Publicat în 20 iunie 2018, 06:20 / 400 elite & idei

Alexandru Georgescu: Trumponomics A New New Deal for the American people?

Alexandru Georgescu: Trumponomics A New New Deal for the American people?
+ Observator

Western political culture is adept at communication through soundbites and sloganizing. Adding suffixes (-nomics, -care, -ism) to names of politicians is one way of supposedly distinguishing their brand of ideology from that of another – Reaganomics, Thatcherism, Clintonomics, Romneycare, Obamacare. Echoing Bill Clinton’s famous campaign war cry, “it’s the economy, stupid!”, Trumponomics is possibly the most important component of President Donald Trump’s “greatness agenda” that won him a previously unthinkable electoral victory. His detractors have lambasted his views as being both heretical to current orthodoxies, as well as overly simplistic, which is another way of bemoaning Trump’s effectiveness as a political communicator and the current electoral revolt against the tyranny of the expert class consensus. However, Trumponomics is being shaped by dissident thinkers[1] encouraged by Trump’s anti-establishment ethos as a valuable and timely critique of past and current policies and how they have affected America itself, not just in the sense of abstract figures like GDP. While it may be a sign of the Trumpmania that swept stock markets in the period leading up to the inauguration, Deutsche Bank[2] has already announced that Trumponomics will double yearly US growth and add another 0.5 percentage point to global growth by the end of his term, ending the worst economic recovery since The Great Depression:

Intellectual roots

 In the abstract, Trumponomics reads a lot like a return to Republican roots of protectionism for “domestic manufactures” of which current liberal darling, Founding Father Alexander Hamilton[3], was a powerful and persuasive supporter. It also adds Franklinite considerations, expressed in the pamphlet “Observations Concerning the Increase of Mankind, Peopling of Countries, etc.” in 1751 which attributes American prosperity to high wages and cheap land. A main conclusion of this pamphlet, which went on to inspire Reverend Malthus in his more famous observations, was that the limits to population expansion arrive by “crowding and interfering with each other’s means of subsistence”. Trumpian rhetoric posits that high immigration levels coupled with weak growth lead to a reduction in the wages of existing workers (native and prior immigrants) and their gradual exit from the labor force under the current welfare regime. This effect has been documented by sociologist Charles Murray[4] and by Harvard immigration economist George P. Borjas, and constitutes an essential component of Trumpism’s worldview, of which Trumponomics is the economic branch. The Republican fixation with protectionism lasted until World War 2. Beforehand, Republican President Theodore Roosevelt (considered one of the best Presidents the US has had) had remarked that “pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fiber”[5]. The rise of the bipolar world, the emerging US economic supremacy and the necessity of rebuilding Europe and confronting the Soviet Union to assert the primacy of the capitalist model over the communist one turned new generations of Republicans into internationalists. Coupled with globalization and the wealth that began to flow for key political constituencies, free trade became enshrined in party dogma, especially after the unexpectedly successful Presidency of Ronald Reagan, whose Reaganomics remains a guiding light to Trump’s intraparty adversaries.

However, Trumponomics is not going to be a coherent program and ideology, since it has to be implemented with the help of multiple actors such as Congress and the business community, who are not going to be particularly amenable to many components. Reaganomics itself was the product of many fathers, and neither did Ronald Reagan hesitate to contradict his own platform when the situation called for it. One is reminded of how Reagan strong-armed Japan (the “Asian peril” of the day) into building car factories in the US if it wanted to sell its cars there, or how the Plaza Accords of 1985 led to the rise of the yen, kept low as a matter of state policy for export-based growth, further eroding Japanese competitiveness in favor of investment in the US and of existing American producers. Therefore, Trumponomics will be guided by expediency rather than airy principles. Should it be successful, its only likely principle will have been “is this good for the American people?”. This is in contrast with Reaganomics, which assumed that “the rising tide will lift all boats”, an assertion since proven wrong. It is this focus on citizen welfare which gives Trumponomics its populist character. Rather than a rejection of Reaganomics, whose namesake Trump has professed for decades to have admired greatly, Trumponomics is the logical continuation of it.

Just as Reaganomics arose to fix the accumulated dysfunctions of the prior paradigm, encapsulated in the economic decline, social rebellion and foreign policy woes of the 1960s and 1970s, Trumponomics will attempt to rectify the excesses resulting from the pendulum swinging the other way, towards the “greed is good” era of Wall Street (finance) and K Street (lobbyists) lording over Main Street (the real economy) and the people. After Trumponomics, a new doctrine will have to be formulated to address whatever excesses it left behind, some of which can be discerned already. It is the utter inflexibility of globalist elites on their pet issues, such as free trade, that spurred a worldwide rebellion against them, as the “illusion of permanence” fostered by the beneficiaries of the current status-quo led to policies being maintained long after their marginal returns had diminished and become negative. Trumponomics is an essentially Anglo-American conservative ideology, rejecting ivory-tower theories that disregard the realities and perceptions of quotidian life, in the vein of Edmund Burke’s disdain for the French philosophers masking terrible abuses while espousing liberty, equality and fraternity during the French Revolution.

Trade theory

Donald Trump’s attitudes towards trade are crystallized in his approach towards China, which are reinforced by his choice of Sinoskeptics both for his newly created National Trade Council, led by Peter Navarro, author of “Crouching Tiger: What China’s Militarism Means for the World” (2015) and “Death by China: Confronting the Dragon – A Global Call to Action” (2011), and for the Cabinet position of US Trade Representative, which will be occupied by Robert Lighthizer, who wrote the following in 2011[6]:

The essential Trumpian position on trade is that free trade can only take place between countries at similar levels of development, who respect the same rules and who can both be equal opportunity consumers and producers of each other’s goods. This is why Trump’s anti-NAFTA rhetoric focused on Mexico, but not Canada, although it too became swept up in the Trump’s war of words with America’s closest allies. There is no labor animus on the part of his electorate towards Canada or Great Britain, or Germany for that matter, which have similarly priced labor. What the United States has been doing in relation to Japan, China and others was to religiously adhere to free trade dogma while ignoring the mercantilism of the trading partners. The Obama Administration tried to utilize WTO mechanisms to address some of the issues[7],[8] but the fundamental weakness of the relationship was not China acting in bad faith by dumping products, but the underlying economic mechanisms that saw tens of thousands of US factories relocated to Asia, producing cheaper goods (the difference often pocketed by the companies, such as Apple) and selling the goods to the world’s largest importer, who was increasingly paying for the imports with money borrowed from the people selling the goods. This dynamic is essentially unsustainable and, absent Trump, would have crumbled on its own in a few years, with possibly devastating shockwaves. Meanwhile, China-hawks and Trumpists argue, to paraphrase Lenin, that the American capitalists have sold the Chinese the rope to hang them with, as China’s gleaming cities and powerful military were erected based on trade with the US, the US championing its entry into the WTO and the transfer of jobs and technology to China. A lot of critics of China harp on the issue of intellectual property theft, but the truth of the matter, as evidenced by Forbes journalist and Asia expert Eamonn Fingleton, is that Western companies, in general, and American companies in particular, were all too eager to risk their comparative technological advantage, a lot of it formulated at the expense of the US taxpayer, in exchange for higher profits in the short term[9]. This is due to the managerial culture of the C-suite, which incentivizes short-term profits and stock price inflation over long-term sustainability.

Ultimately, Trumpian trade policies will have to:

The chart below, compiled by, shows balance of US trade with the main countries of the world, adjusted for size[10].

The prospect of a trade war with China or anyone else for that matter should give us pause, but it is, nonetheless, a trade war that the Americans can win if, by winning, one understands the imposition of one’s will on another. If global production chains cannot reform themselves gradually according to the new environment formed by American protectionism, then they were never a good idea to begin with, since the risk of their disruption as global critical infrastructures is too great. Having the constantly increasing powers of the Presidency at his disposal[11], Donald Trump can use access to the world’s largest consumer market to enforce whatever deals he cares for. The market is both carrot and stick for any trade partner, though it should be noted that political repercussions or destabilizations are possible if he pushes his partners too hard (like Mexico).

Internal issues

Donald Trump’s former chief strategist, Steve Bannon, has suggested that historically low interest rates should be used to fund infrastructure investment in the entire country which, admittedly, is sorely needed[12] (the American Society of Civil Engineers gives the country a D grade overall).

This means disregarding the mounting government deficit and national debt, which would bring about economic risks, as well as fierce opposition from democrats screaming hypocrisy over prior controversies regarding the debt ceiling and Republican orchestrated government shutdowns. What is obvious is that, absent significant economic growth, American debt cannot be paid down the way it had been in previous generations. The Obama Administration added more trillions of dollars of debt than it had years in government, with the newest fiscal year (started September 2016) on track to have the largest debt increase ever, at 2.4 trillion dollars. At the same time, the historically low interest rates that Steve Bannon wanted to take advantage of are going to come to an inevitable end, especially since they are at half of what they were in 2008 and, unlike the Obama Administration, Trump is unlikely to have friends in the global financier class or in the Fed to keep up the appearance of an economic recovery which is actually fueled by unsustainable debt. China has already largely discontinued buying new US debt, as it considers the risk of its portfolio and the political implications of confrontation with the US. The growing trend of denominating energy contracts in other currencies than the dollar (replacing the petrodollar with a basket of petrocurrencies) will also erode the privileged position of the US in the global financial system, which was what enabled it to run up such debts. A rise in interest rates will also mean a discussion of the costs of servicing the debt, whose interest alone is worth 400 billion dollars today. A doubling of interest rates would not lead out of historical averages, but would lead to a doubling of the budget’s debt servicing burden. It would be a shame that after TARP in the early Obama years and the high deficits, the US account would be overdrawn just when somebody was going to use it for productive investment.

Donald Trump has also spoken about simplifying the tax code for all payers and reforming Obamacare to disempower the intermediaries that have made American healthcare costs the largest in the world. Meanwhile, in an obvious sop to the Republican politicians, he has also spoken favorably about reducing taxes on the rich and reducing corporate taxes. It is unlikely that the US budget can come close to being balanced without expanding the tax intake and reducing expenditures. Whatever positive effect on the economy that leaving people more money to spend and invest will have, it is unlikely to put a dent in the fiscal situation. Meanwhile, the tax holiday that Donald Trump proposed to encourage the repatriation of billions of dollars that corporations like Apple and Google have stashed in low-tax subsidiaries abroad is likely to also fail. It is worth it to try to somehow discourage the various tax minimization schemes like the “double Irish with a Dutch sandwich” that transnational corporations employ, but bringing back the money by not taxing it is likely to lead to it being squandered the same way that other funds are being squandered in a brittle and anemic recovery[13] – share buybacks, paying dividends, buying other companies, possibly at grossly inflated prices. Some of these may be of economic value, but Trumponomics is focused on worker welfare, not just brute economic efficiency – the prior tax holiday, in 2004, had cost the state budget 3.3 billion dollars and led to 20.000 jobs being cut.

Should he decide to spend his political capital on this particular fight and have it define his Presidency, as opposed to other projects, like a better immigration and security program, Donald Trump can reduce costs and make good on his promises to invest in the military and in infrastructure by “draining the swamp” and reducing the waste inherent in America’s bloated bureaucracy and especially the security leviathan erected in the past decade[14], with issues like the cost of the F-35 program and of the new Air Force One planes making appearances on Trump’s controversial Twitter harangues. A Defense Business Board report was highly critical of Pentagon efficiency[15], identifying 125 billion dollars in wasted administrative spending[16] not related to actual defense, a quarter of its budget. Meanwhile, a Competitive Enterprise Institute report[17] placed the economic and regulatory compliance cost of the regulatory burden in the US at 1.8 trillion dollars annually. Much of it is important for the protection of the consumer or the environment, but a lot of it is the result of constant lobbying for exceptions or favorable treatment resulting in hundreds of thousands of pages of arcane rules. This is higher than the estimate of the US Office of Management and Budget, which pegged the cost of new regulations passed since 1980 at around 250 billion dollars per year. The highlights of the CEI report on the American regulatory leviathan are the following:

Bully pulpit

Another pillar of Trumponomics is Trump utilizing “the art of the deal”, a mix of positive and negative incentives, to keep companies from relocating abroad and to attract investment. Despite formally beginning his term on January 20th, Trump started harassing companies the very next day after he won. His approach has been compared to “crony capitalism”, but what distinguishes him is that the beneficiaries of his deals are the workers and communities themselves, rather than the owners of the companies, who nevertheless win as well. He started with air conditioning machine manufacturer Carrier which was moving production to Mexico. He got them to keep a thousand jobs in the US in exchange for 7 million dollars in tax breaks over ten years. This is the sort of heresy that libertarians warn about, but the tax breaks are likely a way for the company’s management to not lose face in front of shareholders and stock markets. For the price of 700,000 dollars in yearly tax breaks, the deal kept 50 million dollars in yearly wages alone in the state of Indiana, not to mention other economic benefits. Ford was also on the receiving end of Trump’s populist bullying, and the threat of tariffs made it give up plans to move an entire factory to Mexico. Car manufacturers are walking on eggshells around the new Administration, looking to emphasize how much they are investing in the US. In a candid moment, the CEO of Fiat-Chrysler[18] said the following:


This is the power of US market access. The 18 million cars US consumers buy each year (as part of another example of a subprime debt bubble expanding) keep the Mexican automotive industry running, having received 24 billion dollars in investment since 2010 and accounting for one fifth of cars sold in the NAFTA space.


Meanwhile, Toyota has announced that it is investing ten billion dollars in the US, Jack Ma of Chinese retailing giant Alibaba promised to create one million jobs in five years[19] in a one-on-one talk with Trump and the pilgrimages to Trump Tower in New York have also included anti-Trump luminaries like Jeff Bezos and the rest of the Clintonite Silicon Valley. The Toyota CEO also let loose the fact that carmakers are hoping to deal with the Trump Administration on the draconian emission standards the Obama Administration had been implementing, seeking a delay and a return to predictability in the development of new standards. This might be an attempt to bargain their way out of Dieselgate, which has, so far, enveloped Volkswagen and Fiat-Chriysler. A lot of corporate malfeasance came out during the Obama years, which resulted in heavy fines (some would say the acceptable cost of doing business). Corporations might be vying for Trump’s favor to avoid the punishment that the Obama Administration enforced or, as corporations would say, the regulatory uncertainty that resulted in the fines – BP ($18.7bn), Volkswagen ($15bn), Deutsche Bank ($14bn), BNP Paribas ($8.9bn), GlaxoSmithKline ($3bn), Odebrecht ($2.6bn), HSBC ($1.9bn), UBS ($1.5bn), Toyota ($1.2bn), Siemens ($0.8bn), BAE Systems ($0.4bn).

Toyota is also indicative of a the third most rattled country by Trump’s trade rhetoric, after Mexico and China – Japan[20]. SoftBank has already announced that it will spend 50 billion dollars and create 50,000 jobs in the US, as part of an investment fund that also has Saudi sovereign funds looking for a good return. Meanwhile, Japan’s public pension fund, the GPIF (worth over a trillion dollars), has announced it will invest significant funding into US infrastructure, also creating thousands of jobs[21]. Meanwhile, Reuters reported that the Japanese leadership is collating commitments from the Japanese business sector to create a package to present to Trump during his future meeting with PM Abe Shinzo worth 700,000 jobs within a market of 450 billion dollars[22], even if it has to fund these investments by dipping into its foreign exchange reserves, a move which is indicative of Japanese anxieties regarding Trump’s protectionist inclinations and the uncertainties of his policies towards China and Japan itself. A Financial Times report even detailed how the Prime Minister is pushing companies and investors to disclose US investment plans to government officials so Shinzo Abe can deliver a “tweetable” figure to Donald Trump when they meet[23].

Not everything Trump does is likely to be done against the will of Big Business – SoftBank owns 80% of American telecom provider T-Mobile, whose stocks soared with news of Twitter praise from Trump Tower, and would like a proper merger to take place, which anti-trust authorities may not view positively.

Immigration woes

Immigration is truly at the heart of the Trump victory and of his “greatness agenda”. Nothing he may do, from the contents of the blackmail dossiers allegedly compiled by Russia[24] to any conflict of interest, personal mistake or shady dealings from the past, can ever hurt as much as even a whiff of credible rumor that he will not build the wall and deport illegal immigrant criminals. He may slaughter as many Republican sacred cows as he wants as long as he keeps his word on this matter, which was the fuel for his electoral fire and one of the areas where the facts state that he is unequivocally right. Rhetorically, he has already back stepped from the position of deporting all illegal immigrants immediately to first deporting the criminals, securing the borders and using e-verify to stop employers from undercutting American workers. Immigration, in the Trumpian sense, combines illegal immigration, legal migration, guest worker programs and refugee programs into a cocktail that has been highly detrimental to the American worker.

His Cabinet choices also reflect a President who can speak softly, secure in the knowledge that he carries a big stick. His Attorney General (equivalent to Minister for the Interior in other countries) is Jefferson Beauregard Sessions III, the most persistent immigration critic in Congress and mentor to Stephen Miller, Trump’s head of policy at the White House. The head of the Department for Homeland Security is Gen. (ret.) John Kelly, who was the head of South America Command (USSOUTHCOM) and who understands the value of securing the border with Mexico not just from an immigration standpoint. There was also a rumor that early Trump supporter, Kris Kobach, Kansas Secretary of State and anti-immigration hardliner and expert, would be named Deputy Secretary at the DHS to focus on interior enforcement. Finally, Trump’s first choice for Secretary of Labor was Andrew Puzder, who, in a Machiavellian sense, would have been the best person to plug gaps in American immigration enforcement[25], since he was the CEO of a fast-food company. Big companies are prime employers of illegal immigrants in the US, because of an extraordinary conflict between the law against illegal labor and the rules on employee non-discrimination which is to the advantage of corporations since they can afford legal protection and to navigate labyrinthine regulations.

The Trumpian economic worldview on illegal immigrants is the following, with allowance for variations and exceptions:

The worldview on immigration in general is the following:

Sources[26], [27], [28]

It is especially important to note that a report on “The Economic and Fiscal Consequences of Immigration” from the National Academies of Sciences, Engineering, and Medicine[29] concluded that every (legal) immigrant without a high school diploma costs the US taxpayer $231,000 in net present value, with future outlays amounting to around $640,000 per immigrant over 75 years. The net present value of the fiscal cost of the 4 million adult immigrants without a high school diploma who have entered the country since 2000 (not counting children and assuming a re-emigration rate of 31%, whereby some immigrants return home) is approximately 920 billion dollars or 10,000 dollars per household. This lump sum would, theoretically, have to be placed in an account paying 3% interest per year above inflation to cover the expected lifetime fiscal burden of these immigrants. A further 200,000 legal immigrants without high school diplomas are estimated to enter the country every year. Furthermore, any consumer gains from the lower wages of the migrants would be offset by the corresponding reduction in wages for America’s less educated workers, who have already borne the brunt of 50 years of high legal and illegal migration.

Senator Jeff Sessions, who was Trump’s most avid supporter in Congress and is designated Attorney General, wrote a primer on immigration addressed to Congress in January 2015 which lays out arguments and figures in a way that also highlights his personal views on the issue[30]. This is a reference paper for the entire “immigration patriot” movement that campaigned for Donald Trump, including from inside the immigrant communities (Chinese for Trump, Indians for Trump), by people who saw unbridled immigration as killing the golden goose. Sessions wrote:

On highly skilled immigration (but not genius level, which is covered by a special type of visa), he said:

What would Trumponomics view as a solution? In general, it would act to restrict the flow of new immigrants, and to diminish the number of those already in the US (for illegal immigrants). This implies:

This sounds very harsh to many ears, but the American people have consistently polled in favor of it. Interestingly enough, the Trumpian immigration program is more popular than Trump, so long as they are presented separately, a testament to the power of a viciously partisan media to affect perceptions. Lastly, the degree of harshness with which secondary immigration priorities will be met will depend on the state of the economy – should a crisis take place, the fast deportation of all illegal immigrants and guest workers will provide an immediate boost to American workers at the expense of American companies. Of course, after this is all done, the main barrier to raising employment, especially in industry and agriculture, will come from automation.

Barriers to Trumponomics

The main barriers will be in politics and in the media, since Donald Trump is opposed by a majority of the establishment, including in his own party, which is the Brutus to his Caesar. A Center for Immigration Studies report builds on existing legislation and the precedent of President Obama replying to Congressional opposition by saying “I have a pen and a phone” to suggest “immigration patriot” measures than can be adopted by the President without Congressional interference[31].

At the same time, external factors may limit his chance at applying such a program – a reduction in financing possibilities or the long overdue economic crisis which was masked by a massive borrowing binge under the Obama Administration, along with various bubbles (education debt, consumer debt, auto loans, stock markets buoyant because of buybacks etc.). To some in the American establishment, having a new economic crisis blamed on Trump would serve a number of goals related to hindering the long-term political viability of Trumpism and Trumponomics.

Ultimately, the secondary goal of Trumponomics, beyond meeting the needs of the American people, is related to the political continuity of Trumpism as a phenomenon, if it is to survive beyond the one or two terms of the politically talented and preternaturally lucky Trump. Otherwise, the Trump era will be only a stumbling block in the “long march” of globalized elites through formerly wealthy and functional societies and towards some hypothetically positive and progressive future. The weakness of Trumponomics is not a lack of appeal to voters of all races and creeds, but a lack of attraction for big donors. While much of traditional campaign spending is a proven waste of money, Donald Trump still barely won in front of a dazed and confused establishment. Donald Trump must create a political constituency that gains from the application of his policies to such a degree that they will be willing to lobby for their continuation and to fund politicians dedicated to it. This is the only path to sustainability that the current American political system presents to challengers. In the protectionist past, business owners fearing competition from abroad lobbied for tariffs and workers’ unions lobbied for immigration restrictions (union organizer Cesar Chavez, secular saint to the Hispanic community in California, was notoriously against illegal immigration). Today, unions have been captured by ethnic interests trying to increase political powers, and businesses have merged and globalized. The solution that Donald Trump will find to this conundrum will dictate whether Trumponomics has a chance to succeed or fades into history.
































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