Monday, August 8, 2016

- The Trump Economic Plan

I’m trying to get a read on Trump’s new Economic plan, but given the media antipathy to actually saying anything that might make him look appealing to voters, it’s no easy trick. I did find the Mark Zandi analysis but it seemed to me to frame the discussion in a very pro-Hillary light. Before you read the spin on it, I think it deserves some translating.

First, the concept of Revenues. Revenue is a very positive spin word, so more revenue looks good, less revenue looks bad. But Zandi is actually talking about government Revenue not economic revenue. Under Trump’s plan government revenue will be reduced by roughly 20% (if you believe the analysis) but what that means is the people who earn the money will get to spend 20% more of it. Nothing is produced when you redistribute moeny, in fact, you lose the cut that government keeps for itself. In other words, a cut in ‘revenue’ in this case is actually a good thing for the productive bits of the economy as opposed to the redistributive bits, who will have fewer chess pieces to move around the board.

One thing I particularly like in Trump’s plan is the cut of corporate rates to a maximum of 15%. This would greatly improve the private sector environment, and create a massive upswing in job creation. Not as big as a complete removal of corporate taxes (which I have advocated in the past) but it’s a big step. Corporations pass the cost of higher taxes onto either labor in the form of lower wages, or to consumers in the form of higher prices. So a cut in corporate taxes will result in – wait for it – higher wages, and lower prices. That’s what ‘reduced Revenue’ means in this context. The lost ‘revenue’ for government could be largely reclaimed in the form of increased individual income, but since it will take time for corporations to react to the new environment and set up shop, it won’t happen right away.

The Zandi analysis also says that ‘revenues’ as a percentage of GDP would be the lowest it has been since WW2, which frankly I can’t think of a negative spin for. This would be rewarding productive behavior and punishing unproductive behavior. We could use more productive behavior since this is what drives an economy. Another way of saying that would be ‘this would increase economic growth’, but by how much I can’t say without looking at the details and doing some math.

Second, Trump's proposed deportation of the 11 Million estimated illegal aliens is described by Zandi as ‘squeezing the workforce’ and causing higher wages for labor which corporations will struggle to meet. This is how it should be. I would greatly prefer a system that convinced illegal aliens to self deport by denying them both work, and all government benefits excluding emergency medical care, but hey … I’ll take what I can get. Yes, prices of some things will rise. But it's market forces, and no one will force you to buy a strawberry if you can't get it cheap enough. when you don't, the market will adjust things. Have a little faith.

Third, Trump has proposed a Tariff on those companies which offshore jobs. The Zandi analysis assumes that foreign powers will follow suit and though I agree that this is likely, there isn’t any hard evidence of it just yet. Still, with all deference to Trump’s desire to buy votes, this isn’t such a great idea. It will definitely mean higher prices for a great many products and will therefore hurt consumers, especially the poor who already have fewer options. I don’t see any way this is anything but a negative for the economy, but luckily I don’t have to because the Zandi finds it for me. He makes the claim that the combination of Tariffs and immigration polices Trump is proposing will increase inflation.

In this environment, increased inflation is very much a good thing. We’ll need to keep it under control of course, but thanks to Milton Friedman we have excellent tools for just that. So far under Obama we are following the deflationary course of Japan, and Japan would happily frog March 20% of its population into the Pacific Ocean if it would somehow assure a 4% positive inflation rate. Runaway inflation is a bad thing, but it’s easily managed. Deflation is not, and standing on the brink of negative interest rates, a bit of inflation would be good not bad. At least your bank account would start providing some income again. That Zandi bit about it causing a recession is a stolen base, and is anything but certain. Especially with the massive reduction in corporate rates.

Calling Trump’s plan ‘fiscally unsound’ strikes me as laughable. As if the last 2 decades weren't. His plan would really just bring about the consequences of a decade and a half of delusion where we all seemed to believe we could spend anything we want today and simply borrow from the future forever to pay for it. Trump would reintroduce the concept of consequences for economic stupidity in government policy so it might not be popular, bit it would put us all on playing field where we in the private sector at least know the rules of the game and which direction to carry the ball. All in I’d see that as a positive.

The standard of living, say's Zandi, "would go nowhere". But nowhere looks pretty good to me since the standard of living has been falling at something close to 2% per year for a decade. The rest is simply hogwash, and excludes the positive long term effects of Trump’s plan while taking the worst possible case of the negatives. That’s partisan analysis for you.

Clinton’s plan meanwhile, is for more of the same. More proliferate spending, more ‘job creation’ in the redistributive economy, and a greater burden for the shrinking group of productive citizens. She labors under all the same dubious assumptions that Keynesian economics always does – that we can put off till tomorrow the consequences of what we enjoy today. Her economic plan is more whiskey to kill the hangover, and when the real bill comes do, she’ll be long retired. How Zandi could describe it otherwise is testimony to his lack of character.

I can’t speak to this stuff in any detail because I can’t find anyone who will tell me what’s actually in the plan. But at a cursory glance I’d have to agree with the Trump campaign that the analysis is pretty heavily spun. It leaves out the potential pro-growth side of his positives, and speaks to the worst case of the negatives – all in terms of its effect on the money available to government. It's a Democratic opinion piece masquerading as sound economic analysis.

Freeze regulation, cut corporate taxes, deport illegal aliens. These are all pro transparency policies and will give us a better idea of where we actually stand and in the end reward the productive and the expense of the unproductive. Take a chainsaw to the alphabet soup of the DC bureaucracy and I’d call it all extremely positive. Zandi’s isn't a complete hack, but his analysis treats ‘consumption’ as the economic driver of prosperity rather than productivity, and I couldn’t disagree with that more.

But if an economic plan falls in the forest and no one ever actually reports on it, who the hell knows what it really sounds like?

1 comment:

Hell_Is_Like_Newark said...

Tom,

Did you read anything in Trump's plan in regard to replacing capital depreciation with simple expensing? I read this was going to be in Trump's plan (this was a while ago).