The solid employment data this week — 57,000 jobs added in June — tells us that the economy is not close to a recession and consumer confidence is rising, making inflation the main worry. But the good job news is deceiving. Our nation’s future economic performance is determined by three interconnected factors: the capital employed in production, the quality and efficient use of our work force, and the science and technology that determine what capital and labor can achieve. The Trump administration is undermining our economy on all three.
Start with the ballooning federal budget deficits and national debt, a product of tax cuts combined with large spending increases in areas such as defense — and that was happening even before the war with Iran. The U.S. debt-to-G.D.P. ratio recently surpassed 100 percent, and one forecast suggests it will reach an astonishing 194 percent by 2054. The Yale Budget Lab predicts that 10-year Treasury yields — the interest rate the government has to pay — will increase by 1.4 percentage points over its recent rate of about 4.4 percent by 2054 if you extrapolate the consequences of the One Big Beautiful Bill Act.
When the government competes for money by offering higher interest rates, it undercuts long-term capital accumulation by businesses, which is one of the key determinants of overall economic health and broad-based prosperity. While various tax cuts associated with Mr. Trump’s signature domestic policy law have some short-run value by raising profitability, higher interest rates will swamp this effect. This is what led the researchers at the Penn Wharton Budget Model to conclude that the U.S. capital stock, now $80.8 trillion, will decrease by 0.6 percent by 2034 and 8.3 percent by 2054. It means we are getting poorer.
The United States is approaching a day when interest rates exceed economic growth rates, producing macroeconomic problems ranging from soaring inflation to the deterioration of the dollar as confidence in the American economy evaporates. Even under the best-case scenario, today’s budgetary decisions handcuff future policymakers. To ignore the dynamic consequences of today’s deficits to spur short-run G.D.P. growth is to whistle past the graveyard of dysfunctional economies of the future.
Yes, spending cuts are being made, but in the worst way possible: We are slashing investments in education and science. The House Appropriations Committee has recently proposed cuts to the Department of Education budget that will take $2 billion from K-12 education in poor communities. One consequence of this defunding is the inability to collect data needed to assess education policies. That’s not trimming a bloated bureaucracy; it’s handicapping governments at all levels in finding what policies work best for our children.
In higher education, revenue reductions for universities have led to thousands of layoffs. At the same time, federal policy is making higher education less affordable. Mr. Trump’s budget bill imposed significant caps for parents who take out loans to help their children attend college, and for graduate students who take out loans themselves.
The caps also mean that students from lower-income families have fewer opportunities to excel. This math adds up to a less skilled American work force as potential students find it more difficult to attend college or graduate school, and those who do so will benefit less. Today’s kindergartners, then, are facing a degraded education through college.
There’s also a direct cost to the Trump administration’s attacks on diversity policies. Somewhere between 20 percent and 40 percent of U.S. economic growth between 1960 and 2010 came from the opening of opportunities for women and people of color, according to research from the University of Chicago and Stanford. And a study of affirmative action in the University of California system found that diversity, equity and inclusion programs delivered higher educational achievement and wages for its beneficiaries without harming those who claimed to be crowded out. Well-designed diversity policies make an economy more productive and capture the essence of a true meritocracy. The Trump policies, despite the administration’s claims, do the opposite.
Scientific knowledge is the foundation of technological innovation, which determines the productivity of capital and labor. This productivity, in turn, determines living standards in the long run. So of course Mr. Trump is attacking science and health research. About $2.3 billion in National Institutes of Health grants have been frozen or terminated. The National Science Foundation budget has been nominally reduced by 3 percent, but operational reductions of existing grants have occurred on the order of 20 to 30 percent as funds are reallocated to new priorities of dubious merit.
The very process of knowledge creation is also being damaged. The Office of Management and Budget recently proposed a regulation that would create a bureaucracy that could radically reduce the ability of scientists to creatively pursue ideas. Every member of the National Science Board, which oversees the National Science Foundation, was terminated in April — that move places allocation decisions in the hands of political appointees. Perhaps the most significant dangers can be seen in the way that unscientific hostility to vaccines from the Department of Health and Human Services and its secretary, Robert F. Kennedy Jr., has damaged mRNA research that is on cusp of developing astonishing new therapies.
The administration is also undercutting our nation’s longtime status as the destination of choice for top scientists. In fact, foreign-born American scientists claimed around 40 percent of Nobel Prizes in chemistry, medicine and physics awarded to the United States since 2000. In Silicon Valley, about two-thirds of the work force is foreign-born. A quarter of all billion-dollar start-ups include a founder who arrived as a foreign student.
Highly skilled immigrants make American scientists and workers more productive and help raise wages, since worker productivity is interdependent within and across firms. America’s attraction, and the advantage it brings, may not survive the new wave of anti-immigration actions. H1-B visas have fallen by an estimated 40 percent and F-1 visas by 29 percent. Foreign-born biomedical researchers are turning away from the United States as a desirable place to conduct research. Reductions in education and science funding only compound the loss of America’s appeal. Contrast this with the fact that China conducted less than 8 percent of the world’s clinical pharmaceutical trials in 2010, but began to exceed the United States in trials in 2020.
The economies that win the 21st century will be those that maximize the potential of their entire population. This requires careful policy design given the complex, dynamic process by which firms invest capital, and by which society invests in education and allocates workers to jobs. It’s a process that requires investments that make capital and labor most productive. A society that turns away from science, fails to treat the human capital and skills of its work force as paramount social objectives and does not aspire to attract the most able from around the world is one that courts long-run decline. No amount of short-run economic news, especially when paired with unsustainable government debt, will stop it.
