The Sorry State of US Institutions

When the Federal Government Eats Itself
https://www.newyorker.com/news/deep-state-diaries/when-the-federal-government-eats-itself
After six months of DOGE, vital institutions are in disarray as the civil service braces for new cuts. 

Federal data has been disappearing under Trump
https://www.marketplace.org/story/2025/07/28/federal-data-has-been-disappearing-under-trump
There’s been a “targeted, surgical removal of data sets, or elements of data sets, that are not aligned with the administration’s priorities,” said Denice Ross at the Federation of American Scientists.

The Great Dismantling
https://foreignpolicy.com/2025/07/24/liberal-international-order-dismantling-trump-usaid-state-department-human-rights/
It’s time to reckon with the end of the old international order—and shape a vision for a new one.

US Economy: Get Ready for Stagflation Lite

Growth and hiring have clearly taken a hit; the path forward remains murky
https://www.wsj.com/economy/the-wild-week-in-the-american-economy-b5baae41
 
After a Lag, Consumers Begin to Feel the Pinch of Tariffs
https://www.nytimes.com/2025/08/02/business/trump-tariffs-consumer-prices.html
There are growing signs that President Trump’s levies are filtering through to consumer prices, as companies exhaust options for keeping them stable.
 
American businesses are running out of ways to avoid tariff pain
https://www.economist.com/business/2025/08/01/american-businesses-are-running-out-of-ways-to-avoid-tariff-pain
A big squeeze on profits may be coming. 

The True Costs of Trump’s Economic Agenda
https://www.project-syndicate.org/commentary/trump-tariff-policies-undermine-competitiveness-jeopardize-dollar-dominance-by-kaushik-basu-2025-08

AI Revolution and Long-Term GDP Growth

If AI lifts off, will living standards follow?
https://www.ft.com/content/887531bf-646a-46b5-a821-649d3948a574

Automation, AI, and the Intergenerational Transmission of Knowledge
https://arxiv.org/pdf/2507.16078

Federal Reserve economists aren’t sold that AI will actually make workers more productive, saying it could be a one-off invention like the light bulb
https://fortune.com/2025/08/01/federal-reserve-economists-generative-ai-labor-market-productivity-light-bulb
 
Generative AI at the Crossroads: Light Bulb, Dynamo, or Microscope? 
https://www.federalreserve.gov/econres/feds/files/2025053pap.pdf
Abstract 
With the advent of generative AI (genAI), the potential scope of artificial intelligence has increased dramatically, but the future effect of genAI on productivity remains uncertain. The effect of the technology on the innovation process is a crucial open question. Some inventions, such as the light bulb, temporarily raise productivity growth as adoption spreads, but the effect fades when the market is saturated; that is, the level of output per hour is permanently higher but the growth rate is not. In contrast, two types of technologies stand out as having longer-lived effects on productivity growth. First, there are technologies known as general-purpose technologies (GPTs). GPTs (1) are widely adopted, (2) spur abundant knock-on innovations (new goods and services, process efficiencies, and business reorganization), and (3) show continual improvement, refreshing this innovation cycle; the electric dynamo is an example. Second, there are inventions of methods of invention (IMIs). IMIs increase the efficiency of the research and development process via improvements to observation, analysis, communication, or organization; the compound microscope is an example. We show that GenAI has the characteristics of both a GPT and an IMI—an encouraging sign that genAI will raise thelevel of productivity. Even so, genAI’s contribution to productivity growth will depend on the speed with which that level is attained and, historically, the process for integrating revolutionary technologies into the economy is a protracted one. 

FX: Tripolar Currency Blocs

‘America First’ agenda could leave USD behind
https://www.reuters.com/markets/europe/america-first-agenda-could-leave-us-dollar-behind-2025-07-31
Jay Pelosky (Founder and Global Strategist at TPW Advisory) notes:
A growing regionalization of supply chains began during the pandemic and appears to be accelerating as Trump seeks to drive production back to the U.S. and all major global powers focus on securing regional raw material access (e.g., rare earths and other critical minerals) for national security purposes.
This shift could eventually create the foundation for true regional FX blocs across Asia, Europe and the Americas.
This development would have a major impact on the global economy, currency values and capital markets, arguably providing a more balanced global economy with three poles of supply and demand, each attuned to their own regional dynamics rather than the current set-up whereby the global economy responds primarily to the Federal Reserve and U.S. internal dynamics.
 
 
My paper (co-authored with B. Weiss) from 2011:
Global reserve currency system: Why will the dollar standard give way to a tripolar currency order?
https://link.springer.com/article/10.1007/s11459-011-0124-6
Abstract
The recent financial crisis highlighted some of the underlying defects in the dollar-based reserve system. This paper argues that the era of the US hegemonic stability and unipolarity, which provided the foundation for the dollar’s sustenance as the pre-eminent global reserve currency, has already peaked and the global economy of the future will revolve around a multipolar order. The rise of China, along with other emerging markets, is rapidly redrawing the traditional Western dominated global economic system. The structural challenges facing the American economy along with the extraordinary expansion of Federal Reserve’s balance sheet and the explosion of the US government debt will diminish the attractiveness of the dollar standard going forward. Our analysis suggests that a tripolar currency order—consisting of the dollar, the yuan and the euro—will replace the dollar standard in the coming decades. 

US Labor Market Resilience - More Hype than Reality

As I noted in an earlier post (see link below), initial nonfarm payroll jobs numbers were giving a false signal regarding the health of the U.S. labor market. They were being subject to repeated and significant downward revisions. We now know that the first half of 2025 was a disaster from a job creation perspective:
https://www.bls.gov/web/empsit/cesnaicsrev.htm

From May 2, 2025:
US Nonfarm Payrolls – Pay Attention to Data Revisions

https://vivekjayakumar.blogspot.com/2025/05/us-nonfarm-payrolls-pay-attention-to.html

Here are today's revised figures from BLS:

Big Downward Jobs Revisions Could Be a Warning Sign for the Economy
https://www.nytimes.com/2025/08/01/business/economy/jobs-report-revisions-us-economy.html
Employers added far fewer jobs in May and June than previously reported. Such downgrades have historically meant trouble for the labor market.

The Mystery of the Strong Economy Has Finally Been Solved
https://www.yahoo.com/news/articles/mystery-strong-economy-finally-solved-200200276.html

The Tragic Consequences of Trump's Trade War

Global Trade Raised Living Standards for Millions. New Barriers Are Reversing the Trend.
https://www.wsj.com/world/asia/trump-global-trade-living-standards-f4c5a2ae
In Indonesia and elsewhere, export manufacturing helped narrow the wealth gap with the West, creating a consumer class, but that transformation has stalled.  

In a Country Trump Says Nobody’s Heard Of, Tariffs Bring Chaos
https://www.wsj.com/world/africa/lesotho-tariffs-state-of-disaster-87c17f46
Lesotho has declared a state of disaster due to mass layoffs following the threat of 50% tariffs.

How the Threat of Trump’s Highest Tariff Derailed an African Nation
https://www.nytimes.com/2025/08/01/world/africa/lesotho-tariffs-textile-industry.html
The president backed off his call for a 50 percent tariff on Lesotho, imposing 15 percent instead. But in a country where most people live hand-to-mouth, the damage was already done.

America Will Pay for Trump's Tariff Rampage

America will be the chief victim of Trump’s tariffs rampage by Ambrose Evans-Pritchard
https://www.telegraph.co.uk/business/2025/08/01/america-will-be-the-chief-victim-of-trumps-tariffs-rampage/
“We’re looking at a shock to the economy seven or eight times as big as Smoot-Hawley,” said Paul Krugman, a Nobel laureate for trade theory.
Euphoric markets are wishing away the reckless demolition of a global trade system built, led, and painstakingly nurtured by the US for 80 years. “People just keep wanting to believe that Trump is making sense, that he isn’t as ignorant and irresponsible as he seems. But he is,” said Prof Krugman.
US economic growth slowed to 1.1pc in the first half of the year. You have to combine the two quarters because tariff “front-running” distorted the GDP data. The relevant metric is that real final sales are the weakest since 2022.
 
Trump’s trade war returns America to the 1930s
https://www.telegraph.co.uk/business/2025/08/01/trumps-trade-war-returns-america-to-the-1930s/