Trump and Economics

President-elect Donald Trump has promised more jobs, double-digit growth, removal of sequestration on military spending, and to rebuild the infrastructure. Of course, he also talked about repealing Obamacare, building a wall to stem the tide of illegal aliens and make Mexico pay for it. Trump also promises to cut taxes. With the GOP in control of the government-the Senate, the House of Representatives, and the Supreme Court-it is a safe bet all these goals are doable as the new president can expect nothing like the level opposition his predecessor received at the hands Congress. He might just be a successful president because he will be able to accomplish things like cutting taxes and increasing government spending at the same time. This looks like a return to Keynesian economics.

Keynesian economics would be a departure from austerity that has been in vogue since the 1980s. Austerity as a philosophy of government management that required only tax cuts, never tax increases. It also demands cuts in government spending with an eye on reducing deficits. This is gospel to be followed no matter the collateral damage--downward spiral of the economy because of reductions in aggregate demand and rising unemployment. Austerity in a way was what the outgoing administration had to contend with: No tax increases (only tax cuts), no increases in government spending. The intransigent Congress went well beyond that. They intervened in the president's efforts to close Guantanamo. They refused to consider President Obama's Supreme nominee judge Merrick Garland. To this point, where in the Constitution does it state only a Republican administration can appoint judges to the Supreme Court? Some republicans believe infrastructure spending that Mr. Trump wants is inefficient and they offer as example the alleged failure of the approximately $800 billion of spending of the Obama administration for economic recovery in the depths of 2008 Great Recession . Maybe that's because a bridge does not produce after markets although it has spillover effects that benefit private users--households and businesses.

So get rid or weaken regulations, cut taxes and government force long term economic growth. Although I am not convinced he will, Mr. Trump might expect some resistance from members of Congress who share the view--i.e. that infrastructure spending is ineffective. And he also faces an internal contradiction with his plan to cut the corporate tax rate from 35 percent to 15 percent. (Time.com Money) This plan begs the question, why would someone who is paying zero percent tax want to pay 15 percent? Or there might be a maximum corporate tax rate that isn't zero, above which people prefer to pay no taxes at all. Scoring Mr. Trumps corporation tax rate plan, the Tax Foundation finds that it will likely increase the deficit by $1.37 trillion over a ten year period, even with economic growth factored in. (Time.com Money) However, maybe too much analysis is unwarranted and not paying taxes is just being smart. It comes as no surprise that tax cuts will initially bring in less money to government coffers, while increasing government spending (on the infrastructure and and national defense) will ipso facto raise the deficit. And that will only be of concern if there is a failure of economic growth. Tax cuts should increase consumer spending, which is more than 60 percent of GDP, by low-income and middle-class consumers with high marginal propensities to consume. On the other hand, tax cuts for the rich presumably will spur more investment and return trillions of dollars from overseas. That said, obviously Mr. Trump's economic plan could help the economy grow faster if in addition to more investment in the American economy he is also able to bring back U.S. companies that have fled overseas to avoid "high" corporates taxes.

President Obama might have been right when he told President-elect Trump, "If you succeed, then the country succeeds." President Obama was very gracious to the man who questioned his legitimacy as an American and his right to be president of the U.S.A. This is as it should be. And it is to be seen if this will be a message heeded by members of Congress who oppose infrastructure spending for growth, or if it will be lost on women, immigrants, African Americans, and hispanics who were verbally abused by Mr. Trump in a bruising campaign. The campaign is over and the American people expressed their desire for the new president. And if he succeeds, the country succeeds as well.

In a way this is a good result that Mr. Trump is republican and that the Senate and the House are in control of the government, including the Supreme Court. Now, the acrimony that prevailed during eight years of Obama's presidency will be absent: no more government shutdowns, sequestration, etc. A Hillary presidency would have been marred by years of Congressional hearings and investigations. Under President Trump economic failures and reverses would be laid at the feet of the party in power. It would be clear who was responsible for any failure or success in the Trump years. The current economy is not in the desperate state Mr. Trump claims. Although paltry--averaging 1 percent--we have had a long and sustained economic growth and falling unemployment rates--there have been about 80 months of sustained job growth. Mr. Trump promises double-digit growth and lower unemployment. And he might just achieve that: he is inheriting a country that is not at war in Iraq or in a recession. He has the wind to his back. Obama has had to deal with headwinds throughout his presidency. But the real problem is not growth--the economy has been growing. The problem is the inequality in the distribution of income. Most of the gains from the economic recovery have gone to top income recipients. There is no indication that inequality will change under Mr. Trump, and might even rise with his tax cut proposals.