Justin Wolfers: If No One Trusts Your Word, You Have No Leverage - Velshi - MS NOW

[Rhiannon12866]

Are tariffs becoming a political weapon instead of an economic tool? Justin Wolfers joins Paul Krugman and Ali Velshi to explain why using tariffs to coerce allies over Greenland is a lose-lose strategy.

Wolfers argues the immediate issue isn’t just higher prices—it’s that reneging on agreements teaches partners the U.S. won’t honor its word. When countries believe there’s “no such thing as a deal,” they stop bargaining and start hedging: building alternatives, finding other partners, and preparing retaliation.

He also warns that the most consequential threat may be domestic: attacks on independent institutions like the Federal Reserve. Threatening the Fed chair is the kind of tactic associated with countries that struggle with chronic inflation and investor distrust. The fact markets didn’t freak out is telling—Fed independence held this round. But repeated pressure raises the odds of lasting damage.

And on proposals like a temporary 10% credit-card interest cap, Wolfers urges viewers to separate “announcements” from “action.” The real economic story is what changes the rules of the game—not what dominates a news cycle.

If the U.S. loses credibility and weakens its institutions, the costs can show up in higher inflation risk, higher interest rates, and slower growth—hits that land in your wallet. - Aired on 01/18/2026.

Topics covered:
Why tariffs can’t reliably bully large economies
How U.S. credibility shapes trade outcomes
Why breaking deals destroys leverage
Emergency tariff authority and looming legal constraints
The role of the Fed in stabilizing inflation and jobs
The risks of politicizing technocratic agencies
Why markets shrugged—and what could trigger a selloff
Credit-card rate caps: feasible policy or distraction?

Contents:
00:00 The Greenland tariff threat
01:50 Why the strategy backfires
03:25 The “blank gun” analogy
04:55 Legal constraints and the Supreme Court
06:30 The Fed chair pressure campaign
08:40 Institutions beyond the Fed (data, forecasting, agencies)
10:20 The credit-card cap and media distraction
11:30 What actually matters

👉 Key takeaway: Credibility and institutions are economic assets—once lost, they’re hard to rebuild.

[hlthe2b]

1. I really like Justin Wolfers (and not just his Australian accent). Seems the past year or so has

brought him to the forefront of economic discussions and I'm all in. An academic with a true ability to "bring it home to the masses." He's delightful--even when discussing deadly serious issues right now.

[Rhiannon12866]

2. Same here! He really came to my attention during the felon's attacks on Jerome Powell

And he really knows his stuff, so I'm paying attention to what he has to say...

p.s. I like his accent, too...

[brer cat]

3. K&R Very good discussion.