Thursday, November 17, 2016

Economics according to Trump - the Trumpy bumpy ride ahead

John Cassidy (New Yorker) has some post-election observations and an analysis of what Trumponomics means for our collective wallet. Here are Scriber’s selection of comments on the election (via email from Cassidy, “Rational Irrationality”).

Seven days after the most shocking Presidential election in recent history, American politics is in tumult, and the rest of the world is still stunned. Where things go from here, nobody can say for sure. But the broad outlines of a Trump Administration are rapidly emerging, blue America is in despair, and the financial markets are busy celebrating what they hope will be a rerun of Ronald Reagan’s first term, when a big tax cut, twinned with a hefty increase in government spending (especially defense spending), got the economy humming. (Scriber: see below for Cassidy’s other piece on the economy under Trump.)

Let’s start with the election result, which still isn’t final: millions of votes on the West Coast remain to be counted. After living in America for thirty years, I have not ceased to be astounded by how antiquated, discriminatory, and ramshackle the electoral process is. The United States has figured out how to put supercomputers in the pockets of most of its residents, but it can’t get more than about half of the voting-age population to participate in Presidential elections. Tens of millions of people are disenfranchised because they haven’t registered, or have committed a felony at some (perhaps very distant) point in the past, or are currently in jail. And once people have voted, it can take weeks to finalize the vote totals.

How this happened comes down to electoral geography. Trump got the votes where he needed them: in Florida, North Carolina, and the Midwest. The network exit poll, which is still our only source on how people voted, suggests that in addition to blazing through downscale Caucasian districts and racking up huge margins among white working-class voters, Trump garnered a surprising amount of support from Latinos, college-educated men, and non-college-educated women. Which means, in turn, that Clinton didn’t rack up the sort of majorities she was hoping to get among these groups. It also seems clear that turnout was down, compared to 2008 and 2012, among black voters, who form a key part of the Democratic base.

4 Possible Reasons the Polls Got It So Wrong This Year — NPR

Why did the pollsters mess it up? In a piece the day after the election, I briefly reviewed some of the possible explanations. On Monday, NPR’s Danielle Kurtzleben took a more leisurely look at three leading theories: either Trump voters didn’t answer the pollsters calls; or they did answer the calls but lied about their intentions; or the pollsters got their “likely voter” screens wrong, underestimating the number of Trump voters who were likely to turn out, and/or underestimating the number of Clinton voters who would go to the polls. As a matter of logic, it is perfectly possible that all three of these factors played a role. And the sad truth is we may never know which of them was most important.

The President-Elect’s Policies Will Make America Grow Again — Financial Times

Trump supporters think differently, of course, and some of them have ventured into print to talk up their man. “Mr. Trump is a different type of leader not burdened by rigid ideology,” the Wall Street financier Anthony Scaramucci wrote in the Financial Times. “He does not think like a politician, nor does he talk or sanctimoniously moralise like one, making him an easy target for demonisation.” Scaramucci also highlighted a key point in Trump’s economic plan: “a [$1 trillion] infrastructure plan financed by historically cheap debt and public-private partnerships that would create millions of jobs and get liquidity flowing.”

The great irony, of course, is that many liberal economists have for years been calling for an infrastructure-led stimulus package as a way of tackling secular stagnation. As long as Obama was in office, the Republicans on Capitol Hill refused even to consider such a policy. Now, evidently, they have discovered the Keynesian faith, and the financial markets are already discounting a boost to growth and corporate profits.

Donald Trump’s Jacksonian Revolt — Wall Street Journal

In Trump, Bannon appears to have found a soulmate: a rich, successful financier and dealmaker who, late in his career, has moved into the business of fanning popular resentment toward what they both portray as a corrupt and out-of-touch √©lite. Interestingly, Bannon is said to view Trump as a twenty-first-century reincarnation of Andrew Jackson, another well-to-do populist who was lionized in rural and small-town America. Writing in the Wall Street Journal over the weekend, Walter Russell Mead, the writer and historian, also described Trump’s victory as a “Jacksonian revolt.”

Jackson, however, was the genuine article. A self-made man, he grew up in poverty and became a military hero in the War of 1812. Although he became a rich lawyer, planter, and slave-owner, he remained, in the words of the historians Allan Nevins and Henry Steele Commager, “one of the few Presidents whose heart and soul was completely with the common people”—the white Christian ones, that is. Trump was a rich kid, a draft-dodger, and a self-promoting huckster who piled up enormous debts in his business ventures, only to be rescued by the banks he now rails against, enabling him to find a second career as a star of reality television. What ill or good will he do for America and the world? In a little over nine weeks, we will find out.

And that is a perfect segue into Cassidy’s piece on Trumponomics.

Larry Summers, the former Treasury Secretary, appeared Wednesday morning on CNBC, and he laid into Donald Trump’s economic program. Trump’s proposed tax cuts don’t make sense, Summers said, because they would target very high earners, meaning that a lot of the money they free up could end up being saved, rather than spent. And Trump’s infrastructure plans are questionable, Summers argued, because in at least one version of the plans, they depend largely on private financing. The problem, Summers said, is that pension funds and other big investors won’t invest in essential tasks like repairing the nation’s roads, bridges, and airports, because projects like those don’t produce any revenues. So where would the financing for them come from?

Summers’s points, like many of the other criticisms of Trumponomics, are well taken. We know for sure, for instance, that Trump’s proposed tax cuts would greatly accentuate inequality. (“To those who hath, it shall be given,” Martin Wolf, of the Financial Times, quipped this week.) And if those tax cuts aren’t matched by spending cuts, they will run up the budget deficit and increase the country’s already large debt burden. But if the tax cuts instead prompt cutbacks in non-discretionary spending, particularly government investments in education and scientific research, they will undermine economic growth over the long term. Trump’s protectionist impulses, meanwhile, almost certainly won’t bring back lost manufacturing jobs, but they could spark a damaging trade war. And if Trump continues to attack the Federal Reserve, as he did during the campaign, he might well provoke a sell-off in the financial markets, maybe even a collapse in the value of the dollar.

But what if Trump’s impulses work to rev up. The economy?

This is the nightmare scenario for Democrats—but it’s just one scenario. There is a host of differences between today and November, 1980. For one thing, Reagan was elected following a recession, meaning that there was a lot of spare capacity in the economy. The unemployment rate also stood at 7.5 per cent. Today, we are in the eighth year of an economic expansion, and the jobless rate is 4.9 per cent. Standard economic theory suggests that if you try to stimulate an economy that is already operating at full employment, or something close to it, you will only succeed in driving up interest rates and inflation—the end result is likely to be a recession.

Earlier this year, Moody’s Analytics argued that a comedown from a Trumponomics sugar high wouldn’t be delayed long—a year or two, perhaps—and then we’d face the prospect of a deep slump. “Under the scenario in which all his stated policies become law in the manner proposed, the economy suffers a lengthy recession and is smaller at the end of his four-year term than when he took office,” Moody’s said in a report issued in June. “By the end of his presidency, there are close to 3.5 million fewer jobs and the unemployment rate rises to as high as 7%, compared with below 5% today.” Moody’s also considered a second scenario, “Trump Lite,” in which his tax cuts were reduced from $9.5 trillion to $3.5 trillion over ten years. Even in this case, the analysis predicted a deep recession beginning in 2018. By 2020, the report said, the unemployment rate would be 8.9 per cent.

At this stage, there remains too much uncertainty about the scope, details, and likely consequences of Trump’s economic program to make reliable predictions. …

That’s because much of what Trump has asserted are proposals, not plans or policies. And Trump is the art of the deal. Trump might well get some infrastructure spending but it would be whittled down by fiscal conservatives in the Congress. He might well get his tax cuts but made smaller by deficit hawks. He might well reduce government spending but in discretionary areas - thus damaging the long-term health and education of the nation.

Ultimately, the good name and financial credibility of the United States government depends on faith in the country’s political system. Come January 20, 2017, that system will have at its helm a tax-dodging, self-promoting businessman and reality-television star who, among other things, stands accused of running a fraudulent enterprise—Trump University. Expect some turbulence ahead.

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