There are three factors that will ultimately make Trump economics an event limited in time that will add to Central Bank debt and be followed by crisis and stagflation:
- His tax cuts mean that Trump will have to rely on monetary expansion. The Fed’s Jan 19 announcement of rising interests rates to bring sanity back to the capital markets, will conflict with the need to fund expenditures through tax credits as seems to be the plan. The whole thing relies on a replay of the old Reagan-Thatcher ‘trickle-down’ nonsense, which has been thoroughly discredited. As Ha-Joon Chang has explained, Western economies are undermining productivity by massively scaling back welfare while reducing purchasing power by squeezing wages.
- Falling unemployment figures under Obama, which have been used to show us a successful neoliberal trajectory to have hidden a dark truth. Although I list Joseph Stiglitz’s articles on Trump economics below because he talks a lot of sense about upcoming problems, his statement that Trump inherits a vibrant economy from Obama is wrong. The reason that trump has come to power is that the mass of the population is desperate and tired out. So Trumpist antiwelfarism will add insult to an already massive injury.
- Trump idea that he can bring jobs back to the US has to face technological realities. The industrial landscape has changed fundamentally, and both Stiglitz and Gwynne Dyer write eloquently about these difficulties. Trump economics cannot, given the political and economic structures in place at the moment, drive money into the hands of the middle classes: it is merely continue, if not accelerate the transfer of wealth to the top. Unless Trump suddenly becomes a ‘national socialist’, his project will founder.
Joseph Stiglitz writes:
The only way Trump will square his promises of higher infrastructure and defense spending with large tax cuts and deficit reduction is a heavy dose of what used to be called voodoo economics. Decades of “cutting the fat” in government has left little to cut: federal government employment as a percentage of the population is lower today than it was in the era of small government under President Ronald Reagan some 30 years ago.
the increase in infrastructure spending is likely to be accomplished through tax credits, which will help hedge funds, but not America’s balance sheet: such programs’ long track record shows that they deliver little value for money. The cost to the public will be especially high in an era when the government can borrow at near-zero interest rates. If these private-public partnerships are like those elsewhere, the government will assume the risks, and the hedge funds will assume the profits.
The debate just eight years ago about “shovel-ready” infrastructure seems to be a distant memory. If Trump chooses shovel-ready projects, the long-term impact on productivity will be minimal; if he chooses real infrastructure, the short-term impact on economic growth will be minimal. And back-loaded stimulus has its own problems, unless it is managed extremely carefully.
Read full article here
Gwynne Dyer writes:
Neither Donald Trump nor his new appointment of Andrew Puzder as Secretary of Labor understands the significance of their forthcoming collaboration.
Puzder bears a large part of the responsibility for fulfilling Trump’s election promise to “bring back” America’s lost industrial jobs: seven million in the past 35 years. That’s what created the Rust Belt and the popular anger that put Trump in power. But Puzder is a fast-food magnate who got rich by shrinking his costs, and he has never met a computer he didn’t like.
He tells us: “They’re always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall, or an age-, sex-, or race-discrimination case”.
But it isn’t evil foreigners who “stole” seven million jobs, and will probably eliminate up to 50 million more in the next 20 years. It’s the robots and computers that Puzder is so fond of. As automation moves up the skill sets, self-driving cars will annihilate another four million jobs. A 2013 study concluded that 47 percent of existing jobs in the United States are vulnerable to automation in the next 20 years, and the numbers are as bad or worse for the other developed countries.
This is what is really driving the “populist revolution” that caused two of the world’s oldest democracies to make bizarre, self-harming political choices in the past year. First Brexit, then Trump. Neo-fascism looms as we fear a re-run of the 1930s. Economic growth has slowed since the crash of 2008, and unemployment is much higher than it looks. The official US unemployment figure is only 5 percent, but almost one-third of American men between the ages of 25 and 54 are “economically inactive.” So angry populist leaders are popping up again all across the developed world.
The “Dirty Thirties” ended in the Second World War, and there are obvious parallels today. TheEU is fraying at the edges, and Donald Trump has talked about curtailing US support for NATO. He has also threatened to slap huge tariffs on Chinese exports to the US, and it’s probably a bad idea to push China too hard when it is already in grave economic trouble.
But this is not the 1930s. There are no ranting dictators promising revenge for lost wars, and government benefits mean that unemployment is no longer a catastrophe for most people in Western countries. The old white working class (and some of the middle class) are angry because jobs are disappearing and because immigration is changing the ethnic balance in their countries, but they are not angry enough to want a war.
Trump’s election means that we are in for a wild ride in the next four years, but he will ultimately disappoint his supporters because he is barking up the wrong tree. He cannot bring back the jobs that were lost, because most of them were not lost to his favorite culprits: Free trade and uncontrolled immigration. Even if Trump understood this, he could not admit it in public, because there is nothing he can do about it.