This is the greatest blunder of Trump’s presidency

There is no way around it: President Trump lost.

He lost his gamble on shutting down the government. And though he will pretend otherwise, he has also lost his grandiose plan to build a border wall that most of the country does not want.

Trump walked away with nothing more than an assurance from congressional Democrats that they will sit down with Republicans for three weeks and try to come up with a border security plan that both parties can agree upon. There’s a reasonable chance they will come up with a solid proposal. But there’s just as much likelihood that Trump’s dream for a wall will die a quiet death there.

Nonetheless, this is the consequence of Trump’s obsession with satisfying the red-hatted, nativist throngs who chanted “build the wall” at so many of his rallies.

Not only do 6 in 10 Americans now disapprove of the job that the president is doing, but his party has also lost the 10-point edge it once held over the Democrats on the question of which party to trust on border security, according to a fresh Post-ABC News poll.

House Speaker Nancy Pelosi (D-Calif.) has shown that she better than Trump understands the art of the deal in Washington. She is the one who succeeded in building a wall — and Trump ran right into it.

Now, as Trump surveys the shambles that his greatest blunder has made of his presidency, the question is whether he and the Republicans learned anything from the five-week calamity that they caused. Will his party be as willing to follow him the next time he leads them toward the edge of a cliff?

If there is even a thin silver lining to the travesty of the longest-ever government shutdown, it is this: The Republicans’ slander of public servants has been exposed for what it is.

When the shutdown began, conservative pundits assured themselves that few Americans would notice or care, because only a quarter of the government was not being funded. By its final day, there was turmoil at airports, slowdowns at the Internal Revenue Service and countless individual stories of federal workers who were forced to find sustenance at food pantries and face agonizing choices between whether to pay for heat or medicine this month. In the Post-ABC poll, 1 in 5 people said they had personally been affected by the shutdown.

The stereotype of government employees as pampered, overpaid, Washington-bound bureaucrats has been around for many years. Republicans have long portrayed them as the enemies of reform and efficiency.

But Trump targeted them as no one did before. From his earliest months in office, he and his allies have portrayed those who dedicate their lives to serving their country as the corrupt, subversive “deep state” — the bottom-feeders of a swamp in need of draining.

As the shutdown began, Trump first made the absurd suggestion that 800,000 government workers were happy to give up grocery and rent money for a construction project on the U.S.-Mexico border that would stand as a monument to the president’s vanity. Then he contradicted himself in a tweet that declared it was largely his political enemies who were feeling the pain: “Do the Dems realize that most of the people not getting paid are Democrats?”

Where a little empathy might have been in order as the shutdown continued, Trump’s team revealed a callousness that would have made Marie Antoinette blush.

Trump economic adviser

  • Kevin Hassett said furloughed workers should be celebrating the fact they were getting time off without having to use vacation days. “In some sense, they’re better off,” he told PBS NewsHour. Commerce Secretary
  •  Wilbur Ross, a billionaire who pads around in custom-made velvet slippers, expressed bewilderment that federal workers would go to food banks instead of taking out a loan from a bank or credit union. And
  •  Lara Trump, the president’s daughter-in-law, dismissed their ordeal as “a little bit of pain, but it’s going to be for the future of our country.”

So it was noticeable that when Trump made his Rose Garden announcement Friday that the government was opening again, he began it by thanking federal workers who had displayed “extraordinary devotion in the face of this recent hardship. You are fantastic people. You are incredible patriots.”

On that point, Trump was absolutely right. Government employees have shown they are all that and more. Which is why they deserve much better than a chief executive who would wager so recklessly with their lives and their livelihoods.

White House Economist Says Economy May Not Grow In First Quarter

Kevin Hassett, chairman of the White House Council of Economic Advisers, noted in a CNN interview that first-quarter growth tends to be relatively weak because of measurement issues and said it could be “very close to zero” if the shutdown persists through March.

“It is true that if we get a typically weak first quarter and then have an extended shutdown, that we could end up with a number that’s very, very low,” Mr. Hassett said. He added that when the government reopens, the economy should recover any lost ground.

.. Mr. Hassett also said he sees the odds of a recession in 2020 at “very, very close to zero.”

On Tuesday, Mr. Trump’s economic adviser Lawrence Kudlow told reporters at the White House he’s “not at all concerned” about the shutdown having a negative impact on the economy.

“No one likes the hardship that people are having to shoulder, including myself,” he said. “But I will also say, we are predominantly not a government-run economy. We’re a free-market economy. So when the government reopens…you will see an immediate snapback.”

.. But in an economy powered by spending and investment, which boil down to little more than consumers’ and businesses’ confidence in their future job and growth prospects, an extended shutdown could threaten broader collateral damage. A troubling sign that this risk may be materializing: The University of Michigan’s consumer-sentiment index plunged 7.7% this month from December to the lowest level since Mr. Trump was elected.

“Federal employees will receive their back pay, but that doesn’t mean that the businesses they patronize will be made whole by extra spending after the shutdown,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients Tuesday.

Donald Trump and His Team of Morons

Nobody left besides those with no reputation to lose.

There have been many policy disasters over the course of U.S. history. It’s hard, however, to think of a calamity as gratuitous, an error as unforced, as the current federal shutdown.

Nor can I think of another disaster as thoroughly personal, as completely owned by one man. When Donald Trump told Chuck Schumer and Nancy Pelosi, “I will be the one to shut it down,” he was being completely accurate — although he went on to promise that “I’m not going to blame you for it,” which was a lie.

Still, no man is an island, although Trump comes closer than most. You can’t fully make sense of his policy pratfalls without acknowledging the extraordinary quality of the people with whom he has surrounded himself. And by “extraordinary,” of course, I mean extraordinarily low quality. Lincoln had a team of rivals; Trump has a team of morons.

If this sounds too harsh, consider recent economic pronouncements by two members of his administration. Predictably, these pronouncements involve bad economics; that’s pretty much a given. What’s striking, instead, is the inability of either man to stay on script; they can’t even get their right-wing mendacity right.

.. First up is Kevin Hassett, chairman of Trump’s Council of Economic Advisers, who was asked about the plight of federal workers who aren’t being paid. You don’t have to be a public relations expert to know that you’re supposed to express some sympathy, whether you feel it or not. After all, there are multiple news reports about transportation security workers turning to food banks, the Coast Guard suggesting its employees hold garage sales, and so on.

So the right response involves expressing concern about those workers but placing the blame on Democrats who don’t want to stop brown-skinned rapists, or something like that. But no: Hassett declared that it’s all good, that the workers are actually “better off,” because they’re getting time off without having to use any of their vacation days.

Then consider what Sean Hannity had to say about taxing the rich. What’s that? You say that Hannity isn’t a member of the Trump administration? But surely he is in every sense that matters. In fact, Fox News isn’t just state TV, its hosts clearly have better access to the president, more input into his decisions, than any of the so-called experts at places like the State Department or the Department of Defense.

Anyway, Hannity declared that raising taxes on the wealthy would damage the economy, because “rich people won’t be buying boats that they like recreationally,” and “they’re not going to be taking expensive vacations anymore.”

Um, that’s not the answer a conservative is supposed to give. You’re supposed to insist that low taxes on the rich give them an incentive to work really really hard, not make it easier for them to take lavish vacations. You’re supposed to declare that low taxes will induce them to save and spend money building businesses, not help them afford to buy new yachts.

Even if your real reason for favoring low taxes is that they let your wealthy friends engage in even more high living, you’re not supposed to say that out loud.

Again, the point isn’t that people in Trump’s circle don’t care about ordinary American families, and also talk nonsense — that’s only to be expected. What’s amazing is that they’re so out of it that they don’t know either how to pretend to care about the middle class, or what nonsense to spout in order to sustain that pretense.

So what’s wrong with Trump’s people? Why can’t they serve up even some fake populism?

There are, I think, two answers, one generic to modern conservatism, one specific to Trump.

On the generic point: To be a modern conservative is to spend your life inside what amounts to a cult, barely exposed to outside ideas or even ways of speaking. Inside that cult, contempt for ordinary working Americans is widespread — remember Eric Cantor, the then-House majority leader, celebrating Labor Day by praising business owners. So is worship of wealth. And it can be hard for cult members to remember that you don’t talk that way to outsiders.

Then there’s the Trump effect. Normally working for the president of the United States is a career booster, something that looks good on your résumé. Trump’s presidency, however, is so chaotic, corrupt and potentially compromised by his foreign entanglements that anyone associated with him gets tainted — which is why after only two years he has already left a trail of broken men and wrecked reputations in his wake.

So who is willing to serve him at this point? Only those with no reputation to lose, generally because they’re pretty bad at what they do. There are, no doubt, conservatives smart and self-controlled enough to lie plausibly, or at least preserve some deniability, and defend Trump’s policies without making fools of themselves. But those people have gone into hiding.

A year ago I pointed out that the Trump administration was turning into government by the worst and the dumbest. Since then, however, things have gotten even worse and even dumber. And we haven’t hit bottom yet.

Debating Piketty’s theories on ‘Capital’ and inequality

(2014) In “Capital,” French economist Thomas Piketty explores how wealth and the income derived from it magnifies the problems of inequality. Gwen Ifill gets debate on his data and conclusions from Heather Boushey of Washington Center for Equitable Growth and Kevin Hassett of American Enterprise Institute.

  • Kevin Hasset argues that inequality is not rising because of government transfer programs (that he likely does not favor).
  • Heather Boushey argues that Kevin Hassett starts from economic models that don’t match reality, rather than the data.

Lawrence Summers: One last time on who benefits from corporate tax cuts

recently asserted that Kevin Hassett deserved a failing grade for his “analysis” projecting that the Trump administration proposal to reduce the corporate tax rate from 35 to 20 percent would raise the wages of an average American family between $4,000 to $9,000. I chose harsh language because Hassett had, for what seemed like political reasons, impugned the integrity of people like Len Burman and Gene Steuerle who have devoted their lives to honest rigorous evaluation of tax measures by calling their work “scientifically indefensible” and “fiction.” Since there have been a variety of comments on the economics of corporate tax reduction, some further discussion seems warranted.

The analysis from Hassett, chief of the White House Council of Economic Advisers (CEA), relies heavily on correlations between corporate tax rates and wages in other countries to argue that a cut in the corporate tax rate would boost returns to labor very substantially. Perhaps unintentionally, the CEA ignores our own historical experience in their analysis. As Frank Lysy noted, the corporate tax cuts of the late 1980s did not result in increased real wages. Actually, real wages fell. The same is true in the United Kingdomas highlighted by Kimberly Clausing and Edward Kleinbard. These examples feel far more relevant to the corporate tax issue analysis than comparisons to small economies and tax havens like Ireland and Switzerland upon which the CEA relies.

There has been a lot of back and forth, but notably no one has defended the $4,000 claim as a “very conservatively estimated lower bound,” let alone endorsed the plausibility of the $9,000 claim. In fact, the Wall Street Journal op-ed page published two very optimistic versions of what the wage increase could be, which were below CEA’s lower bound.

Casey Mulligan and Greg Mankiw also do not defend CEA’s numbers, but do make use of simple academic abstract models that do not capture the complexities of a policy situation to argue that wage increases could be larger than the tax cut. The inadequacy of their analyses illustrate why well-resourced, team-based institutions with a strong culture of attention to detail like the Congressional Budget Office, the GAO, the Joint Tax Committee Staff or the Tax Policy Center are so important.

Mankiw’s blog is a fine bit of economic pedagogy. It asks students to gauge the impact of a corporate rate reduction on wages in a so called “Ramsey” model or equivalently in a small fully open economy, with perfect capital mobility. Even with these assumptions, he does not get answers in the range of the CEA’s estimates.

As a device for motivating students to learn how to manipulate oversimplified academic models, Mankiw’s blog is terrific as one would expect from an outstanding economist and one of the leading textbook authors of his generation. As a guide to the effects of the Trump administration’s tax cut, I do not think it is very helpful for three important reasons.

.. First, a cut in the corporate tax rate from 35 to 20 percent in the presence of expensing of substantial or total investment has very little impact on the incentive to invest. Imagine the case of full expensing. If a company is permitted to deduct all of its investment costs and then is taxed on all of its investment profits, the tax rate has no impact at all on the investment incentive. If investments are financed in part with deductible interest, as would be true even under the Trump plan (where expensing would be total), a reduction in the corporate tax rate could easily reduce the incentive to invest.  Mankiw assumes implicitly that capital lasts forever and companies take no depreciation and engage in no debt finance.  This is not the world we live in.

The United States is not a small open economy. If it were, the effect of an effective investment incentive would be a major increase in the trade deficit as capital inflows forced an excess of imports over exports. I imagine that President Trump at least feels that a greatly augmented trade deficit is not good for American workers.

Third, a big cut in the corporate rate does not happen in isolation as a break for new investment.  Mankiw’s model does not recognize the possibility of monopoly profits or returns to intellectual capital or other ways in which a corporate tax cut benefits shareholders without encouraging investment. It means either increases in other taxes or enlarged deficits, both of which have adverse effects on households. It also means that capital moves out of the noncorporate sector into the corporate sector, tending to hurt workers in the noncorporate sector.

.. The main point of my paper, which Mulligan entirely ignores, was that because of slow adjustment costs, the impact of tax changes was felt primarily on asset prices for a long time. This meant that as my paper showed, the primary impact of a corporate tax cut would be to raise after-tax profits and the stock market. This in turn, as I noted, primarily benefits wealthy individuals.

.. It is worth noting that Larry Kotlikoff and Jack Mintz’s response to criticismsof the Trump tax plan suffers from the same deficiencies as Mulligan’s. The authors include no corporate tax detail, no recognition of the impact of the tax proposal on asset prices, and no treatment of the budget consequences of tax cuts.

.. The newest boldest bit of claim inflation regarding the tax bill comes from the Business Roundtable: “a competitive 20 percent corporate tax rate could increase wages sufficient to support two million new jobs.” This would, coupled with job growth projected even in the absence of a corporate rate cut, take the unemployment rate well below 3 percent! I would be very interested to see the underlying analysis.  I would be surprised if it is convincing.

.. By far the highest quality assessment of corporate tax issues has been provided by Jane Gravelle, writing under the auspices of the Congressional Research Service.  It looks at all the literature. It recognizes that the issues are complex and cannot be captured by a single model or regression equation. It does not start with a point of view. Unfortunately it provides little support for claims that corporate rate cuts will raise revenue, help the middle class or spur rapid wage growth.
.. During my years in government, I served with 7 CEA chairs — Martin Feldstein, Laura Tyson, Joe Stiglitz, Janet L. Yellen, Martin Baily, Christy Romer and Austan Goolsbee. I observed all of them fighting with political figures in their Administrations as they insisted that CEA analysis had to be of a kind that would be respected and validated by outside economists. They refused to cheerlead for Administration policies at the expense of their professional credibility. I cannot imagine any of them releasing an estimate as far from the professional mainstream as $4000 to $9000 wage increase from a corporate rate cut claim. Chairman Hassett should for the sake of his own credibility, that of the Administration he serves and the institution he leads, back off.

The Great American Tax Heist Turns One

Last December, Republicans relied on the support of conservative economists who predicted that the party’s corporate tax cuts would boost productivity and investment in the United States substantially. The forecasts were wrong, and the silence of those who made them suggests that they knew it all along.

BERKELEY – It has now been one year since US President Donald Trump and his fellow Republicans rammed their massive corporate tax cut through Congress. At the time, critics of the “Tax Cuts and Jobs Act” described it as a cynical handout for wealthy shareholders. But a substantial number of economists came out in support of it.
For example, one prominent group, most of whom served in previous Republican administrations, predicted in The Wall Street Journal that the tax cuts would boost long-run GDP by 3-4%, with an “associated increase” of about 0.4% “in the annual rate of GDP growth” over the next decade. And in an open letter to Congress, a coterie of over 100 economists asserted that “the macroeconomic feedback generated by the [tax cuts]” would be “more than enough to compensate for the static revenue loss,” implying that the bill would be deficit-neutral over time.

Likewise, in a  for Project Syndicate, Robert J. Barro of Harvard University argued that the tax cuts would increase long-run real (inflation-adjusted) per capita GDP by an improbable 7%. And Michael J. Boskin of the Hoover Institution endorsed his analysis in a .

Finally, Kevin Hassett, Chairman of the White House Council of Economic Advisers, and Greg Mankiw of Harvard University claimed that the productivity gains stemming from the tax package would primarily boost wages, rather than profits, because foreign savers would pour investment into the US.

.. To be sure, these were primarily long-run predictions. But proponents of the bill nonetheless claimed that we would see enough additional investment to boost growth by 0.4% per year. That implies an annual GDP increase of roughly $800 billion, which would require annual investment to rise from 17.5% to about 21.5% of GDP. We cannot know how much the US economy would grow in the absence of the tax cuts. But, as the chart below shows, investment has not jumped to that level, nor does it show signs of doing so anytime soon.

.. Back when all the aforementioned economists were issuing their sanguine predictions about the tax package’s likely effects, neutral scorekeepers such as the Tax Policy Center were painting a more realistic picture. And unlike most proponents of the cuts, the Tax Policy Center’s raison d’être is not to please donors or support a particular political party, but rather to make the best forecasts that it can.

The deep disagreement last year over the tax bill’s potential effects anguished Binyamin Applebaum of The New York Times. “What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement?” Applebaum asked on Twitter at the time. “How does Harvard, for example, justify granting tenure to people who purport to work in the same discipline and publicly condemn each other as charlatans? How are ordinary people, let alone members of Congress, supposed to figure out which tenured professors are the serious economists?

.. We can now answer that last question. Scholarship is about the pursuit of truth. When scholars find that they have gotten something wrong, they ask themselves why, in order to improve their methodology and possibly get it less wrong in the future. The economists who predicted that tax cuts would spur a rapid increase in investment and sustained growth have now been proven wrong. If they were serious academics committed to their discipline, they would take this as a sign that they have something to learn. Sadly, they have not. They have remained silent, which suggests that they are not surprised to see investment fall far short of what they promised.

But why should they be surprised? After all, it would be specious to assume, as their models do, that investment can rapidly rise (or fall) as foreign investors flood into (or flee) the US. Individuals and firms do not suddenly ratchet up their savings just because the after-tax profit rate has increased. While a higher profit rate does make saving more profitable, it also increases the income from one’s past savings, thus reducing the need to save. Generally speaking, the two balance out.

While a higher profit rate does make saving more profitable, it also increases the income from one’s past savings, thus reducing the need to save. Generally speaking, the two balance out.

All of those who published op-eds and released studies supporting the corporate tax cuts last year knew (or should have known) this to begin with. That is why they have not bothered to investigate their flawed forecasts to determine what they may have missed. It is as if they knew all along that their predictions were wrong.

For reporters still wondering which economists to listen to, the answer should now be clear. If there is one message to take from the past year, it is: “Fool me once, shame on you; fool me twice, shame on me.”

Trump’s Potemkin Economy

According to legend, Grigory Potemkin, one of Catherine the Great’s ministers (and her lover), created a false impression of prosperity when the empress toured Ukraine.

.. the legend has become a byword for the general idea of prettifying reality to please a tyrannical ruler.

.. But Trump’s actual policy initiatives aren’t doing so well. His tax cut isn’t producing the promised surge in business investment, let alone the promised wage gains; all it has really done is lead to a lot of stock buybacks. Reflecting this reality, the tax cut is becoming less popular over time.

.. the trade war that was supposed to be “good, and easy to win” isn’t generating the kinds of headlines Trump wanted.
.. Instead, we’re hearing about production shifting overseas to escape both U.S. tariffs on imported inputs and foreign retaliation against U.S. products.
.. making stuff up is actually standard operating procedure for these guys.
.. Trade policy itself is being driven by claims about the massive tariffs U.S. products face from, say, the European Union — tariffs that, like the immigrant crime wave, don’t actually exist.
.. he declared that the head of U.S. Steel called him to say that the company was opening six new plants. It isn’t, and as far as we can tell the phone call never happened.
.. the Council of Economic Advisers did an internal report concluding that Trump trade policy will cost jobs, not create them; Kevin Hassett, the chairman, pressed on these reports, said that he could neither confirm nor deny them; in other words, they’re true.
.. Hassett is declaring that last year’s corporate tax cut has led to a “massive amount of activity coming home” — which is just false. Some companies are rearranging their accounting, producing what looks on paper like money coming back to the U.S., but this has no real effect on investment or employment.
.. declaration by Larry Kudlow, the administration’s top economic official, that the budget deficit is “coming down rapidly” as “those revenues come rolling in.”
.. reports that Trump wants to withdraw from the World Trade Organization.
.. The best hope for breaking the cycle of retaliation would be for Trump to realize that the trade war is going badly, take a deep breath, and step back from the brink.
.. But who will tell him how things are really going?
.. Trump will dismiss reports of problems as fake news. Reality will take a long time to break through, if it ever does. And by then the world trading system may be broken beyond repair.