The Jacob Shapiro Podcast Demand Shock
Nov 22, 2025
In this discussion, market and geopolitical analyst Rob Larrity shares his insights on the impact of tariffs on demand and prices, challenging conventional narratives with complex economic realities. They explore the widening gap between political platitudes and material truths, highlighting the risks of economic fragility in the U.S. Amidst these discussions, Chile's evolving political landscape and its potential advantages in a shifting global economy are also examined. Larrity emphasizes the importance of understanding market signals over political spin.
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Tariffs Lower Inflation Through Recession
- The San Francisco Fed paper shows tariffs historically lowered inflation by reducing economic activity and raising unemployment.
- Politicians cherry-picked the result, ignoring that the mechanism was a harmful demand shock.
Historical Tariff Studies Face Data Limits
- Long-run historical tariff analysis is weak because samples are autocorrelated and dominated by one era.
- You cannot isolate tariff effects from the unique political and economic backdrop of 1870–1940.
Tariffs Create Demand Shocks Not Simple Price Moves
- Tariffs directly raise goods prices but can trigger demand shocks as consumers reallocate spending.
- That reallocation lowers overall activity and can depress aggregate prices via recessionary effects.