Donald Trump and economic policy

Just received this very nice note so thought I would say something about the question asked. Here is the note:

I enjoy reading your contributions to Catallaxy on a regular basis. I can’t say I know a lot about economics, but I especially like hearing you arguments to current economic theory. Rational debate is a powerful tool.

Recently, I was at work and a conversation around the lunch room turned to America politics.

Most of my work colleagues are “Never Trumpers”, but when I pointed out the American economy was currently doing very well, with record high stocks and decade low unemployment, one of my colleagues said something thatade me questions Donald Trump’s success. The comment was…

“The current economic success in American has nothing to do with Donald Trump. It wouldn’t matter who was President at the moment. The economy just goes through natural peaks and troughs in a capitalist society.”..

Knowing that the President has now been in place 12 months, and knowing that the Republicans still have not released their tax plan, is the above statement true?

Nothing like magical thinking to make you believe in the tooth fairy.

The parlous state that Obama left the American economy in will require an astonishing amount of luck combined with a great deal of very well constructed policy to move past. You do know that in the entire eight years Obama was president, the US economy on not a singe occasion achieved a growth rate as high as 3%. Trump has now achieved it twice, with more to come. Obama even inherited the recovery phase following the GFC which is almost invariably an economy’s period of strongest growth since part of what happens is the recovery of ground lost during the recession. Instead, there were eight years of low growth and stagnant employment. There is not an economic story to tell to his credit, even with interest rates at near zero and public spending at an all-time high, which in standard economic theory are a good thing. Of course, both are harmful to an economy’s prospects but don’t expect your friend to know it or believe it if you tell him.

But why take my word for it. Here is Conrad Black pointing out that Trump is already the most successful U.S. president since Ronald Reagan. And as you can see from the beginning of this excerpt he is not PDT’s greatest admirer, but even so:

He can be a tiresome and implausible public figure at times, and the reservations widely held about him, in the United States and elsewhere, are understandable and not unfounded. He is, however, the most effective U.S. president since Reagan. In the 20 pre-Trump years there [occurred] the greatest world economic crisis since the 1930s, American GDP per capita growth and capital investment shrunk by 75 per cent, the work force lost over 15 million people, millions of unskilled, illegal migrants were admitted, and the national debt of 233 years of American independence more than doubled in the last seven years of Obama. Those 20 years were the only time of absolute decline in American history, as well as a period of prolonged economic stagnation. Americans, unlike the older great nations of Europe and the Far East, have never experienced such setbacks and stagnation, and don’t like or accept them. It was in these circumstances that this unusual president was elected.

In addition to these American problems, there is the international phenomenon of ever-widening disparity of wealth and income, with no obvious solution — taking money from people who have earned it and giving it to those who haven’t will just drive out the high economic achievers who provide most of the personal income tax revenue already. And there is the problem that, for the first time, higher technology produces unemployment rather than employment, and increased productivity, unlike in the Reagan years, has not, until Trump was elected, led to job creation.

There is more at the link than just the economy but here we will stick to the economic issues.

The political business cycle works like this. The left elects a typically economically ignorant numbskull (voted in by people such as your colleague at work) who think markets don’t matter and public spending plus socialist rhetoric plus charisma are all that is required. The result is economic damage that goes on until finally enough of the socialists in our midst finally decide to get rid of these incompetents and bring in someone who knows what they are doing. Very old story. Whitlam in the 1970s gave way to Fraser, Rudd-Gillard in the 2000s was replaced by Abbott, Jimmy Carter replaced by Reagan, Labour in the UK followed by Thatcher etc. The return to market principles lasts just long enough before another adventure in socialist central direction, which is why we can never rid ourselves of bad economic policy (imagine voting out Howard-Costello for Rudd-Swan!). Most of the time, socialists wreck things followed by conservatives who fix things up (and it is weird that Shorten is being looked at as a better economic manager than Turnbull). Your mate is one of those who cannot bear to recognise that anti-market policies never work and just getting rid of them does work. Had Hillary been elected, the certainty is that no recovery of any kind would have been visible nor probably have ever occurred. Ignorance of the necessities of market-based policies is the rule on the left, and only deep deep pain for a large number of people for a considerable period of time finally get them to turn around. Venezuelans may just be there now, but the entire country invited the problems it has and the cure, if they ever get around to one, will be short-lived because the world is filled with people who believe strong economies are like good weather, just part of the nature of things, and into every economy a bit of rain must fall, etc etc. You won’t convince him, but at least you can see it for yourself.

I will discuss international trade and free markets some other time. In the meantime, here are a few specifics of what Trump has done and is doing from a previous post:

• reducing public spending
• rolling back regulations
• cuts to taxation – business and personal
• interest rate increases although limited
• more room provided for entrepreneurial decision making
• crony-capitalism [Keynesian theory] no longer at the centre of policy

Nothing you can do to convince such people, but it isn’t bad luck that causes leftist governments to wreck things but bad policies. They can’t help it, but at least we can do something by not electing them in the first place.

AND WHILE WE’RE AT IT: Don’t be misled by the title: Why I Have Given Up on Trumpism. Here’s his point but feel free to read it all:

“But just think about these subjects: illegal immigration (down by more the 60 percent), energy (America is now the world’s biggest producer of energy), unemployment (4 and a bit percent), growth (3 percent for two quarters running), the market (up more than 5,000 points since November 2016), regulation (huge progress in turning back the counterproductive regulatory environment that has stymied American business), consumer confidence (the highest it’s been in a generation), the military (revitalized), taxes (a bracing if imperfect plan wending its way through Congress), Iran (declining to recertify a deal that paved the way for Iran to become a nuclear power). Et, need I say, cetera.”

For the #NeverTrumps and the #NoTrumps you waste your breath in saying anything at all. But this is what I say. You may not have preferred PDT to some other as many did. But if you are still banging on about Trump and where he might lead us, rather than starting to think he might in the end be all right, you are simply a partisan fool, utterly clueless about policy, and have no business even pretending you are on the right side of politics.

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