JOHN KERIN.   Trump Economics.

Nov 16, 2018

Not being aware of what is being written in economic journals by the profession I find it difficult to understand why more of our commentating economists and academic economists are not publicly calling out Trump’s economic policies. Are we to believe that what many commentators say about the US and its economy only currently applies to the US or should we re-write our economic text books?

It would appear that those supporting Trump in our ‘commentariat’ and in the Coalition who support Trump’s inequitable, ‘trickle down’ economic policies see no reason for us to be concerned. It is being said by Australian Trump acolytes, mainly in News Limited and conservative think tanks, that he is being successful in fulfilling his policy promises. Whether or not they are the most beneficial policies for the US in the medium to longer term is another question – and for us. Even with the recent history of the GFC we are told that share holding Americans and the increasingly ultra well off are exultant because share prices are at record levels, unemployment is low and wages, which have been stagnant in real terms over the last 30-40 years, are rising slightly.

However, prices on stock markets are not a good indicator of future economic success. Further, the ‘sugar hit’, of tax cuts and increases in spending have been introduced at a time when the US economy started turning around in 2016, due to the taxpayers having to support its irresponsible financial sector, by quantitative easing (printing money a la Mugabe) and sale of Treasury bonds. The debt to GDP ratio is 106 per cent – probably manageable, or are Trump and US authorities banking on inflation to pay the debt off? If so, interest rates will rise, but perhaps Trump will then sack the Federal Reserve Board and put his mates or family members on it?

The question is did the US economy need Keynesian pump priming in 2017 and the tax cuts? Has the good news about the US economy reflected these measures or are effects yet to come through? One could ask do all concepts of ‘lead’ and ‘lag’ factors and the business cycle no longer apply? Further, will or can factories in the ‘rust belt’ immediately invest and get back into new production or can new investment take place without any planning by entrepreneurs?

Estimates of the US Budget deficit vary from $833b (up 18 per cent from 2017) to $985b by October1 in fiscal 2018, 4.7 per cent of GDP. The national debt was $19.39 tr in 2017 and GDP was $19.9 tr. Total national debt in October 2018 was $21.6 tr. If we put these figures in Australian terms and in US $, our Budget deficit would be $0.66tr and our national debt would be $ 1.4 tr. I suggest that the economist pundits for Trump in Australia would be promising doom for us with those figures.

For the record, Australia’s Budget deficit in 2018 is projected to be A$18.2b, 1.6 per cent of GDP, and total national debt was A$346.8b in 2017-18 and is projected to be A$ 356.46 in 2018-19, 18.9 per cent of GDP, not 106 per cent as in the US. The national debt has risen under the Coalition Government, despite its fear mongering during the last ALP Government.

To my mind the US does face a debt problem and that the obscene levels of inequality in income and wealth are both part of the cause of its economic challenges and solution to its quest for economic growth. In other words if the top one per cent didn’t make 25.3 times more than the bottom 99 per cent there would be more demand for goods and services. If 25 per cent of the workforce wasn’t earning less than US$10 an hour (below the Federal poverty level, living on food stamps) they would have more capacity to spend. There is a limit to what the super wealthy in the US can amass, or is there? The top 1 per cent have 43 per cent of the nation’s wealth, the bottom 80 per cent have 7 per cent. If there is another Recession, the super wealthy could increase their holdings and buy at the bottom of the market.

The US has the advantage of not being very trade exposed. However, China holds 21 per cent of all the US’s foreign debt ($1.17 tr) and Japan is not far behind, holding $1.03 tr. Trump is now bent on both industry protection and mercantilism and is lying, bullying and bluffing to get his way.

The tax cuts will not only reduce the Budget bottom line but will also disadvantage most taxpayers and benefit the richest top quintile. Furthermore they are not guaranteed to invest and those in industry will most likely engage in share buybacks and in paying out dividends – perhaps some will invest abroad?

In Australia my economic ‘betters’ such as Tony Abbott and Scott Morrison have been saying that government debt and budget deficits are anathema to sound economic policy, but that we need tax cuts, which are a cost to the Budget bottom line and even though we too have stagnant wage growth and record company profits. While we do not have the obscene levels of inequality in the US, it is nonsense for those who are deniers of our rising inequality to praise policies being enacted which increase inequality, such as in housing, education etc.

Vice President Dick Cheney once said, “Reagan proved that deficits don’t matter”. Perhaps he was right, but it wasn’t until the Clinton Administration that Budget balance was achieved in 2000.  We are now in the situation of Trump always saying, “We will see what happens”. Indeed, if Trump is the best person US voters can put up to lead the richest and most powerful country on the planet, we wait to see what will happen. It may not be pleasant in the long run.

Note figures quoted are based on those of US Treasury and non-partisan US think tanks.


John Kerin was once, briefly, Treasurer, 1991, and professes only to being a questioner of economic theory.

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