End of Trump Economics

My Stepfather, a Marine in WWII, was sailing toward Japan when the war ended. After the war, he worked in the steel mills in East Chicago, Indiana. Things did not work out in his first marriage, and on the day of his divorce finalization, he decided to go to a Cub game. He knew it was not going to be a good day. He stopped at the Cubby Bear bar on the way to the game, and a few drinks later, a fellow in a Marine uniform sat down next to him. Once a Marine, Always a Marine. He got into a conversation with the Marine.

The next morning he woke up with a real headache, and it got a lot worse when he got a call from the Marines that his Cubby Bear buddy was a Marine recruiter and my Stepfather had reenlisted for three more years. 

          That’s how this economist felt when Donald Trump was elected. It did not make sense that a person who had gone through six corporate Bankruptcies would have an effective economic policy. Sadly, it did get worse as expected. Bloomberg Opinion (July 2020) summed it up this way, “Trump did nothing to help the Economic Boom. If anything, the President’s actions were a little drag on the recovery from the Great Recession.”

          Let’s examine Trump’s economic claims and policies. 

TAX REDUCTION

          In 2017 Donald Trump and his Republican party cut personal taxes.

          “Our focus is on helping the folks who work in the mailrooms and the machine shops of America,” claimed the President.

          “The plumbers, the carpenters, the cops, the teachers, the truck drivers, the pipefitters, the people that like me best.”

          The reduction was consistent with the Supply-side economics of the Republican party dating back to Ronald Reagan. The concept is simple. The biggest savers in the economy are the rich, so if you give them more money, they will save it and increase the money supply.

The interest rate will fall. Businesses will borrow cheap money and increase capacity. The whole concept depends on the company reinvesting the money in machines, building, and other capital improvements, which increases labor demand. 

          However, there are pitfalls that need to be avoided to make it work. 

          First, if government spending increases and it has to borrow money, it competes with companies for the money, and the interest rate increases, not decreases.

          Under Trump, the U.S. national debt has ballooned, increasing by nearly $7 trillion in less than four years.

          Trump took office in January 2017 after promising to eliminate the national debt during his presidency. When he took the presidential oath, the national debt stood at about $19.95 trillion. In August of 2020, the national debt stood at about $26.73 trillion—an increase of about $6.78 trillion during Trump’s tenure.

          While trillions of dollars have been added to the national debt over the past few months due to massive fiscal stimulus spending to address the coronavirus pandemic’s economic fallout, economists point out that the debt was already increasing significantly before the COVID-19 outbreak. Before the pandemic, the debt had risen to more than $23 trillion in January 2020. Despite strong economic growth during Trump’s first three years in office, the increased debt occurred.

          Another problem was the corporations were supposed to increase capital spending but instead used the cash tax savings to buy back their stock. Their stock value increased as a result. 

          A third drawback was the money did not focus on helping the mailrooms and machine shop workers. 

          The Tax Policy Center noted that six-five percent of the savings went to the population’s wealthiest quintile, and twenty percent went to the top one percent of the people. One point three percent went to the lowest quintile, and eleven percent went to the middle quintile. 

          Many economic studies have shown that an increased disparity between the rich and poor leads to social unrest. That, of course, has proven to be right again. 

JOBS

          In June 2015, Trump promised, “I’m going to be the greatest jobs president God ever created.”

          When he took office in January 2017, there were 145 million Americans in employment. By the end of 2019, that had increased to 152 million. Six-point three million new jobs were created.  

          That’s not out of the ordinary. Using the comparable period in Barack Obama’s second term (January 2013 to December 2015), the number of jobs also rose by around 7 million.

          Bloomberg Opinion states: “The rate of 2.1 million new jobs a year would also have left him short of his campaign pledge of creating 25 million new jobs over a decade.”

          This year, the U.S. jobs market has suffered a crisis not seen since the Great Depression. Between February and April 2020, 22 million jobs were lost. And the jobless rate exploded from 3.5 percent to 14.7 percent.

          It has since come back down, but much of that may be because workers are so discouraged and no longer looking for jobs. If they are not looking for a job, they are not counted in the Civilian Labor Force and therefore not counted as unemployed. 

          Unemployment claims jumped to 965,000 last week from 787,000 the week before. Economists fear that may be indicating a further economic slowdown. 

Tariffs

          Diehard supporters love Trump’s “America First” trade war, which was supposed to result in the reshoring of manufacturing jobs from China and elsewhere. The truth is that it did nothing of the sort. This recovery is fragile for factory jobs.

          Bloomberg Opinion notes: “Trump’s tariffs almost certainly made things harder for U.S. manufacturers by raising the price of imported components; steel tariffs, for example, increased costs for U.S. automakers.

On top of that, the tariffs hurt consumption; multiple economic studies found that U.S. consumers were forced to pay almost all of the cost of Trump’s import taxes.”

          Additionally, the tariffs have been a disaster for the American Farmer. China dramatically decreased its demand for soybeans and grain. One-third of the Illinois beans were sold to China before the tariffs. 

          As noted in an earlier memo, the tariffs reduce the incentive for innovation by sheltering inefficient American manufactures, which is not suitable for the long run.

Environment and Regulation

An interesting study was recently published, Deregulatory Deceptions: Reviewing the Trump Administration’s Claims About Regulatory Reform Cary Coglianese, Natasha Sarin, and Stuart Shapiro November 1, 2020.

          You can make your conclusions from their summary that follows.

“President Donald Trump and his supporters like to point to the positive economic trends the United States experienced prior to the COVID pandemic. They argue that these positive conditions stemmed from the President’s policies, especially his emphasis on deregulation. But what has the Trump Administration really accomplished when it comes to regulation? The answer is much less than the Administration has claimed—and much less than probably most members of the public would surmise.

Overall, we find that every claim we examine about the Trump Administration’s deregulatory efforts is either wrong or exaggerated. The reality is that the Trump Administration has done less deregulating than regulating, and its deregulatory actions have not achieved any demonstrable boost to the economy. The positive economic trends that the Administration likes to give deregulation credit for—such as increases in the gross domestic product and decreases in unemployment—had their roots in policies predating the Administration. If anything, the pace of overall growth in GDP has actually slowed somewhat during the pre-COVID years of the Trump Administration relative to the last three years of the Obama Administration. The Trump Administration has not only exaggerated the positive effects of deregulation, it too often has ignored or downplayed its negative consequences. These adverse effects could be substantial. Although it is too early to assess the overall impact of the Trump Administration’s deregulatory efforts, our research suggests that the Administration may be more effective at deceiving the public about its achievements than in actually using deregulation to boost the economy.”

It is worth noting Politico reported the following last week.

In a surprise move, the Environmental Protection Agency on Wednesday will unveil a climate rule that will effectively prohibit the future regulation of greenhouse gases from any stationary industry other than power plants.

The rule comes just eight days before the inauguration of President-elect Joe Biden, who has pledged a multitrillion-dollar initiative that would combat climate change by making sharp cuts in the United States’ carbon dioxide pollution. The new regulation could hamstring much of that agenda, for example by prohibiting Biden’s EPA from setting carbon limits on oil and gas wells or refineries.

The vehicle for the latest EPA action was also surprising: The agency included it in a long-planned Trump administration regulation that had originally been aimed at a much narrower target — easing greenhouse gas limits for coal plants that might be built in the future. It never sought public comment on the proposal to exempt a wide swath of industries from carbon restrictions.

Environmentalists quickly condemned the rule — first reported by POLITICO — as a parting gift to polluters.

“EPA is perverting the Clean Air Act to ensure that no industry other than the power sector ever has to cut its climate pollution,” said David Doniger, senior strategic director of the Natural Resources Defense Council’s Climate & Clean Energy program.

“This unlawful rule is a transparent attempt to erect roadblocks to protecting public health and the environment for the new administration,” said Jay Duffy, an attorney for a group called the Clean Air Task Force.

          There you have it. The day didn’t start well, and the next day was no better.

About Larry Hill

Dr. Larry Hill is Chair and Professor of Economics. Areas of interest include economic analysis, energy economics cost benefit analysis and economy. To subscribe to the email list of Dr. Larry Hill's Economic Memos, contact Tracey O'Brien at obrientr@lewisu.edu. Credentials include 1967 B.S., Indiana State University, 1968 M.S., Indiana State University, 1976 Ph.D., Northern Illinois University He is a member of honorary fraternities in economics and social science. He is currently writing a book on Managerial Economics and revising previous book, "The Basic Macroeconomics of the American Economy"

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