Juxtaposing economic strains and constitutional concerns

I was attracted to macroeconomics as an area of study because it offered a framework for thinking about a broad expanse of topics critical to our collective well-being things like inflation, unemployment, economic growth, and international trade. If problems arise in any of these areas, economic theory offers monetary or fiscal policy solutions. Monetary policy is overseen by the Federal Reserve System, which deals with issues generally relating to credit conditions. Fiscal policy, on the other hand, pertains to government spending, taxation, and other administrative regulations.

An Achilles’ heel of economic theory, however, is that sometimes different problem areas arise simultaneously, and the remedies for one problem exacerbate the conditions for another. Stagflation is one such dichotomy. For the uninitiated, stagflation is the concurrence of inadequate economic growth, in which unemployment becomes excessive, coupled with unacceptably high rates of inflation – i.e., just what we’re experiencing right now. Slow growth and high unemployment call for expansionary policies that generally contribute to upward price pressures, thereby worsening inflation. Conversely, contractionary policies tend to be appropriate actions to counter inflation, but they come at the expense of slowing the pace of economic activity and raising unemployment.

Solving the current problem requires identifying measures that limit the prospect of exacerbating one problem when we attempt to mitigate another. Finding such solutions on the monetary policy side of the economic toolkit is particularly difficult, given the blunt tools available to our monetary policy authorities. An effort on the Fed’s part to tame inflation will necessarily retard economic growth; similarly, an effort to stimulate economic growth will foster increased upward price pressure. Currently, the Fed seems to be tilting toward the threat of a slowing economy, with signals that the world is being prepped for coming interest rate cuts. The only question at this juncture is how much and how soon.

In contrast, fiscal policy offers more avenues through which the resulting effects may be more targeted, allowing for progress to be made in connection with one problem without necessarily fostering a worsening situation elsewhere. Tariff policies stand out as one such opportunity.

Trump’s broad imposition of tariffs on goods from virtually all our trading partners directly increases the prices that US consumers and businesses pay for imported goods from abroad. The administration has repeated the lie that these costs are paid for by foreign suppliers so often that far too many people have come to believe it – and repeat it -- but it’s simply not so. That’s not to say that these tariffs aren’t painful for our foreign suppliers. They are. Foreign entities who sell to US buyers are suffering from reduced demand from their US customers compared to what they would experience without these tariffs in place, but their lower economic activity abroad due to our tariff policies will dampen their capacity to buy our products.

The appropriate policy is clear: eliminate the tariffs. This policy reversal would simultaneously reduce prices that Americans pay for imported goods and stimulate additional demand by foreigners for US-sourced goods and services. Win/win. I don’t mean to suggest that eliminating the Trump tariff will be sufficient to solve all of our economic woes. It clearly won’t. Tariffs are unquestionably bad for the economy, but their overall effect is limited. Still, making a U-turn on this issue would be a good start.

Importantly, economics isn’t the only consideration here, and it may even be of secondary importance. Trump’s destructive policy has done more than just raise the cost of living for Americans. It has also antagonized our trading partners inducing at least some of them to seek independence from the US and greater alignment with China. Is this a direction that’s beneficial for the US? I think not. Beyond that, the way these tariffs have come about raises a fundamental question of executive overreach. Trump’s authority to impose these tariffs without Congressional approval is being challenged, with the Supreme Court scheduled to hear oral arguments on this question later this week and a ruling expected to be released sometime in December.

On that question, Article I Section 8 of the Constitution says, “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States….” The language may be a bit archaic, so, to be clear, imposts are taxes on imported goods, and excises are taxes on goods sold within the country. This article unambiguously gives Congress – not the President -- the responsibility for imposing tariffs. We overlook this provision at our peril.

The economic impacts of tariffs are unambiguously negative, but experience thus far has shown that, as bad as they are, we have and presumably can accommodate them, albeit at a cost. Not so for the violation of the Constitution. The potential for the Supreme Court to fail to disallow the continuance of the Trump-imposed tariffs would nullify a key provision of the Constitution, possibly irreparably.

As a non-lawyer, the case seems to be a no brainer, but what do I know. In any case, the check on executive overreach seems to be squarely in the hands of the court. Heaven help us. It’s appalling to me that this could even be an open question – and it should be for all of us. Without the separation of powers as defined by our Constitution, what’s to keep us from becoming a shithole country?