firehose of money flowing into AI. But a lot of it is coming from other AI companies. The broad concern is, are we really seeing a huge new economy take off?

1:12Jonathan Weil:Or are we seeing the equivalent of five people sitting at a table all passing the same$100 bill around to each other?

1:19Justin Wolfers:The problem with AI's circular economy, coming up in about 10 minutes. Before we get to that, though, we are not going to rehash President Trump's hour and 48-minute State of the Union address. But we do want to dig into one major claim the president made, that he pulled off an economic turnaround. Our nation is back, bigger, better, richer, and stronger than ever before. I don't need to tell you, the economy is still very lopsided, and things are still getting more expensive. But let's take a closer look at the real economy, not the one of political rhetoric, with Justin Wolfers, a professor of economics and public policy at the University of Michigan.

2:04Justin Wolfers:He spoke to Scott Tong.

2:06Jonathan Weil:Yeah, so here's the tell. Anytime anyone wants to talk about the cost of living, if what they do is name individual products, that's because the consumer price index, which actually measures the cost of living, is rising. And so what they try to do is they pick out the few unrepresentative cases. For instance, it's true that egg prices are down, but that's mainly because we're finally getting over the bird flu. But overall, the cost of groceries is rising at about 2.5%. Overall, inflation is somewhere around 2.5 % to 3%. telling us that prices are falling when we each live with the reality strikes me as a losing game.

2:42Justin Wolfers:Yeah. Two and a half percent? I mean, when you just kind of step back and look at that rate of inflation for the middle class family, how does that sound to you? How is that?

2:52Jonathan Weil:We typically want inflation to be low enough that people ignore it. The Fed's target is 2%. The measure that the Fed targets is 3%. If you talk to people, they can feel that prices are still rising. A lot of this is still an adjustment from sort of the post-pandemic inflation. But at the moment, you know, inflation is stuck. It's stuck at a rate that's a little higher than we would like by no means an emergency. But it's certainly, there's no question the prices are rising. And there's no question the prices are rising partly because of some of the choices of the administration.

3:24Justin Wolfers:Yeah. Let's talk jobs. The president last night said more Americans are working today than at any time in the history of our country. I guess we should note there are more people overall in this country. The jobless rate right now, Justin, 4.3 % sounds reasonable. If I'm job hunting now in a middle-class American family, how is it out there?

3:46Jonathan Weil:Yeah, it's not that good. Here's the problem. So the claim that we have more people working than ever before in the past, that's almost always true because we almost always have more Americans. And when you have more Americans, you have more workers. It's been true of almost every month over the last century. It's a crazy thing to boast about. But what we should look at is, as you say, the unemployment rate. That has been drifting up. President Trump inherited a rate of around 4%. It's risen slowly to about 4.25 % to 4.5%. It's risen slowly enough not to attract a lot of attention. But what we're in right now is what people are calling a no-hire, no-fire economy, that there's very few job openings.

4:24Jonathan Weil:But also those who do have jobs are more secure than they might normally be. This makes it particularly hard for folks like college graduates who are trying to break into the job market right now And they're reporting. It's very difficult to find work

4:37Justin Wolfers:Yeah, we talked on our show recently about The number of people who've been looking for a long time, right that category and that number is growing is going up Okay taxes big applause last night when the president said this about the tax cut bill from last year Last year, I urged this Congress to begin the mission by passing the largest tax cuts in American history, and our Republican majorities delivered so beautifully. Thank you, Republicans. Justin, can you talk about the winners and losers in that tax cut bill and where the median American family fits in?

5:17Jonathan Weil:Yeah, so that tax cut bill, the president calls it the one big beautiful bill, is actually the largest redistribution from poor to rich in American history. What it does is it provides tax cuts for high income families. Those tax cuts are permanent. They're here to stay. It adds on a bunch of benefit cuts for low income Americans. And then you want to think about tariffs, which also take a bigger chunk of the paycheck of low income Americans. But then it's got some gimmicks. and the gimmicks that the president boasted about, for instance, no tax on tips. Actually, some tips are still being taxed.

5:52Jonathan Weil:No tax on overtime. Actually, if you're getting paid like time and a half, it's only the half that's not getting taxed. No tax on social security. In fact, social security is still taxed. And the important thing is each of those tax breaks, the president has got set to expire in 2028. The tax cuts for the rich are permanent. So this is a gimmick that gives you a talking point, but it doesn't deliver meaningful long-term tax breaks for middle-class Americans.

6:21Justin Wolfers:Yeah. Justin Wolfers is professor of economics and public policy at the University of Michigan. Justin, thank you again.

6:28Jonathan Weil:Pleasure.

6:32Justin Wolfers:So that's one view on the economy. It's a very different picture if you look at big tech specifically. Coming up next, AI companies are investing in and selling products to one another in a circular economy that for now is buoying the stock market and some national economic figures. But what happens when the music stops? Scott has that story in just a minute.

7:05Justin Wolfers:support for npr and the following message come from the william and flora hewlett foundation investing in creative thinkers and problem solvers who help people communities and the planet flourish more information is available at hewlett.org in the big business of artificial intelligence, Meta, the parent company of Facebook, will buy$60 billion worth of AI chips from the company AMD. AMD, as it happens, made a similar agreement with OpenAI, the company behind ChatGPT. These are just a couple of the deals that tech companies like NVIDIA and Oracle and Microsoft are making with one another. They invest in, they lend to, they buy from one another.

7:47So the flowchart looks like a bowl of spaghetti.

7:50Justin Wolfers:In this tangle of money, is also not fully transparent. Here to talk about it and the possible risks is reporter Jonathan Weil. He contributes to the Herd on the Street column at the Wall Street Journal. Hey, Jonathan. Hello. Thank you for having me. Just to step back and understand, if this money goes through and it flows in a circle, what is the concern? If you're going to put it in simplistic terms,

8:17Jonathan Weil:The broad concern is are we really seeing a huge new economy take off or are we seeing the equivalent of five people sitting at a table all passing the same$100 bill around to each other? That's where the concern of circular finance comes in. You might, and just as a parallel, 25 years ago or so, late 90s, 2000, there was a form of circular finance called vendor financing where you had telecom equipment companies like Lucent, which was a big company in its day. They needed customers for their telecom equipment. And so they would lend money to those customers like Winstar was a classic example.

8:58Jonathan Weil:Lucent would book revenue and their earnings would look great. And then Winstar one day, they said, oh, we're not going to pay you. We're going to file for bankruptcy. And so what happens is that you have big write downs and you have layoffs and you have losses. And it was all circular. And people kind of knew that at the time. But then, you know, it all comes down to are you going to get paid? So when you have new startups who need funding and they also need to finance the build-out of their company, it's a tightrope. And that's what people are looking for right now to see that guy walking on the tightrope way up there.

9:38Jonathan Weil:Is there any sign that he's going to wobble?

9:41Justin Wolfers:Well, and then given they're all connected, maybe our metaphor changes from spaghetti to dominoes or something, right? That is, history suggests maybe one could take down the other.

9:49Jonathan Weil:Or stick with the tightrope metaphor if you want. You've seen at the circus, sometimes you might have 12 people standing on the shoulders of the guy on the tightrope.

9:57Justin Wolfers:Ah, yeah. What about the non-transparency here? What's the uncertainty for people who are kind of nervous if this money is actually going to flow? Fundamentally, what's the problem there?

10:10Jonathan Weil:I don't necessarily see transparency as a problem because some of these companies have no obligation to be transparent. OpenAI doesn't have public shareholders. Anthropic doesn't have public shareholders. They are just massive startups. They don't have to make disclosures. So maybe transparency is a practical problem for people trying to understand it who have a need to understand it. But, you know, that said, the practical problem is real because people do try to evaluate what the prospects are for some of these companies and for the build-out of the ecosystem as a whole. We had a story just the other day where we added up the estimates for five big tech companies' capital spending expectations over the next four years.

10:53Jonathan Weil:It's$3 trillion. So that's going to be a very big portion of the economy over the next handful of years. And that's assuming that the spending gets done. Sometimes you end up with funding gaps and the spending takes longer to get done than people were anticipating. And it can be extremely disruptive.

11:12Justin Wolfers:For these five big companies spending$3 trillion over the next few years, how much profit are they expected to make? In other words, what do we know about the return on that investment?

11:23Jonathan Weil:That is a huge question that every investor is trying to figure out. When you spend$3 trillion collectively between five companies on property and equipment, there are probably going to be some winners and there are probably going to be some losers. And some of those companies will have better returns on investment than others. And some of them might not know what they're doing and might have to write down a lot of that stuff. We just don't know. And these are projections for the next five years of their so-called capital expenditures. It's not like your ordinary expenses. This is their building and buying stuff and putting them on the balance sheet as assets and trying to get a return on those capital investments.

12:02Justin Wolfers:So the regular person, say the AI neophyte or maybe just trying it out, who has kids' college fund, retirement fund in the stock market, should that person be paying attention to this?

12:17Jonathan Weil:Well, sure, because everybody has to evaluate what their own risk tolerance is. Most people who have money in the stock market are passive investors. They're investing in things like index funds. Now, some of these companies, NVIDIA, are taking up extremely large portions of the index funds that ordinary investors, everyday investors own. So it is worth watching. But for most, I would say, passive investors who hold index funds, they're not going to be jumping in and out of the market based upon what they read in the Wall Street Journal or elsewhere about the latest deal falling through or not.

12:57Yeah.

12:58Justin Wolfers:Yeah. And Jonathan, there are analysts and others who are less worried about this. What is a rosier perspective of all this?

13:06Jonathan Weil:Well, and let me be clear. I'm not saying that I'm not rosy about this. These types of arrangements may be necessary for lack of a better arrangement. And they work until they don't. And if they work, they can work spectacularly well. They can really jumpstart the investment process for, you know, the companies who need to build out their infrastructure in this land rush that is, you know, AI and trying to get to bigger and better products first before anybody else. But, you know, all ventures have risk. And the bigger the dollars, the bigger the risk. And, you know, again, it works well until it doesn't.

13:45Justin Wolfers:Jonathan Weill is a reporter and columnist at The Wall Street Journal. Thanks, Jonathan, very much.

13:51Jonathan Weil:Thank you for having me.