The Art of the Crater
A brief tour of every self-inflicted wound in the American economy, for those who were assured that the adults were in charge
Let us begin, as one must when surveying the wreckage of a national economy, with a confession of admiration. It takes a particular kind of genius to inherit a functioning economy — low unemployment, moderating inflation, a stock market at all-time highs — and within fourteen months reduce it to a condition that economists are now decorously calling “stagflationary.” Most governments achieve this kind of damage only through war, pandemic, or catastrophic natural disaster. The Trump administration, characteristically ambitious, has managed to achieve it through all three simultaneously: a war it chose, a pandemic of policy incompetence, and the entirely unnatural disaster of a trade policy so incoherent that the Supreme Court of the United States was obliged to inform the President that he does not, in fact, possess the constitutional authority to levy taxes by decree.
But I am getting ahead of myself. The story of how the world’s largest economy was driven into a ditch should be told in order, if only because the sequence reveals something that no single data point can: the systematic, compounding, mutually reinforcing quality of the damage. Each bad decision did not merely cause harm in isolation. Each bad decision made every subsequent bad decision worse. This is not a story of one mistake. It is a story of a machine designed to produce mistakes at industrial scale.
The tariffs: a tax increase disguised as a foreign policy
The centrepiece of the Trump economic agenda was, and remains, the tariff. The President has spoken about tariffs with an enthusiasm he normally reserves for himself. He has called them “beautiful.” He has claimed, repeatedly and against all evidence, that foreign countries pay them. He has described them as instruments of liberation. On April 2, 2025 — “Liberation Day,” as the White House branded it without apparent irony — he imposed sweeping reciprocal tariffs on imports from approximately ninety nations, with rates ranging from ten per cent to forty-nine per cent.
The economic profession’s response was approximately unanimous. Tariffs are taxes paid by domestic importers, not by foreign governments. This is not a contested proposition in economics. It is not a matter of ideological perspective. It is an accounting identity. The goods arrive. The duty is assessed. The American importer writes the cheque. Whether and how much of that cost is subsequently passed to the American consumer is a question of market dynamics, but the initial incidence is not in dispute and never has been.
A study published in April 2026 by three economists at the Federal Reserve confirmed what the profession already knew: the tariffs are responsible for the entirety of the excess inflation in core goods prices since January 2025. Core goods prices rose 3.1 per cent as a direct consequence of tariff pass-through. Americans are paying ninety-four per cent of the tariffs’ costs. The President’s claim, repeated as recently as January 2026 in a Wall Street Journal op-ed, that the burden has fallen “overwhelmingly on foreign producers and middlemen” is not merely wrong. It is the precise inversion of the truth.
The Tax Foundation estimated that the tariffs constituted the largest tax increase as a percentage of GDP since 1993, amounting to an average increase of $1,500 per household in 2026. JPMorgan estimated that businesses, which initially absorbed roughly eighty per cent of the tariff costs, would by mid-2026 be passing eighty per cent of those costs to consumers. The direction was never in doubt. The only question was timing — and the timing was determined by inventory. Companies had stockpiled goods ahead of the tariff announcements, buying themselves a few months of price stability. As those stockpiles depleted, the price increases became unavoidable.
The OECD projected that U.S. growth would slow to 1.6 per cent in 2025, down from 2.8 per cent in 2024. Federal Reserve Chair Jerome Powell acknowledged growing stagflation risks. Goldman Sachs estimated that the tariffs added half a percentage point to inflation in 2025 alone — a figure Powell confirmed was responsible for the entirety of inflation’s rise above the Fed’s two per cent target. Inflation ended 2025 at 2.7 per cent, precisely the figure it had been at the end of 2024 — but only because the measurement was distorted by a government shutdown that prevented the Bureau of Labor Statistics from collecting October CPI data in full, and because businesses had not yet finished passing costs through. The veneer of stability was precisely that: a veneer, behind which the actual price increases were accumulating like water behind a dam.
The Supreme Court intervenes
On February 20, 2026, the United States Supreme Court ruled 6–3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act does not authorise the President to impose tariffs. Chief Justice Roberts, writing for a majority that included both conservative and liberal justices, observed that the power to impose tariffs is “very clear[ly] … a branch of the taxing power” reserved to Congress under Article I. The President’s assertion that two words in IEEPA — “regulate” and “importation,” separated by sixteen others — conferred upon him the unlimited power to impose tariffs on any product, from any country, at any rate, for any duration, was, the Court found, insupportable.
The scale of the ruling’s fiscal implications was staggering. Penn Wharton Budget Model economists estimated that IEEPA-based tariff collections totalled approximately $175 billion — exceeding the combined fiscal 2025 spending of the Department of Transportation and the Department of Justice. More than a thousand businesses had already filed suit seeking refunds before the ruling was issued. The government had collected $264 billion in customs duties in calendar year 2025, up from $79 billion in 2024 — a 234 per cent increase. The IEEPA tariffs accounted for roughly half of all customs duties collected.
The President’s response to the Supreme Court’s ruling was characteristically undaunted by its implications. Within hours, he imposed a new ten per cent tariff under Section 122 of the Trade Act of 1974, which authorises temporary import surcharges for a maximum of 150 days. The following morning, he announced on Truth Social that the rate would be increased to fifteen per cent — the statutory maximum. Treasury Secretary Bessent stated that combining Section 122, Section 232, and Section 301 tariffs would result in “virtually unchanged tariff revenue in 2026,” a statement that amounted to a public confession that the administration intended to achieve through legal workarounds precisely the same economic damage the Supreme Court had just declared unconstitutional.
Meanwhile, the question of refunds remained unresolved. The executive order terminating the IEEPA tariffs said nothing about returning the money. Justice Kavanaugh, in dissent, noted that the government “may be required to refund billions of dollars to importers who paid the IEEPA tariffs, even though some importers may have already passed on costs to consumers.” This is the kind of sentence that sounds like a legal observation but is actually a description of a fiscal bomb. $175 billion in potential refund liability, in an economy already groaning under the weight of tariff-induced price increases and a war-driven oil shock. The administration has signalled it intends to fight the refunds in court for years. The businesses that paid those tariffs — and the consumers who ultimately bore the costs — are expected to wait.
DOGE: the chainsaw that cut nothing but people
The Department of Government Efficiency, the initiative Elon Musk launched in early 2025 with a promise to cut $2 trillion from the federal budget, provides a case study in the distinction between spectacle and accomplishment. Musk literally held up a chainsaw at a February rally. The symbolism was apt in ways he did not intend: chainsaws are indiscriminate, dangerous in untrained hands, and effective primarily at destroying things that took decades to grow.
By the numbers, DOGE’s record is this: from January 2025 to January 2026, 386,826 workers departed the federal government. The federal workforce fell by more than 271,000 — the largest peacetime workforce reduction on record, bringing federal employment to levels not seen since 2014. The pace of reduction exceeded the Clinton-era cuts, which had taken four years, in under twelve months.
And spending? The Cato Institute — not an organisation known for its sympathy toward big government — concluded: “DOGE had no noticeable effect on the trajectory of spending.” Federal spending in 2025 exceeded 2024 levels by $248 billion. An observer who did not know when DOGE started could not identify it in the spending data. The federal deficit grew by nearly $2 trillion from October 2024 to August 2025 — an increase of $76 billion from the same period the year before. Social Security payments alone rose by more than $100 billion. Interest on the national debt rose by another $100 billion. The savings Musk claimed — $215 billion by DOGE’s own accounting — were, according to independent analysis, unverifiable, full of errors, and in many cases demonstrably fictitious. One claimed savings of $4.3 million from cancelling a consulting contract that was worth $150,000, almost all of which had already been spent.
What DOGE did achieve was the destruction of institutional capacity. The Department of Education lost half its staff. USAID was gutted and folded into the State Department. The IRS was stripped of personnel in the middle of filing season. Immigration judges were fired while the administration simultaneously tried to hire 10,000 new ICE officers. Some agencies began quietly rehiring workers to avoid operational collapse — the GSA scrambled for office space to accommodate an immigration enforcement surge it had itself helped defund.
The downstream economic effects were substantial. Economists estimated that when contract workers and indirect impacts were included, DOGE-related activities could ultimately affect nearly one million jobs. Virginia lost 23,500 civilian federal jobs in eleven months — wiping out six years of federal job gains. D.C. lost 22,000 federal jobs, representing a quarter of all employment in the city. Seventy per cent of displaced federal workers held bachelor’s degrees or higher, flooding a white-collar job market that was already contracting. Private-sector job postings from the twenty-five largest federal contractors fell fifteen per cent from January 2026.
Musk departed DOGE in May 2025. His year-end assessment, delivered on a podcast, was that the initiative had been “a little bit successful.” One suspects that this assessment, like so much else in the preceding months, was not intended to be taken literally.
The fiscal picture: spending more, earning less, borrowing the difference
The broader fiscal context makes the DOGE fiasco worse, not better. The administration’s legislative centrepiece — the One Big Beautiful Bill Act — layered additional tax cuts and spending changes on top of an already deteriorating fiscal trajectory. The national debt has grown by more than $2 trillion since inauguration. Interest payments on that debt are now one of the fastest-growing categories of federal expenditure, consuming resources that might otherwise support productive investment or provide fiscal space for crisis response.
The promised tariff revenue — which was supposed to fund tax cuts and reduce the deficit — has been halved by the Supreme Court ruling. The Section 122 replacement tariffs generate less revenue at lower rates and expire in 150 days. The administration has launched new Section 232 investigations into pharmaceuticals, semiconductors, aircraft, and other sectors, but these investigations take months to complete and their legal basis, in the wake of the IEEPA ruling, faces heightened scrutiny. The fiscal arithmetic that was already implausible has become openly fantastical: the administration is simultaneously cutting revenue (through tax reductions and tariff invalidation), increasing spending (through the war, through debt service, through mandatory programmes that cannot be cut by executive action), and claiming to be reducing the deficit.
The bond market has noticed. The thirty-year Treasury yield reflects, among other things, investor expectations about future fiscal sustainability. Higher yields mean higher borrowing costs for the government, for businesses, and for every American with a variable-rate loan or a mortgage to refinance. The fiscal damage from the administration’s policies is not merely theoretical. It is priced into the cost of capital that underlies every investment decision in the economy.
The war nobody planned for
On February 28, 2026, the United States and Israel attacked Iran. The immediate consequence — predictable to anyone who had ever glanced at a map of the Persian Gulf — was the effective closure of the Strait of Hormuz, through which approximately twenty per cent of global oil supplies had been transiting. Iran retaliated by attacking commercial shipping. The largest disruption of crude supplies in history ensued.
Oil prices surged past $110 per barrel. U.S. crude topped $120 in physical markets. The national average for a gallon of regular gasoline, which had been $2.90 on February 1, exceeded $4.00 by April 2 — a 38 per cent increase in two months. California hit $5.89. Diesel prices, critical for freight and agriculture, surpassed $6.00 per gallon in many states. The EIA projected retail gasoline would peak at a monthly average near $4.30 in April and that diesel would peak above $5.80.
The President’s primetime address on April 2, in which the nation expected to hear an exit strategy, contained none. Instead, Trump vowed to hit Iran “extremely hard” and threatened to bomb the country’s power plants and send it “back to the stone ages.” Oil prices responded accordingly. “The speech was a disaster,” one energy analyst told CNBC. Goldman Sachs estimated that nearly a billion barrels of crude and refined products would be lost by month’s end.
A two-week ceasefire was announced on April 7, but it proved fragile. Iran demanded tolls in cryptocurrency for passage through the strait. Ship traffic did not meaningfully resume. On April 12, Trump announced a U.S. naval blockade of the Strait of Hormuz — effectively blockading the very chokepoint whose closure was causing the crisis — and threatened to interdict “every vessel in International Waters that has paid a toll to Iran.” Iran fired on two tankers over the weekend. The strait remained largely closed.
On April 19, Energy Secretary Chris Wright conceded on national television that gas prices might not fall below $3.00 per gallon until 2027 — contradicting Treasury Secretary Bessent’s earlier prediction of relief by summer. A CBS News/YouGov poll found that fifty-one per cent of adults described gasoline prices as “difficult” or a “financial hardship.” The war the President chose had produced precisely the energy price spike he had promised to prevent.
The macroeconomic implications compound the tariff damage. Higher oil prices function as a regressive tax on consumption — they hit low-income households hardest, reduce discretionary spending, increase input costs for every business that uses energy (which is to say, every business), and raise food prices through fertiliser and transportation costs. They are inflationary and contractionary simultaneously. Combined with the tariff-driven price increases already working through the supply chain, they represent a textbook supply-side shock — the precise economic scenario in which monetary policy is least effective, because raising interest rates to fight inflation would deepen the growth slowdown, while cutting rates to support growth would accelerate the price increases.
This is stagflation. Not the theoretical stagflation of economics seminars. The actual, measured, documented stagflation of an economy simultaneously experiencing rising prices and decelerating growth, produced entirely by policy choices made by the government that promised to end inflation and make America wealthy again.
The compound fracture
What distinguishes the current economic situation from ordinary policy failure is the interaction effects. Each component of the damage does not merely add to the others; it multiplies them.
The tariffs raised costs for businesses that import goods. The oil shock raised costs for businesses that use energy. DOGE’s workforce cuts reduced consumer spending in regions dependent on federal employment and contractors. The uncertainty generated by all three — tariff rates changing monthly, a war with no exit strategy, a Supreme Court ruling that invalidated the legal basis for the centrepiece trade policy — depressed business investment and hiring decisions. JPMorgan’s chief global economist projected that the “slide in sentiment” would “accelerate sharply into midyear.” The Center for American Progress modelled a counterfactual in which the tariffs remained at 2024 levels, DOGE did not gut federal agencies, the One Big Beautiful Bill was not enacted, and the war with Iran did not occur. The result: inflation approximately a full percentage point lower, interest rates sixty basis points lower, mortgage payments meaningfully more affordable, and investment substantially stronger.
The Fed is trapped. Powell has emphasised his obligation to keep long-term inflation expectations anchored — to prevent the tariff and oil shocks from becoming embedded in wage-price dynamics. But maintaining tight monetary policy while growth slows risks tipping the economy into recession. Cutting rates to support growth risks validating the inflationary impulses. Governor Waller has suggested the tariff inflation may be “transitory.” Powell has not endorsed that view. The institutional memory of the last time the Fed called inflation transitory — and was catastrophically wrong — is fresh enough that the word itself has become toxic in monetary policy circles.
The thirty-year mortgage rate, which tracks the ten-year Treasury, is approximately sixty basis points higher than it would be without the administration’s policies. That translates directly into higher monthly payments for every American buying or refinancing a home. Combined with housing-cost inflation that was already elevated before the tariffs, and the oil-driven increase in construction input costs, the housing market is being squeezed from multiple directions simultaneously.
The special genius of self-refutation
There is something almost aesthetically complete about the administration’s economic record. Every promise has produced its precise opposite.
The President promised to end inflation. The Federal Reserve has documented that his tariffs are responsible for the entirety of excess inflation in core goods. The President promised cheap energy. His war has driven gasoline to the highest prices since August 2022, and his own Energy Secretary says relief may not come until 2027. The President promised to reduce the deficit. DOGE cut workers but not spending, and the deficit has grown by $76 billion year-on-year. The President promised to reduce the trade deficit. His tariffs — which were premised on the theory that taxing imports would shift demand to domestic production — were ruled illegal by the Supreme Court, and the replacement tariffs expire in 150 days. The President promised that foreign countries would pay for the tariffs. American consumers are paying ninety-four per cent of the cost.
The President claimed the authority to impose tariffs by executive decree. The Supreme Court, including two of his own appointees, told him he does not have that authority. He responded by imposing new tariffs under a different statute — one that limits him to fifteen per cent for 150 days — while launching investigations under yet other statutes designed to restore the higher rates through alternative legal pathways. The administrative state he promised to dismantle is the only mechanism through which he can pursue the trade policy he promised to implement. The irony is structural and inescapable.
What stagflation actually means
Stagflation is not an abstraction. It is a specific economic condition with specific consequences for specific people.
For a family earning the median household income, it means that prices are rising — groceries, gasoline, clothing, household goods — while wages are stagnant or declining in real terms. It means that the purchasing power of each dollar earned is falling, while the number of dollars earned is not keeping pace. It means that the cost of servicing debt — mortgage payments, car loans, credit card balances — is rising because interest rates are elevated. It means that job security is deteriorating because businesses facing higher input costs and weaker demand are cutting payrolls rather than expanding them.
For a business owner, it means that the cost of goods is rising unpredictably — because tariff rates change monthly, because the legal basis for the tariffs is being litigated in real time, because oil prices are hostage to a ceasefire that collapses every weekend. It means that demand from customers is weakening because those customers are paying more for essentials. It means that planning is impossible because the policy environment is chaotic. The uncertainty itself is economically destructive — it freezes investment, delays hiring, and drives conservative cash management that further depresses economic activity.
For the economy as a whole, stagflation is the worst of both worlds. In a recession, at least prices tend to fall, providing some relief. In an inflationary boom, at least incomes tend to rise. Stagflation combines falling real incomes with rising prices — the economic equivalent of being punched while drowning.
The OECD, EY, JPMorgan, Goldman Sachs, Moody’s, and the Federal Reserve itself have all used the word “stagflation” in connection with the current U.S. economic trajectory. Mark Zandi of Moody’s projected that a recession, if it materialised, could reduce GDP by two per cent and push unemployment to 7.5 per cent. The Yale Budget Lab estimated that the April 2025 tariffs alone would cost a typical household approximately $2,148 per year. Add the oil shock, and the aggregate burden on the median family exceeds anything experienced since the 2008 financial crisis — with the critical difference that the 2008 crisis was triggered by a systemic failure in the financial sector, whereas the current crisis was triggered by deliberate policy choices made by people who were told, repeatedly and by every qualified authority, that these choices would produce exactly the outcomes they have produced.
The final irony
The deepest irony is political. The voters who supported the President most enthusiastically — working-class households in rural and semi-rural areas, people who drive long distances for work, people who spend a disproportionate share of their income on food and fuel — are the people most damaged by the combination of tariff-driven price increases and war-driven energy costs. The tariffs are regressive: they fall hardest on goods consumed by lower-income households. The oil shock is regressive: gasoline represents a larger share of spending for families with less money. The DOGE cuts have devastated federal employment in precisely the regions — Virginia, D.C., military-adjacent communities — where many of those voters live.
The President, as of this writing, has described his management of the energy crisis as “successful.” The Energy Secretary has conceded that gas may not return to pre-war levels until next year. The administration is simultaneously fighting refund claims from the tariffs the Supreme Court ruled illegal and imposing new tariffs under a statute that expires in July. The war in Iran has no exit strategy. The Strait of Hormuz remains largely closed. Iran is charging tolls in cryptocurrency. The President has proposed a “joint venture” toll arrangement with the country he is currently bombing.
None of this is complicated. The tariffs are taxes on American consumers. The war raised energy prices. DOGE cut workers but not spending. The Supreme Court said the tariffs were illegal. The replacement tariffs expire in five months. The deficit is growing. Inflation is rising. Growth is slowing. Gas is over four dollars a gallon. The President says foreign countries are paying for all of it.
The gap between what is said and what is real has become so large that it no longer functions as dishonesty in any ordinary sense. It is something closer to a parallel reality — a complete alternative account of economic cause and effect that operates independently of measurement, evidence, and the lived experience of the people who are paying for it at the pump, at the grocery store, and in every monthly payment that has become incrementally, inexorably, and entirely predictably more expensive.
Stagflation is not a mystery. It is not an act of God. It is not the consequence of forces beyond anyone’s control. It is the arithmetic consequence of specific decisions made by specific people who were warned by every relevant authority that those decisions would produce exactly this result.
The economists who predicted this were called alarmists. The institutions that modelled it — the Fed, the OECD, Goldman Sachs, JPMorgan, Moody’s, the Yale Budget Lab — were dismissed as partisan. The Supreme Court justices who ruled the tariffs illegal were described as enemies of American sovereignty. The career federal employees who were fired understood the systems they administered better than the people who fired them, and the systems are now failing in exactly the ways those employees predicted they would fail. Expertise was treated as an obstacle. Reality was treated as optional. The bill has arrived, and it is denominated in dollars per gallon, dollars per grocery run, and dollars per monthly mortgage payment.
The only surprise is that anyone is surprised.