Are Trump’s Policies Hurting Long-Term US Growth?

When it comes to economic performance, US presidents have considerably more influence over long-term trends than over short-term fluctuations. And it is by this standard that Donald Trump’s administration should be judged.

President Donald Trump regularly thumps his chest and claims credit for each new uptick of the fast-growing US economy. But when it comes to economic performance, US presidents have considerably more influence over long-term trends than over short-term fluctuations.
.. Still, it is not easy to speed up a $20 trillion economy, even by running a budget deficit of nearly $1 trillion, as Trump’s administration is doing.
.. In a cantankerous political environment, it is not easy to think about the long term. But, thanks to the magic of compound interest, measures that marginally raise long-term growth matter a lot. For example,
  • the transportation deregulation policies of President Jimmy Carter’s administration in the late 1970s set the stage for the Internet retail revolution.
  • President Ronald Reagan’s massive tax cuts in the 1980s helped restore US growth in the ensuing decades (but also exacerbated inequality trends). And
  • President Barack Obama’s efforts (and before him President George W. Bush’s) to contain the damage from the 2008 financial crisis underpin the strong economy for which Trump wants to take full credit.
.. The end-2017 corporate tax reform was one of those rare instances where the US Congress comprehensively streamlined and improved the US’s Byzantine tax system, though the corporate tax rate should have been set at 25%, not 21%.
.. Obama would likely have been very happy to pass a similar bill. But, during his presidency, the Republican-controlled Congress insisted that any proposal had to be “revenue neutral” even in the short term, which is a tough political hurdle for any fundamental tax reform.
..  a wide range of studies – from the work of the late economist David Landes to more recent research by MIT’s Daron Acemoglu and the University of Chicago’s James A. Robinson – find that
.. institutions and political culture are the single most important determinants of long-term growth.
.. political culture in the US may take years; if so, the economic costs could be considerable.
.. Moreover, in accordance with the administration’s disdain for science, the proposed budgets for basic research, including for the National Institutes of Health and the National Science Foundation, were reduced sharply (fortunately, the US Congress rejected the cuts).
And anti-trust enforcement, needed to counter excessive monopoly power in many parts of the economy, is essentially dormant.
That will exacerbate inequality over the long term; Trump’s coal mines and trade tariffs are at best band-aids on a bullet wound.
.. many of the regulations that Trump is targeting ought to be strengthened, not eliminated. It is hard to imagine that gutting the Environmental Protection Agency and withdrawing from the Paris climate agreement are helpful for long-run growth, given that the costs of cleaning up pollution later vastly exceed the costs of mitigating it today.
.. As for financial regulation, the reams of new rules adopted after the 2008 financial crisis have been a dream come true for lawyers. Rather than try to micromanage banking, it would be far better to ensure that shareholders have more “skin in the game,” so that big banks are more inclined to avoid excessive risk. On the other hand, neutering existing legislation without putting anything adequate in its place sets the stage for another financial crisis.
.. although the US economy is indeed growing rapidly, the full extent of Trump’s economic legacy might not be felt for a decade or more. In the meantime, should a downturn come, it will not be Trump’s fault – at least according to Trump, who is already gearing up to blame the US Federal Reserve for raising interest rates and ruining all his good work.

Obama was right: He came too early

Former Obama White House official Ben Rhodes, in his forthcoming memoir, tells of a moment of doubt the first African American president had after the election of Donald Trump on a campaign dominated by white grievance.

“Sometimes I wonder whether I was 10 or 20 years too early,” President Barack Obama said in the passage, first reported thisweek by Peter Baker in the New York Times.

I hate to say it, but I think the former president was correct.

Ten or 20 years from now, America will be much closer to the majority-minority nation it is forecast to become in 2045. A racist backlash to a black president wouldn’t matter as much.

But what was naively proclaimed in 2008 as post-racial America was instead kindling for white insecurity, and Trump cunningly exploited and stoked racial grievance with his subtle and overt nods to white nationalism. He is now leading the backlash to the Obama years and is seeking to extend white dominion as long as possible, with attempts to stem immigration, to suppress minority voting and to deter minority census participation.

.. These are the death throes of white hegemony. And they are ugly.This week alone:

.. ● Trump had no criticism for Roseanne Barr after her rebooted ABC show was canned because she called former Obama adviser Valerie Jarrett a cross between the Muslim Brotherhood and “Planet of the Apes.” Instead, Trump used the occasion to demand an apology of his own from ABC for unrelated slights.● Trump rallied supporters in Nashville with many of the race-based themes of his campaign, saying Mexico is “going to pay for the wall and they’re going to enjoy it.” He led the crowd in denouncing Latino “animals” who join the MS-13 gang, and repeated his message to black people: “What the hell do you have to lose?”

● Trump pardoned Dinesh D’Souza, the Indian American provocateur who had called Obama a “boy” from the “ghetto” and a “grown up Trayvon,” had dismissed Rosa Parks, and was prolific in his use of the n-word. This follows Trump’s previous pardon of anti-immigrant provocateur Joe Arpaio.

● Trump’s new secretary of state, Mike Pompeo, hosted the previously shunned Hungarian foreign minister, following his government’s reelection on a campaign of anti-Semitism and anti-Muslim demagoguery. The ruling party won by demonizing the Jewish Hungarian American George Soros, a Holocaust survivor.

.. And, finally, a new study by academic researchers in California found that opposition to welfare — another Trump fixation — has grown among white Americans. The researchers concluded that “whites’ perceptions that minorities’ standing is rising can produce periods of ‘welfare backlash’ ” — but only if they believe the programs primarily benefit minorities.

.. the main predictor of support for Trump is racial anxiety — far more than economic anxiety.
.. he tax cut, in the first quarter, contributed toan 8 percent increase in corporate earnings but only a 1 percent increase in consumer spending — the lowest increase in five years — and even though coal jobs are disappearing faster than before, wages remain stuck and the promised return of manufacturing hasn’t happened.

Why corporate America loves Donald Trump

American executives are betting that the president is good for business. Not in the long run

MOST American elites believe that the Trump presidency is hurting their country. Foreign-policy mandarins are terrified that security alliances are being wrecked. Fiscal experts warn that borrowing is spiralling out of control. Scientists deplore the rejection of climate change. And some legal experts warn of a looming constitutional crisis.

.. Bosses reckon that the value of tax cuts, deregulation and potential trade concessions from China outweighs the hazy costs of weaker institutions and trade wars.

.. the investment surge is unlike any before—it is skewed towards tech giants, not firms with factories. When it comes to gauging the full costs of Mr Trump, America Inc is being short-sighted and sloppy.

.. The benefits for business of Mr Trump are clear, then: less tax and red tape, potential trade gains and a 6-8% uplift in earnings.

.. During the Obama years corporate America was convinced it was under siege when in fact, judged by the numbers, it was in a golden era, with average profits 31% above long-term levels.

Now bosses think they have entered a nirvana, when the reality is that the country’s system of commerce is lurching away from rules, openness and multilateral treaties towards arbitrariness, insularity and transient deals.

.. so far this month 200-odd listed American firms have discussed the financial impact of tariffs on their calls with investors. Over time, a mesh of distortions will build up.

.. American firms have $8trn of capital sunk abroad; foreign firms have $7trn in America; and there have been 15,000 inbound deals since 2008. The cost involved in monitoring all this activity could ultimately be vast. As America eschews global co-operation, its firms will also face more duplicative regulation abroad. Europe has already introduced new regimes this year for financial instruments and data.

.. The expense of re-regulating trade could even exceed the benefits of deregulation at home. That might be tolerable, were it not for the other big cost of the Trump era: unpredictability. At home the corporate-tax cuts will partly expire after 2022.

.. Bosses hope that the belligerence on trade is a ploy borrowed from “The Apprentice”, and that stable agreements will emerge. But imagine that America stitches up a deal with China and the bilateral trade deficit then fails to shrink, or Chinese firms cease buying American high-tech components as they become self-sufficient

.. Another reason for the growing unpredictability is Mr Trump’s urge to show off his power with acts of pure political discretion.

  • He has just asked the postal service to raise delivery prices for Amazon, his bête noire and the world’s second-most valuable listed firm.
  • He could easily strike out in anger at other Silicon Valley firms—after all, they increasingly control the flow of political information.
  • He wants the fate of ZTE, a Chinese telecoms firm banned in America for sanctions violations, to turn on his personal whim.

.. When policy becomes a rolling negotiation, lobbying explodes. The less predictable business environment that results will raise the cost of capital.

.. Mr Trump expects wages to rise, but 85% of firms in the S&P 500 are forecast to expand margins by 2019

.. Either shareholders, or workers and Mr Trump, are going to be disappointed.

.. In a downturn, American business may find that its fabled flexibility has been compromised because the politics of firing workers and slashing costs has become toxic.

.. American business may one day conclude that this was the moment when it booked all the benefits of the Trump era, while failing to account properly for the costs.

How to Steal the Populists’ Clothes

The continued electoral success of populists in Europe, Africa, Asia, Latin America, and in the United States shows that while their policy proposals may be fanciful, their mode of conducting politics is effective. To win at the ballot box, mainstream politicians should apply three lessons that populists have mastered.

.. Rather than complaining about populist successes, established political parties should take a page from the populist playbook. Three lessons, in particular, cry out for attention.

The first lesson is to connect to the people you wish to represent by learning about them and winning their trust.

.. The complacent assumption that people will always vote along party or class lines is obsolete.

.. After a decade of economic malaise, voters are skeptical of mainstream politicians who offer rote promises of growth and improved standards of living. In the eyes of disenchanted workers, those in power have simply been feathering their own nests. Even in many of the world’s strongest economies, workers are earning less in real terms than they did ten years ago.

.. the twin threats of automation and outsourcing have made employment more precarious, and sapped workers’ bargaining power.

.. Who is to blame for this state of affairs? Those who vote for populists clearly hold establishment politicians responsible

.. Contrary to popular belief, recent research finds that technology is not the primary driver of labor’s declining share of income. Rather, the worsening plight of workers is due to

  • lost bargaining power and union density,
  • welfare-state retrenchment,
  • offshoring, and the
  • growth of the financial sector as a share of the economy.

the effective tax rates “paid by the world’s 10 biggest public companies by market capitalization in each of nine sectors” have fallen by nearly one-third since 2000, from 34% to 24%.

since 2008, personal income-tax rates across all countries have increased by 6%, on average.

Against this backdrop, the emergence of populist parties and politicians should come as no surprise. When a majority of people becomes poorer, there will be stark consequences at the ballot box. And yet, in one country after another, the political establishment has been remarkably slow to recognize this.

.. Meanwhile, the populist presidential candidate, Jair Bolsonaro, proposes giving every Brazilian a gun so they can defend themselves. To the elites, this sounds (and is) preposterous. But for Brazilians who worry about their own safety, he is at least showing that he understands their top concern.

.. Before winning the French presidency and a parliamentary majority last year, Emmanuel Macron .. sent volunteers across the country to listen to voters’ concerns.

.. populists is to use simple, intuitive messaging to signal your goals. Yes, slogans like “I’ll protect your jobs” and “Make America great again” sound simplistic. But where are the sophisticated alternatives?

.. In the United Kingdom’s Brexit referendum, the Remain campaign, phlegmatically led by then-Prime Minister David Cameron’s government, argued that leaving the European Union would result in lower GDP, lost trade, and disruption to the financial sector.

.. Such arguments completely missed what concerned most voters. By contrast, the Brexiteers promised to “take back control” of the UK’s borders and claimed – falsely – that the National Health Service would enjoy a windfall of £350 million ($490 million) per week.

.. Academics, pundits, and political, business, and civil-society leaders have been far too slow to articulate new economic and social policies that have broad-based appeal.

.. it takes a commitment of time and energy to understand the plight of the electorate and to frame solutions in a clear, simple way.

.. The third lesson from the populist playbook is to be bold.

.. people are seeking a transformational vision of the future, not slight improvements. After 30 years of pragmatism and incremental change, it is time for a new tone.

.. Recall that in 1945, Winston Churchill, having delivered victory for Britain in World War II, lost the general election.

The winner, Clement Attlee, promised what was effectively a new social contract for war-weary Britons still living under rations. His government went on to provide free universal health care, unemployment insurance, pensions, decent housing, and secure jobs in nationalized industries. And all this was done with the national debt still at 250% of GDP.