Why Trumponomics won’t make America great again

The impulsiveness and shallowness of America’s president threaten the economy as well as the rule of law. Graphic: The Economist

Accordng to this article in The Economist: DONALD TRUMP rules over Washington as if he were a king and the White House his court. His displays of dominance, his need to be the centre of attention and his impetuousness have a whiff of Henry VIII about them. Fortified by his belief that his extraordinary route to power is proof of the collective mediocrity of Congress, the bureaucracy and the media, he attacks any person and any idea standing in his way.

Just how much trouble that can cause was on sensational display this week, with his sacking of James Comey—only the second director of the FBI to have been kicked out. Mr Comey has made mistakes and Mr Trump was within his rights. But the president has succeeded only in drawing attention to questions about his links to Russia and his contempt for the norms designed to hold would-be kings in check.

Just as dangerous, and no less important to ordinary Americans, however, is Mr Trump’s plan for the economy. It treats orthodoxy, accuracy and consistency as if they were simply to be negotiated away in a series of earth-shattering deals. Although Trumponomics could stoke a mini-boom, it, too, poses dangers to America and the world.

Trumponomics 101

In an interview with this newspaper, the president gave his most extensive description yet of what he wants for the economy (see article). His target is to ensure that more Americans have well-paid jobs by raising the growth rate. His advisers talk of 3% GDP growth—a full percentage point higher than what most economists believe is today’s sustainable pace.

In Mr Trump’s mind the most important path to better jobs and faster growth is through fairer trade deals. Though he claims he is a free-trader, provided the rules are fair, his outlook is squarely that of an economic nationalist. Trade is fair when trade flows are balanced. Firms should be rewarded for investing at home and punished for investing abroad.

The second and third strands of Trumponomics, tax cuts and deregulation, will encourage that domestic investment. Lower taxes and fewer rules will fire up entrepreneurs, leading to faster growth and better jobs. This is standard supply-side economics, but to see Trumponomics as a rehash of Republican orthodoxy is a mistake—and not only because its economic nationalism is a departure for a party that has championed free trade.

The real difference is that Trumponomics (unlike, say, Reaganomics) is not an economic doctrine at all. It is best seen as a set of proposals put together by businessmen courtiers for their king. Mr Trump has listened to scores of executives, but there are barely any economists in the White House. His approach to the economy is born of a mindset where deals have winners and losers and where canny negotiators confound abstract principles. Call it boardroom capitalism.

That Trumponomics is a business wishlist helps explain why critics on the left have laid into its poor distributional consequences, fiscal indiscipline and potential cronyism. And it makes clear why businessmen and investors have been enthusiastic, seeing it as a shot in the arm for those who take risks and seek profits. Stockmarkets are close to record highs and indices of business confidence have soared.

In the short term that confidence could prove self-fulfilling. America can bully Canada and Mexico into renegotiating NAFTA. For all their sermons about fiscal prudence, Republicans in Congress are unlikely to deny Mr Trump a tax cut. Stimulus and rule-slashing may lead to faster growth. And with inflation still quiescent, the Federal Reserve might not choke that growth with sharply higher interest rates.

Unleashing pent-up energy would be welcome, but Mr Trump’s agenda comes with two dangers. The economic assumptions implicit in it are internally inconsistent. And they are based on a picture of America’s economy that is decades out of date.

Contrary to the Trump team’s assertions, there is little evidence that either the global trading system or individual trade deals have been systematically biased against America (see article). Instead, America’s trade deficit—Mr Trump’s main gauge of the unfairness of trade deals—is better understood as the gap between how much Americans save and how much they invest (see article). The fine print of trade deals is all but irrelevant. Textbooks predict that Mr Trump’s plans to boost domestic investment will probably lead to larger trade deficits, as it did in the Reagan boom of the 1980s. If so, Mr Trump will either need to abandon his measure of fair trade or, more damagingly, try to curb deficits by using protectionist tariffs that will hurt growth and sow mistrust around the world.

A deeper problem is that Trumponomics draws on a blinkered view of America’s economy. Mr Trump and his advisers are obsessed with the effect of trade on manufacturing jobs, even though manufacturing employs only 8.5% of America’s workers and accounts for only 12% of GDP. Service industries barely seem to register. This blinds Trumponomics to today’s biggest economic worry: the turbulence being created by new technologies. Yet technology, not trade, is ravaging American retailing, an industry that employs more people than manufacturing (see article). And economic nationalism will speed automation: firms unable to outsource jobs to Mexico will stay competitive by investing in machines at home. Productivity and profits may rise, but this may not help the less-skilled factory workers who Mr Trump claims are his priority.

The bite behind the bark

Trumponomics is a poor recipe for long-term prosperity. America will end up more indebted and more unequal. It will neglect the real issues, such as how to retrain hardworking people whose skills are becoming redundant. Worse, when the contradictions become apparent, Mr Trump’s economic nationalism may become fiercer, leading to backlashes in other countries—further stoking anger in America. Even if it produces a short-lived burst of growth, Trumponomics offers no lasting remedy for America’s economic ills. It may yet pave the way for something worse.

A complete transcript of The Economist’s interview with Mr Trump is available here.

Humpty Dumpty Trumpty falls off his wall

 Trump has said he will ask Congress to pay for what existing funds cannot cover and that Mexico will be pressured to pay back US taxpayers at a later date. Photograph: Christian Torres/AP


Trump has said he will ask Congress to pay for what existing funds cannot cover and that Mexico will be pressured to pay back US taxpayers at a later date. Photograph: Christian Torres/AP

An internal report on Trump’s Mexico Wall promise, previously reported by Reuters, estimated that fully walling off or fencing the entire southern border would cost $21.6bn – $9.3m per mile of fence and $17.8m per mile of wall.

But so far, the Department of Homeland Security -DHS – has identified only $20m that can be redirected to the multibillion-dollar project, according to a document prepared by the agency and distributed to congressional budget staff last week.

So Trump only has to come up with $21.580 billion more from taxpayers. Should be a snap.

Republican House speaker Paul Ryan has said he will include funding for a border wall in the budget for the next fiscal year. He has estimated the cost to be between $12bn and $15billion.

Many Republican lawmakers have said they would vote against a plan that does not offset the cost of the wall with spending cuts.

In the document it submitted to Congress, the DHS said it would reallocate $5m from a fence project in Naco, Arizona, that came in under budget and $15m from a project to install cameras on top of trucks at the border.

The surveillance project was awarded to Virginia-based Tactical Micro but was held up due to protests from other contractors, according to the DHS document. Tactical Micro could not be reached for comment.

The DHS only searched for extra funds within its $376m budget for border security fencing, infrastructure and technology, so it would not have to ask for congressional approval to repurpose funding, according to the document.

Contractors cannot begin bidding to develop prototypes until March 6 but more than 265 businesses already have listed themselves as “interested parties” on a government web site.

Those interested range from small businesses to large government contractors such as Raytheon.

 

Mexico will not accept unilateral Trump immigration steps, foreign minister says

Mexico’s foreign minister, Luis Videgaray, leaves the US Department of State after a meeting on 8 February in Washington. Photograph: Brendan Smialowski/AFP/Getty Images

Mexico’s foreign minister, Luis Videgaray, leaves the US Department of State after a meeting on 8 February in Washington. Photograph: Brendan Smialowski/AFP/Getty Images

Luis Videgaray, Mexico’s foreign minister, was responding to Donald Trump’s plans to enforce immigration rules more vigorously against undocumented migrants, which could lead to mass deportations to Mexico, not just of Mexicans but also citizens of other Latin American countries.

“We are not going to accept it because we don’t have to accept it,” Videgaray said, according to the Reforma newspaper. “I want to make clear, in the most emphatic way, that the government of Mexico and the Mexican people do not have to accept measures that one government wants to unilaterally impose on another.”

Tens of thousands of migrants – mostly from Central America, but increasingly from further afield – transit Mexico annually in attempts to reach the US border. Mexico has turned enforcer, imposing the Southern Border Plan in 2014 to detain and deport migrants transiting Mexican territory, even as it doggedly defends its own nationals at risk of deportation in the United States.

In recent interviews, the economy minister, Ildefonso Guajardo, has raised the possibility of Mexico suspending cooperation on migrant enforcement. He told the news channel Milenio: “There would be no incentive to continue collaborating on important issues for North American security such as migration issues” if Nafta were abandoned.

Brandon Capece, a research fellow at the Council on Hemispheric Affairs in Washington, said the state of bilateral relations was at its lowest point since the 1980s, when the two countries were locked in ideological differences over foreign policy and before the signing of Nafta in 1994 made them economic partners, with more than $1.5bn in trade crossing the border each day.

“Even renegotiating Nafta is something that can be mutually beneficial for all three nations involved, but only if Trump can move beyond his misperceived notion that the United States is somehow the victim in this relationship,” Capece said. “That being said, given the failure of the Trump administration to articulate a clear foreign policy and their reluctance to rely on experts within the Washington foreign policy establishment, it is unlikely that this trip in and of itself will calm nerves in either Washington or Mexico City.”

Read the complete article on The Guardian newspaper web site here.

4,000 manufacturing jobs lost while Trump president-elect Tours

Republican National Committee Co-Chair Sharon Day said recently that America lost 4,000 manufacturing jobs in November. Where the heck was President-elect Donald Trump? Was he working hard to save those jobs like he did to save some of the jobs at Carrier?

No. President-elect Donald Trump was travelling around the country congratulating himself on his win with what he calls his “Victory Tour”. After all he did get his much needed exposure with the Carrier deal, which saved 1,000 jobs but also sent more than 1,000 jobs to Mexico.

Trump deal had saved 1,000 Carrier jobs, but at the same time sent more than 1,000 Carrier jobs to Mexico and Trump hailed that deal a victory. Some victory.

Meanwhile, during Trump’s come-and-see-how-great-I-am Victory Tour the country lost 4,000 manufacturing jobs and Trump didn’t even try to save one.

I guess if your job is lost during something important like a Victory Tour or having his hair plasticized then you really don’t count on President-elect Donald Trump’s horizon.

President-elect Trump, please stop congratulating yourself and looking for applause and save jobs as you promised. Or is your saving jobs promise just as phony as your “Lock Her Up” promise.

Bribery in Mexico

During the 1960’s I drove to Nuevo Laredo, Mexico, just across from Laredo, Texas, because some friends from high school had gone there the year before and extolled the various pleasures there. I stay about 6 minutes, which impressed the border guards.

I was an east-end boy and had seen quite a bit by the time I ventured to the town, but nothing I had experienced before prepared me for Nuevo Laredo. Being by myself, I knew this was not the place to be alone.

The Economist has a graph on bribery in Mexico:

Mexico corruption driving, from the Economist magazine

Mexico corruption driving, from the Economist magazine

The survey quizzed 15,000 homes on whether they had paid bribes in the course of completing 35 tasks, from installing a phone line (2% had) to running a street stall (23% had). Mexico is only averagely corrupt by Latin American standards. But corruption varied widely by state: if stopped by traffic police in Tamaulipas, nine times out of ten motorists were expected to cough up; in Quintana Roo, “only” a quarter of such stops result in palms being greased. Overall, the most corrupt places were Mexico City and the adjacent state of Mexico, whereas the cleanest was the peninsular state of Baja California Sur.

Full story in the Economist magazine here.