It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness… it was the spring of hope, it was the winter of despair….
Since we are talking about speeches from Donald Trump and Hillary Clinton, prepare yourselves for a lot more worst, foolishness and despair than their antonyms. I have long maintained that Trump’s Republican Party knows nothing, whereas Clinton’s Democratic Party knows only the wrong things. After reading their recent economic policy speeches, I see no reason to change my opinion.
Let’s begin and end this mini-analysis with what they have in common. Both of the speeches are filled with plenty of raw meat for their respective bases. In the case of Trump, it is tax cuts. In the case of Clinton, it is plenty of free stuff from POTUS. Although I have previously argued that tax cuts and handouts are neither morally nor economically equivalent, their fiscal consequences are the same. In both speeches, however, there is almost no discussion of how to pay for this largesse. The Republicans remain the party of borrow and spend. The Democrats remain the party of tax (but only the mysterious and undeserving other) and spend. But the common denominator of both is spend.
Let’s do this chronologically and start with Trump, who delivered his speech on August 8th.
Keeping with a longstanding tradition, he spoke before the Detroit Economic Club, a venue which allowed Trump to make some useful observations that Detroit is what you get when you follow left-wing policies under Democratic leadership. When you aren’t getting Baltimore. Or Rhode Island. Or Chicago. Or Illinois.
Score one for The Donald. But then things went steadily downhill.
The most amazing thing about Trump’s speech is that, although this self-proclaimed major policy pronouncement was given 419 days after the start of his campaign and a mere 92 days before voting, his economic policy is still a work in progress. Trump frequently brags about the efficiency of his campaign compared to Clinton’s, but he neglects to mention that this is in large part because it produces next to nothing. At least not anything as mundane as policy proposals and analyses. And he is totally unapologetic about this, acknowledging no responsibility, for example, to have actually provided a policy basis for Republican primary voters to make their decision. They just had to trust The Great Man.
But back to the substance, such as it is.
The centerpiece of the speech is Trump’s tax plan. I won’t go into the details of this, which are in any case too sparse[1] for the nonpartisan Tax Foundation to score the plan. Trump himself stated that “[i]n the days ahead, we will provide more details on this plan and how it will help you and your family.” I understand that someone in Trump’s team named “Godot” has been given this assignment.
His earlier tax plan – which was perhaps just a negotiating position or sarcasm; with Trump, it is always difficult to know[2] – was estimated by the Tax Foundation to increase the federal debt by $9.5 trillion over the next 10 years, on top of the $10 trillion increase projected from existing policies. And this is from the candidate who once claimed that he would pay off the $19 trillion national debt, although we haven’t heard much about this lately.
Subsequent to the speech, Trump has indicated that he will close tax loopholes to narrow the revenue loss to $3 trillion. Which loopholes? TBA[3].
In any event, the one thing that is crystal clear is that there is nothing novel, clever or revolutionary about Trump’s plan. There is certainly nothing as dramatic as Libertarian Party candidate Gary Johnson’s call for scrapping the entire tax system and replacing it with a consumption-based “Fair Tax.” Trump keeps the basic structure of the tax system and, like every Republican candidate, simplifies it (maybe) and tinkers with the tax rates, depreciation schedules and income thresholds. These are clearly good things, but it is obvious that there is not nearly enough here to Make America Great Again.
Trump then turns to regulatory reform. Here, there are absolutely no details, except that upon entering office Trump “will issue a temporary moratorium on new agency regulations.” This moratorium will, among other things, “give our American businesses the certainty they need to reinvest in our community.” Only in the bizarre world of Trump can the words temporary and certainty co-exist harmoniously.
But his major regulatory initiative will be to ask “each and every federal agency to prepare a list of all the regulations they impose on Americans which are not necessary, do not improve public safety, and which needlessly kill jobs. Those regulations will be eliminated.” It is a relief to know that the only reason we have all these unnecessary and job-killing regulations is that someone forgot to apply the rule of: You don’t ask, you don’t get. Think of all the time the rest of us have wasted thinking about special interests and bureaucratic empire building.
Then Trump turns to his favorite whipping boy: trade, particularly with China. Big, fat books could be written on Trump’s ignorance on this score, something for which neither you nor I have the patience. I will just make a few points.
Trump never explains how he is going to “help you and your family” when a big part of his plan is to slap an enormous consumption tax on many of the things that working-class families buy at Walmart. Because someone obviously forgot to tell Trump that a tariff is nothing but a consumption tax that is designed to raise the cost of goods to a level where uncompetitive American companies can profitably produce. He also never explains how American companies will be able to afford a hiring spree after paying tariffs on the roughly one-half of Chinese imports which are intermediate or capital goods – that is, the things that American manufacturers buy in order to make other goods.
Trump’s neo-mercantilism may result in a few more manufacturing jobs in America, although as I have pointed out before these have dwindled primarily due to productivity improvements and not foreign trade, but the cost to the consumer is likely to be enormous. For example, an anti-dumping tariff on Chinese tires imposed in 2009 has been estimated to have saved 1,200 jobs at a cost in 2011 alone of $900,000 per job saved. Seems a small price to pay to Make America Work Again.
The quality of Trump’s economic analysis on trade can be judged by the company he keeps. He cites, not once but twice, the Economic Policy Institute, a left-leaning think tank with close ties to organized labor. Among its founders was Lester Thurow, an MIT economist who (my MIT friends tell me) was widely known as “Less Thorough” at the school. In 1993 he wrote a book, which I had the misfortune of reading, predicting that, between Europe, Japan and the USA, the US economy would be the loser in the coming years. Great call.
Another founder? Robert Reich, the former Secretary of Labor in Obama’s first administration. It is really impossible to describe briefly Reich’s economic ignorance. Suffice it to say that he stands slightly less than 5 feet tall, but on the intellectual field, he plays much shorter.
And then we have this interview of Tom Barrack, the founder of the investment firm Colony Capital and part of Trump’s “brain trust” of economic advisers. In addition to being, like Trump (see “Trump the Survivor” here), a vastly overrated businessman and investor[4], Barrack displays a sweeping lack of knowledge of economics. I especially like his claim that the entire post-WWII edifice of free trade is an outdated subsidy granted by an all-powerful United States to help Europe and Asia get back on their feet after the war and combat communist Russia. I doubt that Barrack has ever even heard the term “comparative advantage.”
Following a brief “drill, baby, drill” paean to the American oil and coal industries – during which he claims that he will “put our coal miners and steelworkers back to work” in the same speech where he claims that “[o]urs is the campaign of the future…we are going to look boldly into the future” – Trump then launches into his free stuff from POTUS. The Veterans Health Administration, where he plans a “complete reform.” The military, which he plans to rebuild. Social Security and Medicare, which he has pledged not to touch. And, above all, spending on infrastructure, where Trump said:
We will build the next generation of roads, bridges, railways, tunnels, seaports and airports that our country deserves. American cars will travel the roads, American planes will connect our cities, and American ships will patrol the seas. American steel will send new skyscrapers soaring.
Rousing stuff from the Master Builder whose developments have often ended in bankruptcy and who mostly lives now from slapping his name on things for a fee. But we will have to delay our discussion of this point until the second part of this posting because this is an area where he and Clinton are in violent agreement. And they are both violently wrong.
I think that it is fair to say that we cannot expect any spending relief from Trump, although he has said that he will vigorously combat “waste, fraud and abuse.” Like every president since Jimmy Carter, who was the first to use this phrase. But then, despite his claims in the speech that he will crack down on China’s theft of American intellectual property, Trump likes to plagiarize: he has trademarked “Make American Great Again” even though this was Ronald Reagan’s campaign slogan in his 1980 campaign.
The estate of Charles Lindbergh had better watch out. “America First” might be next to get the Guru Pitka treatment.
Roger Barris
Weybridge, United Kingdom
[1] For example, Trump has dropped his earlier plan for a maximum 25% personal income tax rate in favour of the House Republicans’ tax rates of 12%, 25% and 33%. Sadly, he forgot to tell us the income brackets to which these rates apply. Likewise, he repeated that “[f]or many American workers, their tax rate will be zero.” Which ones? Trump’s not telling and he probably doesn’t know.
[2] Readers of this blog do not have this problem. I never negotiate and I am always sarcastic.
[3] The lone exception: Trump took another swipe at the preferential treatment of carried interest, one of the most egregious loopholes in the tax code, which finally appears to be in the cross-hairs of both political parties. Although highly symbolic, this will only raise about $1.7 billion in additional taxes per year, so Trump this is not going to pay off the national debt.
[4] Some examples: Colony made major investments in the French hotel group Accor, the French supermarket chain Carrefour and in various casinos just before the financial crisis. In the real estate investment world, these deals are legendary for their boneheadedness. Colony is now a publicly quoted company but unlike The Blackstone Group, a peer, Colony does not publish its investment results in its quarterly 10-Q reports. I don’t think that this is from an excess of humility.