Can America afford $30 trillion in debt—or is the real question whether it wants to?

In the final episode of Season 2, Alex and Tyler take on the growing mountain of federal debt—now equal to 100% of GDP, with interest payments alone rivaling national defense spending. Alex lays out the case for concern: rising obligations, off-balance-sheet liabilities for Social Security and Medicare, and a political system with no appetite for hard choices. Tyler pushes back, arguing that markets remain calm, real borrowing costs are near zero, and America's wealth-to-debt ratio tells a far less alarming story. From the relevance of the R versus G framework to the lessons of Japan's sovereign wealth strategy, they debate whether the real risk is insolvency or illiquidity, and whether solutions will come through growth, inflation, financial repression, or some mix of all three. Along the way, they explore how AI could reshape the fiscal picture—raising welfare more than wealth, extending lifespans while straining budgets, and changing what kinds of income governments can actually tax.

Transcript: https://www.mercatus.org/marginal-revolution-podcast/americas-debt-crisis-or-calm

Follow Alex, Tyler, and Mercatus
https://x.com/ATabarrok
https://x.com/tylercowen
https://x.com/mercatus

https://marginalrevolution.com/
https://www.mercatus.org/

Timestamps

• 00:00:00 - Should We Be Worried About the US Debt?
• 00:08:19 - R vs. G? It's the Political Economy, Stupid
• 00:16:52 - The Five Ways Out
• 00:22:21 - AI's Fiscal Paradox
• 00:30:44 - The Hidden Sovereign Wealth Fund
• 00:34:56 - The Bottom Line

In this episode, Alex and Tyler tackle the resurgence of tariffs in American policy, a development neither saw coming after decades of trade liberalization. They unpack the economics of who really pays when tariffs jump from 2.4% to 18% in a matter of weeks, exploring everything from tax incidence and exchange rate adjustments to the question of why we treat tariffs so differently from currency depreciation. Along the way, they debate Tyler's new "soft" arguments against tariffs (including contagion effects and rising correlations), examine whether Lerner symmetry still holds in a world of T-bills and exorbitant privilege, and consider the Trumpian case for investment over trade. From soybeans and pharmaceuticals to AI data centers in outer space, they trace how tariff policy affects everything from American landowners to Canadian defense spending.

Tyler arrives ready to confuse and Alex ready to clarify, but by the end they agree on one thing: we've muddled ourselves into something quite bad.

Link to transcript: https://www.mercatus.org/marginal-revolution-podcast/return-tariffs

Follow Alex, Tyler, and Mercatus
https://x.com/ATabarrok
https://x.com/tylercowen
https://x.com/mercatus

https://marginalrevolution.com/
https://www.mercatus.org/

Timestamps

00:00:00 - The return of tariffs
00:02:44 - The threat of contagion
00:04:14 - Who really pays for tariffs
00:16:39 - Exchange rates muddle the picture
00:20:40 - Are tariffs making bad things more correlated?
00:22:53 - Does Lerner Symmetry hold?
00:29:56 - Differences between dollar depreciation and tariffs
00:33:13 - Retaliation
00:34:28 - Tariffs as a Georgist tax on land rents
00:38:10 - How the US economy will adjust
00:49:42 - The bottom line

Why do butchers earn more than bakers even though they're typically less educated? What does Uber driver data reveal about wage gaps? In part three of their series on favorite models, Tyler and Alex explore compensating differentials, Adam Smith's insight that wages adjust for a job's pleasantness, safety, and flexibility. But Tyler pushes back: in a world of increasing returns and clustering talent, are we moving toward winner-take-all dynamics where all good things come together instead of trading off?

Then they turn to Mancur Olson's theory of selective incentives. How do small groups organize to lobby for benefits while big groups struggle? And as markets become more competitive and surveillance more pervasive, are the village chieftains who once solved collective action problems disappearing from economic life, or reemerging in a different form?

Transcript: https://www.mercatus.org/marginal-revolution-podcast/compensating-differentials-and-selective-incentives

Follow Alex, Tyler, and Mercatus
https://x.com/ATabarrok
https://x.com/tylercowen
https://x.com/mercatus

https://marginalrevolution.com/
https://www.mercatus.org/

Timestamps

00:00:35 - Compensating differentials overview
00:04:48 - Segmentation vs. Differentials
00:13:02 - Amenities and the gender pay gap
00:22:07 - Two Competing Theories
00:24:26 - How fixed costs complicate the picture
00:29:02 - There are many margins of adjustment!
00:31:39 - Mancur Olson and selective incentives
00:38:02 - Special interests or bad voters?
00:41:50 - The Waxing and waning of selective incentives
00:48:22 - Alternatives to Selective Incentives