By Nehad Ismail.  

Donald Trump’s inauguration speech was full of inaccuracies and wild assertions. They can be easily refuted by facts and statistics. He painted a misleading and gloomy picture of life in the U.S. High unemployment and ‘carnage’.

According to the New York Times the following day the number of people receiving federal Temporary Assistance for Needy Families benefits fell by more than 70 %, to 1.2 million, between 1996 and 2016.

The unemployment rate has fallen from 10% in 2009, the height of the recession, to under 5% by 2015.

Mr. Trump also claimed that jobs are going overseas and factories are closing. Wrong again. Production jobs have fallen by about five million since 1987, but he did not say, or perhaps even know, that the country’s manufacturing output has increased by more than 86% according to the Bureau of Labour Statistics.

Last year Candidate Trump declared two major policy strategies. Both may have bad consequences. First was his tax-cutting policy, and second was tearing up trade agreements with China and Mexico.

This week January President Trump signed an executive action to withdraw from the negotiating process of the TPP – Trans-Pacific Partnership, in effect declaring war against the WTO and globalisation.

Tearing up trade deals like NAFTA the North American Free Trade Agreement and TPP will not create jobs in the US nor lead to prosperity and economic growth. It just reduces the US global economic and political leverage. Most economists agree that Trump’s threat to impose big tariffs on China and Mexico will backfire. If Trump had studied the causes that led to the crash of the late 1920s, he wouldn’t have threatened to impose higher tariffs on imported goods.

It is true that trade with China cost the U.S. about a million factory jobs from 2000 to 2007, according to one recent study. However, automation and increased efficiency is a larger reason why factory employment has declined. American industrial output is actually at the highest level in history. Doesn’t he realize that that US influence is greatest when it works with other nations in an open and free world economy rather than when it shuts itself off behind nationalistic rhetoric?

Here we have the leader of the most powerful capitalist state in the world promoting protectionism and isolationism yet without presenting a coherent fully detailed and costed plan for close scrutiny.

In August last year the Economist reported “Mr Trump vowed to boost growth by tearing up federal regulations—particularly those regulating carmakers and energy firms. He promised a moratorium on new rule-making by federal agencies.”

During his election campaign Trump promised huge tax cuts to stimulate economic growth. Steve Mnuchin told Senators at his confirmation hearing, “I think we want to make sure that tax reform doesn’t increase the deficit.” Most economists believe that the deficit will increase.

It is known historically the Republican Party has been in favour of lower taxes because they believe it spurs economic growth and household spending. Analysts think the Trump’s tax plan will create a deficit in the range of $2.6 trillion to $10 trillion according to Moody’s calculations. The right wing “Tax Foundation” believes that Trump’s tax plans will boost annual GDP growth by up to 2.7% over 10 years.

Trump also promised big cuts in the budgets of government departments such as theEnergy and the Food and Drug Administration, but this will be more than offset by higher spending on defence estimated at $950 billion Alternatively Trump might finance his tax cuts by borrowing which will add $14 trillion to the federal debt. So there is no easy fix. Every action has ramifications most of which are negative.

Of course with a Republican dominated congress, Trump may get his wishes translated into action whether we are talking about tax cuts or increased military spending.

During the election campaign we heard a lot from Trump about re-building the decaying infrastructure. However spending on infrastructure will take time to feed through. The Trump camp talks about more loose fiscal policy and a tighter monetary one. How can you reconcile the two?

The new Trump White House has now released its “America First Energy Plan” saying the U.S. must take advantage of its $50 trillion in untapped shale oil and gas reserves, especially on federal lands and to free the US from dependence on imported oil.

The plan promises to eliminate “harmful and unnecessary policies such as the Climate Action Plan and the Waters of the U.S. rule.”

The natural gas industry is likely to benefit from deregulation, of federal restrictions on methane emissions. However, a natural gas industry facing lower costs will keep prices low, undermining Trump’s campaign promises to help the coal industry.

However Trump believes the shale oil and gas revolution will bring jobs and prosperity to millions of Americans. It doesn’t add up.

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3 Comments on "Trumponomics Of The Madhouse?"

  1. Nehad, I think of Trumps economic plans as a bit like bouncing a rugby ball off the ground, you don’t know which direction it is likely to go in. Me being be, you won’t be surprised to find that I do disagree with some of the points that you make, though not all by any means.

    Firstly with regards to TANF being a bellwether of poverty in the USA, the program was introduced in 97 I believe with the aim of getting people off welfare and into work, as such it imposed a maximum 5 year limit that benefits could be claimed before being cut off from the program. It is no surprise therefore that the claimant level has reduced substantially. A perhaps better indicator would be the US poverty rate compiled by the US census bureau which stood at 13.3% in 97, 14.3% in 09 and 13.5% now (or 43 million Americans). Unemployment may have halved, but the percentage of people living in poverty has remained static, this would indicate that the jobs being created are in general low paid.

    While increases in manufacturing output is great news for shareholders I would imagine it is of little solace to the people who have lost their jobs that the robots that have replaced them are much better and quicker at assembling things than they are. They are more likely to look at the ridiculously low cost of Chinese labour/imports as having made the automation of their jobs necessary for US companies to compete.

    Increased tariffs did not cause the crash of 29, (Smoot Hawley came into force in 1930). It played a part in the great depression, though economists are split as to how big a factor it was. The key fact to note though is that at that time the US was a net exporter and had a trade surplus. Imposing tariffs was a measure that was only ever going to cause damage to the US economy. The situation now is very different, the US runs a $45bn deficit, in any other nation this would be an unsustainable outflow of capital and it is only the dollars status as the worlds reserve currency that has allowed this to get to where it is. There are many downsides to increasing tariffs on foreign goods, but it is important to recognise that when you are talking about this level of deficit there are also significant upsides for your economy.

    What is certain is that the current model for the US economy cannot go on indefinitely. To take one year you mentioned, 1987, US govt debt was 47% of GDP, household debt was around 50% of GDP. Today US government debt has doubled to 104% of GDP while household debt stands at 78% of GDP. Look at the graphs and they show an almost constant rise from the relative lows (30-40%) of the 1960s back when the US was a net exporter. The last time US national debt was this high was at the end of WW2, that money was spent fighting a huge global war for 4 years, this money has been spent to delay some harsh realities that will have to be faced. It may be called living on the never never but the reality is that eventually those kind of debt levels come home to roost and when they do it isn’t pretty. I don’t think that just continuing with more of the same is going to help America in the long term and in that respect it is probably time for the US to do something to stem the capital outflows from the country and try to stimulate a model of build American buy American.

  2. I should have made clear that the $45bn deficit is a current monthly figure!!. Total for 2015 was $531bn

  3. Thanks Rob for the careful reading and the important points you raised. Of course I don’t expect everyone to agree with each and every point in the piece. Your points are appreciated. No doubt this subject will be visited many times over the next few months.

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