Bad News for America's Workers
Published on
Tuesday, December 20, 2016
by
Project Syndicate
Bad News for America's Workers
Like Bush, Trump is yet another Republican president who will assume office
despite losing the popular vote, only to pretend that he has a mandate to
undertake extremist policies.
by
Joseph Stiglitz
Distressed homeowner Rose Gudiel outside Mnuchin's home last October.
(Photo: Walt Mancin/Pasadena Star-News)
As US President-elect Donald Trump fills his cabinet, what have we learned
about the likely direction and impact of his administration's economic
policy?
To be sure, enormous uncertainties remain. As in many other areas, Trump's
promises and statements on economic policy have been inconsistent. While he
routinely accuses others of lying, many of his economic assertions and
promises - indeed, his entire view of governance - seem worthy of Nazi
Germany's "big lie" propagandists.
Trump will take charge of an economy on a strongly upward trend, with
third-quarter GDP growing at an impressive annual rate of 3.2% and
unemployment at 4.6% in November. By contrast, when President Barack Obama
took over in 2009, he inherited from George W. Bush an economy sinking into
a deep recession. And, like Bush, Trump is yet another Republican president
who will assume office despite losing the popular vote, only to pretend that
he has a mandate to undertake extremist policies.
"There really is no silver lining to the cloud that now hangs over the US
and the world."
The only way Trump will square his promises of higher infrastructure and
defense spending with large tax cuts and deficit reduction is a heavy dose
of what used to be called voodoo economics. Decades of "cutting the fat" in
government has left little to cut: federal government employment as a
percentage of the population is lower today than it was in the era of small
government under President Ronald Reagan some 30 years ago.
With so many former military officers serving in Trump's cabinet or as
advisers, even as Trump cozies up to Russian President Vladimir Putin and
anchors an informal alliance of dictators and authoritarians around the
world, it is likely that the US will spend more money on weapons that don't
work to use against enemies that don't exist. If Trump's health secretary
succeeds in undoing the careful balancing act that underlies Obamacare,
either costs will rise or services will deteriorate - most likely both.
During the campaign, Trump promised to get tough on executives who outsource
American jobs. He is now holding up the news that the home heating and air
conditioning manufacturer Carrier will keep some 800 jobs in my home state
of Indiana as proof that his approach works. Yet the deal will cost
taxpayers $7 million, and still allow Carrier to outsource 1,300 jobs to
Mexico. This is not a sound industrial or economic policy, and it will do
nothing to help raise wages or create good jobs across the country. It is an
open invitation for a shakedown of the government by corporate executives
seeking handouts.
Similarly, the increase in infrastructure spending is likely to be
accomplished through tax credits, which will help hedge funds, but not
America's balance sheet: such programs' long track record shows that they
deliver little value for money. The cost to the public will be especially
high in an era when the government can borrow at near-zero interest rates.
If these private-public partnerships are like those elsewhere, the
government will assume the risks, and the hedge funds will assume the
profits.
The debate just eight years ago about "shovel-ready" infrastructure seems to
be a distant memory. If Trump chooses shovel-ready projects, the long-term
impact on productivity will be minimal; if he chooses real infrastructure,
the short-term impact on economic growth will be minimal. And back-loaded
stimulus has its own problems, unless it is managed extremely carefully.
If Trump's pick for US Treasury Secretary, the Goldman Sachs and hedge-fund
veteran Steven Mnuchin, is like others from his industry, the expertise he
will bring to the job will be in tax avoidance, not constructing a
well-designed tax system. The "good" news is that tax reform was inevitable,
and was likely to be undertaken by Speaker of the House Paul Ryan and his
staff - giving the rich the less progressive, more capital-friendly tax
system that Republicans have long sought. With the abolition of the estate
tax, the Republicans would finally realize their long-held ambition of
creating a dynastic plutocracy - a far cry from the "equality of
opportunity" maxim the party once trumpeted.
Large tax cuts and large expenditure increases inevitably lead to large
deficits. Reconciling this with Trump's promise to reduce the deficit will
probably entail a return to Reagan-era magical thinking: despite decades of
proof to the contrary, this time the stimulus to the economy brought by tax
cuts for the rich will be so large that tax revenues will actually increase.
This story doesn't end well for Trump's angry, displaced Rust Belt voters.
Unhinged budgetary policies will induce the US Federal Reserve to normalize
interest rates faster. Some see incipient inflation (given the low
unemployment rate); some believe the long period of ultra-low interest rates
has distorted capital markets; and some want to "replenish their
ammunition," so that the Fed can lower interest rates should the economy
slow down again.
Trump has argued that the Fed should raise interest rates. The Fed, which
took the first step toward normalization in early December, will almost
certainly deliver - and Trump will soon regret what he wished for. There's a
good chance that the monetary contraction will outweigh the fiscal stimulus,
curbing the Obama growth spurt currently underway. Higher interest rates
will undercut construction jobs and increase the value of the dollar,
leading to larger trade deficits and fewer manufacturing jobs - just the
opposite of what Trump promised. Meanwhile, his tax policies will be of
limited benefit to middle-class and working families - and will be more than
offset by cutbacks in health care, education, and social programs.
If Trump starts a trade war - by, say, following through on his vow to
impose a 45% tariff on imports from China and to build a wall on the US
border with Mexico - the economic impact will be even more severe. Trump's
cabinet of billionaires could continue to buy their Gucci handbags and
$10,000 Ivanka bracelets, but ordinary Americans' cost of living would
increase substantially; and without components from Mexico and elsewhere,
manufacturing jobs would become even scarcer.
To be sure, a few new jobs will be created, mainly in the lobbying shops
along K Street in Washington, DC, as Trump refills the swamp that he
promised to drain. Indeed, America's bog of legal corruption is likely to
reach a depth not seen since President Warren G. Harding's administration in
the 1920s.
And there really is no silver lining to the cloud that now hangs over the US
and the world. As bad as his administration will be for America's economy
and workers, its policies on climate change, human rights, the media, and
ensuring peace and security are likely to be no less damaging for everyone
else.
C 2016 Project Syndicate
Joseph Stiglitz
Joseph E. Stiglitz is University Professor at Columbia University. His most
recent book is The Price of Inequality: How Today's Divided Society
Endangers Our Future. Among his
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Bad News for America's Workers
Published on
Tuesday, December 20, 2016
by
Project Syndicate
Bad News for America's Workers
Like Bush, Trump is yet another Republican president who will assume office
despite losing the popular vote, only to pretend that he has a mandate to
undertake extremist policies.
by
Joseph Stiglitz
. 29 Comments
.
. Distressed homeowner Rose Gudiel outside Mnuchin's home last
October. (Photo: Walt Mancin/Pasadena Star-News)
. As US President-elect Donald Trump fills his cabinet, what have we
learned about the likely direction and impact of his administration's
economic policy?
. To be sure, enormous uncertainties remain. As in many other areas,
Trump's promises and statements on economic policy have been inconsistent.
While he routinely accuses others of lying, many of his economic assertions
and promises - indeed, his entire view of governance - seem worthy of Nazi
Germany's "big lie" propagandists.
. Trump will take charge of an economy on a strongly upward trend,
with third-quarter GDP growing at an impressive annual rate of 3.2% and
unemployment at 4.6% in November. By contrast, when President Barack Obama
took over in 2009, he inherited from George W. Bush an economy sinking into
a deep recession. And, like Bush, Trump is yet another Republican president
who will assume office despite losing the popular vote, only to pretend that
he has a mandate to undertake extremist policies.
. "There really is no silver lining to the cloud that now hangs over
the US and the world."
The only way Trump will square his promises of higher infrastructure and
defense spending with large tax cuts and deficit reduction is a heavy dose
of what used to be called voodoo economics. Decades of "cutting the fat" in
government has left little to cut: federal government employment as a
percentage of the population is lower today than it was in the era of small
government under President Ronald Reagan some 30 years ago.
With so many former military officers serving in Trump's cabinet or as
advisers, even as Trump cozies up to Russian President Vladimir Putin and
anchors an informal alliance of dictators and authoritarians around the
world, it is likely that the US will spend more money on weapons that don't
work to use against enemies that don't exist. If Trump's health secretary
succeeds in undoing the careful balancing act that underlies Obamacare,
either costs will rise or services will deteriorate - most likely both.
During the campaign, Trump promised to get tough on executives who outsource
American jobs. He is now holding up the news that the home heating and air
conditioning manufacturer Carrier will keep some 800 jobs in my home state
of Indiana as proof that his approach works. Yet the deal will cost
taxpayers $7 million, and still allow Carrier to outsource 1,300 jobs to
Mexico. This is not a sound industrial or economic policy, and it will do
nothing to help raise wages or create good jobs across the country. It is an
open invitation for a shakedown of the government by corporate executives
seeking handouts.
Similarly, the increase in infrastructure spending is likely to be
accomplished through tax credits, which will help hedge funds, but not
America's balance sheet: such programs' long track record shows that they
deliver little value for money. The cost to the public will be especially
high in an era when the government can borrow at near-zero interest rates.
If these private-public partnerships are like those elsewhere, the
government will assume the risks, and the hedge funds will assume the
profits.
The debate just eight years ago about "shovel-ready" infrastructure seems to
be a distant memory. If Trump chooses shovel-ready projects, the long-term
impact on productivity will be minimal; if he chooses real infrastructure,
the short-term impact on economic growth will be minimal. And back-loaded
stimulus has its own problems, unless it is managed extremely carefully.
If Trump's pick for US Treasury Secretary, the Goldman Sachs and hedge-fund
veteran Steven Mnuchin, is like others from his industry, the expertise he
will bring to the job will be in tax avoidance, not constructing a
well-designed tax system. The "good" news is that tax reform was inevitable,
and was likely to be undertaken by Speaker of the House Paul Ryan and his
staff - giving the rich the less progressive, more capital-friendly tax
system that Republicans have long sought. With the abolition of the estate
tax, the Republicans would finally realize their long-held ambition of
creating a dynastic plutocracy - a far cry from the "equality of
opportunity" maxim the party once trumpeted.
Large tax cuts and large expenditure increases inevitably lead to large
deficits. Reconciling this with Trump's promise to reduce the deficit will
probably entail a return to Reagan-era magical thinking: despite decades of
proof to the contrary, this time the stimulus to the economy brought by tax
cuts for the rich will be so large that tax revenues will actually increase.
This story doesn't end well for Trump's angry, displaced Rust Belt voters.
Unhinged budgetary policies will induce the US Federal Reserve to normalize
interest rates faster. Some see incipient inflation (given the low
unemployment rate); some believe the long period of ultra-low interest rates
has distorted capital markets; and some want to "replenish their
ammunition," so that the Fed can lower interest rates should the economy
slow down again.
Trump has argued that the Fed should raise interest rates. The Fed, which
took the first step toward normalization in early December, will almost
certainly deliver - and Trump will soon regret what he wished for. There's a
good chance that the monetary contraction will outweigh the fiscal stimulus,
curbing the Obama growth spurt currently underway. Higher interest rates
will undercut construction jobs and increase the value of the dollar,
leading to larger trade deficits and fewer manufacturing jobs - just the
opposite of what Trump promised. Meanwhile, his tax policies will be of
limited benefit to middle-class and working families - and will be more than
offset by cutbacks in health care, education, and social programs.
If Trump starts a trade war - by, say, following through on his vow to
impose a 45% tariff on imports from China and to build a wall on the US
border with Mexico - the economic impact will be even more severe. Trump's
cabinet of billionaires could continue to buy their Gucci handbags and
$10,000 Ivanka bracelets, but ordinary Americans' cost of living would
increase substantially; and without components from Mexico and elsewhere,
manufacturing jobs would become even scarcer.
To be sure, a few new jobs will be created, mainly in the lobbying shops
along K Street in Washington, DC, as Trump refills the swamp that he
promised to drain. Indeed, America's bog of legal corruption is likely to
reach a depth not seen since President Warren G. Harding's administration in
the 1920s.
And there really is no silver lining to the cloud that now hangs over the US
and the world. As bad as his administration will be for America's economy
and workers, its policies on climate change, human rights, the media, and
ensuring peace and security are likely to be no less damaging for everyone
else.
C 2016 Project Syndicate
/author/joseph-stiglitz
/author/joseph-stiglitz/author/joseph-stiglitz
Joseph E. Stiglitz is University Professor at Columbia University. His most
recent book is The Price of Inequality: How Today's Divided Society
Endangers Our Future.
