Why the Economy Hasn't Crashed Yet

SUMMARY

Hank Green, joined by economist Kyla Scanlon, dissects the US economy's surprising resilience amid tariffs, unpredictability, and policy shifts, attributing it to AI investments, wealth-driven spending, fiscal tailwinds, and Trump's self-interested stability efforts.

STATEMENTS

For over a year, informed observers have puzzled over why the expected economic downturn hasn't materialized despite unpredictable government actions.
New tariffs introduce significant uncertainty, particularly burdensome for small businesses unable to lobby for exemptions or shift production globally.
Markets remain buoyant, jobs hold steady, and holiday spending hit record highs in 2025, defying expectations of collapse.
The labor market has cooled with slower hiring and rising uncertainty, yet overall economic indicators suggest continued momentum.
AI investments are pouring real money into data centers, chips, power infrastructure, and related software, boosting private demand growth.
Economic analyses highlight AI as a major contributor to US macro stability, especially in the first half of 2025.
Fiscal policy provides a tailwind through tax cuts, particularly benefiting the wealthy, financed by deficit spending to sustain demand.
The top 10% of earners drive about half of consumer spending, supported by strong asset performance.
Wealthy households with stock market gains can liquidate assets for discretionary spending like vacations or cars, propping up aggregates.
Small businesses and average people feel the strain, creating a disconnect between broad metrics and lived experiences.
Markets view Trump sympathetically, believing his success ties to economic stability, prompting self-restraint to avoid downturns.
Investors anticipate Trump will back off harmful policies if markets react negatively, as seen in the 90-day tariff pause yielding the S&P 500's biggest gain since 2008.
Trump's credibility as a businessman incentivizes him to wield extraordinary power, including pressuring the Fed, to prevent economic slumps.
A mutual dependence exists: Trump needs a strong economy for power, and markets trust his interventions to maintain it.
Exemptions for electronics like smartphones and semiconductors protect key S&P 500 drivers, signaling targeted support for market health.
Perceived risk lowers when investors believe the administration won't cross lines threatening political power, buoying markets short-term.
The stronger hypothesis posits big companies signal loyalty cheaply for policy favors, reducing risk and enhancing upside in a patronage system.
This dynamic fosters an oligarchy where business strategy shifts from innovation to currying favor, prioritizing share prices over competition.
Trump's 2025 inauguration raised nearly $250 million from corporations and ultra-wealthy donors, including $18 million from crypto firms.
Private funding for a $300 million ballroom exemplifies non-public loyalty signals from major tech and corporate players.
Discretionary policy enforcement creates uncertainty that incumbents mitigate through visible support, avoiding stock price drops from disfavor.
Capitalists lack ideological loyalty to capitalism; they pursue profits, readily embracing oligarchy if competitors don't.
Finance industry donations heavily favor Trump-aligned interests, viewing political power as asset price protection.
Short-term market stability masks underlying damage, as loyalty trumps innovation, leading to extractive, rent-seeking economies.
Long-term effects include slowed innovation, barriers for upstarts, wasted resources on influence, and reduced dynamism.
Corruption erodes systems by enabling extraction from the powerless, contradicting healthy markets where consumers shift to less extractive options.
Consumer sentiment lags actual spending, with retail up despite complaints, driven by credit access and high-income outlays.
The economy shows K-shaped recovery: lower incomes struggle paycheck-to-paycheck, while wealthy benefit from asset booms.
AI drives 40% of GDP growth and 75% of S&P 500 earnings but creates few jobs compared to healthcare and social services.
Bubbles like Tesla or crypto persist via reflexivity, where beliefs drive prices, sustaining irrationality longer than expected.
Institutions meant to check strongmen appear complacent, fostering toxicity and eroding trust in governance.
Leading economic pillars include the wealth effect from assets, AI investments providing growth floors, and abundant credit enabling spending.

IDEAS

Unpredictable policies like tariffs disproportionately burden small businesses, amplifying costs without the buffers large firms enjoy.
Markets' sympathy for Trump stems from shared incentives: his power relies on economic health, creating a rational expectation of restraint.
A "backoff button" exists where Trump pauses aggressive moves if markets dip, as evidenced by rapid S&P recoveries post-tariff announcements.
Circular dependency between Trump and markets—each needs the other—forms a self-reinforcing stability loop, at least short-term.
Big tech exemptions from tariffs safeguard market-heavy sectors, prioritizing stock indices over broader economic health.
Patronage emerges as companies trade cheap loyalty signals (donations, public support) for discretionary policy leniency, reducing operational risks.
Oligarchic drift incentivizes share-price focus over innovation; CEOs prioritize investor returns, not democratic or customer values.
Inauguration funding from crypto and corporations signals overt loyalty, far cheaper than R&D or price competition.
Private ventures like a $300 million ballroom funded by elites hint at hidden influence networks beyond public scrutiny.
Finance sector's Trump tilt reflects risk management: political alignment protects assets amid uncertain enforcement.
Short-term buoyed markets hide long-term harms like stifled competition and resource diversion to lobbying over product creation.
Corruption's systemic theft enables rent-seeking, turning economies extractive and serving power over consumers.
Wealth effect disconnects sentiment from action: people complain but spend via credit and asset sales.
K-shaped economy insulates wealthy via assets while lower classes face recession-like pressures from stagnant wages and housing shortages.
AI boom fuels growth (40% GDP) but job scarcity contrasts with labor-intensive sectors, exacerbating inequality.
Reflexivity in markets, per Soros, explains persistent bubbles where beliefs self-fulfill price movements.
Institutional complacency allows strongman tactics, eroding the founders' auxiliary protections against power consolidation.
Credit innovations like BNPL (buy now, pay later) sustain spending but risk overextension, especially in autos.
Tax policies favor capital gains over labor income, incentivizing passive investing over value creation.
Local community efforts counter federal dysfunction, highlighting grassroots resilience in problem-solving.
Robber barons' era offers lessons: tying wealth to community building (libraries, worker welfare) fostered mutual success.
Shareholder primacy ruling (Ford v. Dodge) shifted focus from stakeholders to profits, distorting incentives.
Over-reliance on AI investments risks resource waste if tech evolves beyond current infrastructure needs.
Trump's tariff threats repeatedly yield to market pressure, burning credibility internationally and complicating Treasury funding.

INSIGHTS

Economic resilience masks fragility when driven by elite loyalty and asset bubbles rather than broad innovation.
Political self-interest can stabilize markets short-term but erodes long-term competitiveness by favoring incumbents.
Wealth concentration amplifies spending power, creating aggregate stability despite widespread individual struggles.
Patronage systems cheapen influence peddling, diverting corporate energy from markets to power alliances.
Corruption's harm lies in systemic extraction, not just morality, fostering inequality and institutional distrust.
AI's growth dominance highlights jobless prosperity, widening divides between capital and labor.
Reflexivity reveals markets as belief-driven, sustaining irrational valuations beyond fundamentals.
K-shaped recoveries entrench divides, insulating the rich while exposing the vulnerable to policy shocks.
Tax favoritism for investments over wages discourages productive work, prioritizing speculation.
Local initiatives offer hope amid federal gridlock, emphasizing decentralized problem-solving.
Historical philanthropy tied wealth to societal good, contrasting modern shareholder isolation.
Credit access props up consumption but builds debt vulnerabilities in an uneven economy.
Institutional safeguards weaken when complacency replaces accountability, enabling power grabs.

QUOTES

"The markets understand that President Trump understands that if the economy turns down, it will be very bad for the amount of power that he has."
"It's a circular thing. Trump needs the economy. The economy needs Trump."
"A good capitalist will happily become an oligarch. Because if the other choice is having your competitor become the oligarch, THEN THAT'S TERRIBLE DECISION."
"Corruption is the biggest kind of theft. It is the largest scale society scale theft."
"Markets can stay irrational longer than you can stay solvent."
"The greatest trick the devil ever pulled was tying absolutely everything to the price of the stock market."
"We've become a place of shareholder rights over civic rights."
"Impress the dictator beats build a better product is not a competitive economy."

HABITS

Curate and share weekly newsletters with curated internet insights and blog posts to foster learning.
Engage local communities through travel and book promotions to connect on economic issues.
Monitor market reactions to policy announcements to anticipate backoffs and stability signals.
Diversify investments beyond stocks, considering direct value creation over passive speculation.
Prioritize worker welfare and community ties in business, drawing from historical models like Ford.
Use credit tools judiciously for spending while tracking overextension risks like auto loans.
Signal loyalty through targeted donations to influence policy without overt bribery.
Invest personal time in grassroots efforts to address systemic problems beyond federal levels.

FACTS

Top 10% of earners drive about half of US consumer spending due to asset wealth.
AI investments accounted for significant private demand growth in early 2025.
Trump's 2025 inauguration raised nearly $250 million, with crypto firms contributing $18 million.
S&P 500 saw its biggest daily gain since 2008 after a 90-day tariff pause.
AI drove 40% of GDP growth and 75% of S&P 500 earnings in the prior year.
EU holds 40% of US Treasuries, critical for funding government spending.
Retail spending rose despite low consumer sentiment, fueled by credit card use.
Most new jobs are in healthcare and social services, not high-investment AI sectors.

REFERENCES

We're Here newsletter (weekly curation of internet insights and Our World in Data posts).
Kyla Scanlon's book "In This Economy".
Wall Street Journal report on top 10% spending.
Open Secrets reporting on finance industry donations to Trump.
Ken Griffin (Citadel) statements on economy bending to Trump family.
George Soros' concept of reflexivity.
Federal Reserve wealth breakdown data.
Supreme Court case Henry Ford v. Dodge Brothers (1919).
Financial Times article on shareholder rights over civic rights.
Anthropic's legal AI assistant release.
Trump's inauguration fundraising details.
Millennia movie funded by Jeff Bezos.
Data center bonds in bond market.
Business development companies for private credit exposure.

HOW TO APPLY

Assess policy unpredictability's impact on your business scale; small operators should build cash buffers for sudden changes.
Track market reactions to announcements like tariffs to gauge backoff likelihood and adjust investment timing.
Signal alignment with power structures through low-cost actions like donations to reduce perceived risks in uncertain environments.
Diversify revenue beyond vulnerable sectors by prioritizing innovation over influence-seeking.
Monitor asset performance to leverage wealth effects for spending, but avoid over-reliance on stock liquidation.
Use credit tools like BNPL for essential outlays while reviewing debt levels quarterly to prevent overextension.
Invest in local community projects to counter federal instability, fostering resilient networks.
Shift focus from passive investing to active value creation, such as starting small businesses for ethical returns.
Evaluate tax strategies favoring capital gains, but balance with labor income to sustain personal productivity.

ONE-SENTENCE TAKEAWAY

US economy persists through elite asset booms and political favoritism, risking long-term oligarchic stagnation.

RECOMMENDATIONS

Prioritize building better products over currying political favor to sustain true competitiveness.
Diversify investments away from overvalued AI and stocks toward community-driven ventures.
Advocate for tax reforms equalizing capital gains and labor income to incentivize work.
Support local initiatives addressing inequality, as federal solutions lag.
Monitor reflexivity in markets to avoid bubble traps, selling high rather than chasing vibes.
Use wealth for philanthropy like historical barons, tying success to societal good.
Build institutional accountability to check strongman influences early.
Encourage stakeholder models beyond shareholders, considering communities and workers.
Limit credit dependence by saving during high-asset periods to weather contractions.
Foster grassroots economic education to rebuild trust in institutions.
Exempt essential sectors judiciously but push for broad policy stability.
Invest in job-rich areas like healthcare over low-employment tech booms.
Scrutinize corporate loyalty signals, rewarding innovation in procurement.

MEMO

In an era of economic whiplash, the United States has defied gloomy forecasts. For over a year, experts anticipated a crash amid erratic policies—sky-high tariffs, slashed government jobs, and ended student loan deferrals. Yet markets soar, jobs endure, and 2025 holiday spending shattered records. Small businesses, lacking the clout to navigate chaos, bear the brunt, stockpiling inventory in fear of rule changes. As Hank Green observes in his latest video, this resilience feels uncanny, a puzzle blending real investments with shadowy incentives.

Central to this endurance is the AI revolution, funneling billions into data centers, semiconductors, and power grids. Analyses peg AI as a key driver of early 2025 demand, accounting for 40% of GDP growth and 75% of S&P 500 earnings. Yet this boom is job-light, contrasting with employment gains in healthcare and social services. Fiscal maneuvers add lift: tax cuts, especially for the wealthy, are deficit-financed, sustaining spending when slowdowns loom. The top 10% of earners, flush with stock and home values, propel half of consumer outlays—selling assets for luxuries while others tighten belts.

Green proposes a provocative hypothesis: Donald Trump's self-interest anchors stability. Markets, sympathetic to the president, bet he'll retreat from brinkmanship if indices falter, as in the 90-day tariff pause sparking the S&P's biggest gain since 2008. Exemptions for tech essentials like smartphones shield market pillars. This "backoff button" reflects mutual reliance—Trump's power hinges on prosperity, and he'll wield unconventional influence, even pressuring the Fed, to preserve it. Economist Kyla Scanlon concurs: Trump can crater markets swiftly but rebounds when losses mount, prioritizing appearances.

Deeper worries emerge in Green's stronger claim: a patronage web where giants like tech titans trade cheap loyalty—$250 million inauguration hauls, private ballroom funding—for policy shields. Crypto firms alone donated $18 million, while leaders like Jeff Bezos fund Trump-friendly media then slash staff. This isn't crude bribery but vibes-based discretion, where enforcement favors allies. Finance, a top Trump donor per Open Secrets, sees alignment as risk mitigation. Big firms dominate indices; their protection buoys assets, fueling elite spending that masks small-business woes.

Short-term, this props aggregates, but long-term perils loom. Innovation stalls as resources chase favor over R&D. Upstarts face barriers, economies turn extractive—rent-seeking over service. Corruption, Green warns, is systemic theft, eroding trust and dynamism. Scanlon notes a K-shaped divide: the asset-rich thrive, lower earners scrape by, wages stagnant amid housing shortages. Credit access, via cards and BNPL, sustains spending but signals overextension, especially in autos.

Reflexivity, George Soros' insight, explains bubble persistence—Tesla's valuation rides beliefs, not just fundamentals. Markets stay irrational longer than investors solvent, amplified by apps like Robinhood. Institutions, designed by founders to curb strongmen, now seem complacent, hurling insults over inquiries. Scanlon highlights tax biases: capital gains taxed lighter than labor, nudging toward speculation. A 1919 ruling enshrined shareholder primacy, sidelining communities.

Hope glimmers locally. Scanlon, touring with her book In This Economy?, finds communities tackling issues head-on. Green urges the wealthy: deploy capital for value, not idle propping of overvalued stocks—emulate robber barons building libraries, not just empires. Redirect funds to startups, ethics-driven firms. As pillars like AI fervor and credit binges wobble, true resilience demands innovation, equity, and reinvigorated institutions over elite gamesmanship.