Their $1 trillion construction spending plan is supposed to create 15 million jobs. Don’t count on it.
In 2011, the unemployment rate for construction workers hovered around 15 percent, while the overall unemployment rate was around 9 percent. So there were plenty of unemployed workers who would jump at a chance for a job rebuilding a road or fixing up a school. That’s not the case today: The unemployment rate for construction workers has plummeted to around 5 percent, while the overall unemployment rate is 4.7 percent. Those numbers are near what economists consider “full employment”—any lower, and inflation could start to rise. In fact, in the construction industry itself, experts are more worried about a shortage of workers than a surplus.
.. Second, if the Democrats’ infrastructure proposal does provide a huge stimulus to the economy, its effects would likely be offset—deliberately—by the Federal Reserve. In 2011, the Fed had set interest rates at essentially 0 percent. If the government had launched a major infrastructure plan, the Federal Reserve would surely have welcomed it—in fact, Ben Bernanke, then the chair of the Fed, had been imploring Congress to do more to stimulate the economy.
.. That doesn’t mean a trillion-dollar infrastructure plan is a bad idea. There are good structural reasons to rebuild America’s roads, bridges and airports. And it’s possible that a future economic crisis will cause millions of construction workers to lose their jobs, forcing the Fed to drop its interest rate back to zero.
Making the Rust Belt Rustier
Why does he want this? Because he sees international trade the way he sees everything else: as a struggle for dominance, in which you only win at somebody else’s expense.
.. What Reagan did do, however, was blow up the budget deficit with military spending and tax cuts. This drove up interest rates, which drew in foreign capital. The inflow of capital, in turn, led to a stronger dollar, which made U.S. manufacturing uncompetitive. The trade deficit soared — and the long-term decline in the share of manufacturing in overall employment accelerated sharply.
Everyone Seems to Agree Globalization is a Sin. They’re Wrong
Jack Ma, the founder of the e-commerce giant Alibaba, estimated that over the past three decades the U.S. government spent $14.2 trillion fighting 13 wars. That money could have been invested in America, building infrastructure and creating jobs.
“You’re supposed to spend money on your own people,” he said. He pointed out that globalization produced massive profits for the U.S. economy but much of that money ended up on Wall Street. “And what happened? Year 2008. The financial crisis wiped out $19.2 trillion [in the] U.S.A. alone. . . . What if the money [had been] spent on the Midwest of the United States developing the industry there?” he asked. “It’s not [that] the other countries steal jobs from you guys — it is your strategy,” he concluded.
.. Since 95 percent of the world’s potential consumers live outside the United States, finding ways to sell to them will have to be a core strategy for growth, even for a country with a large domestic economy such as the United States.
.. The Economist reports, in a survey on globalization, that in 2009 the Obama administration punished China with a tariff on its tires. Two years later, the cost to U.S. consumers was $1.1 billion, or $900,000 for every job “saved.” The impact of such tariffs is usually felt disproportionately by the poor and middle class because they spend a larger share of their income on imported goods, such as food and clothing.
That same Economist survey points to a study that calculated that, across 40 countries, if transnational trade ended, the wealthiest consumers would lose 28 percent of their purchasing power, but the poorest tenth would lose a staggering 63 percent.
the key driver depressing wages and eliminating jobs in the industrialized world is technology, not globalization. For example, between 1990 and 2014, U.S. automotive production increased by 19 percent , but with 240,000 fewer workers.
.. Tariffs on China will simply mean that production will come from some other developing country.
The serious contradiction in Trump’s views on the dollar
Regardless of what China does, experts say that Trump’s other policies could lead to a stronger dollar.
Among Trump’s biggest proposals are plans to cut taxes and spend more on infrastructure, plans that economists say would boost growth. But since the economy is already relatively strong, these measures would also translate into inflation. To head off inflation, the Federal Reserve would likely raise interest rates. These higher rates of return attract more international investors to buy the dollar to invest in the U.S., which in turn bids up the dollar’s price.
Trade measures that Trump has proposed, like tariffs or a border adjustment tax, could also strengthen the dollar, economists said. In the short term, the prospect of a trade war may unsettle markets and lead to flight to the safest asset in the world — dollar-denominated Treasury bonds, bidding them up.
.. “Ironically, the policies being advocated by Trump are likely to make the problem worse. The tax cuts (and possible spending increases), enacted at a time of full employment, will result in higher interest rates and this will boost the dollar,”
.. Furthermore, economists emphasized that the value of the dollar is not in itself a policy goal – but rather, the inevitable outcome of other factors, including the strength of the U.S. economy and global investment patterns.
“We don’t set the value of the dollar… it’s just a reflection of the goal of having a stronger economy, a better economy, a more dynamic economy, one that attracts global capital,” said Mark Zandi, chief economist at Moody’s Analytics. “[Trump] has very little control over the value of the dollar other than his policies that affect growth, and at the end of the day you want a strong economy and a strong dollar.”
.. Of course, if Trump did succeed in engineering a drop in the value of the dollar, he would be accomplishing something for which he has frequently criticized other economies. “The irony here is that we’re accusing other nations of manipulating their currencies, but if we want to solve that problem we’re going to have to end up doing the same thing,” says Zandi.