Donald Trump and Politics

Donald Trump President is now reality. The US Presidential Inauguration is at our doorstep and Obama is in the past. Regardless of Clinton vs Trump or Democrat vs Republican differences, regardless of the fact that Trump has already lost majority favour, there are serious challenges to be addressed in the USA and other high-income countries, and someone will have to take them head-on at one point. Obviously, Donald Trump is quite a character and does not seem to have the thick skin, maturity, wisdom, self control, or understanding of economics and geopolitics at a level sufficient to start his presidency with a solid footing that makes everyone feel reassured, but it is here and it will have to do, so lets discuss a few important things and aspects of the Trump Presidency that could be positive. This is the subject of my book "​Can Trump Make America Great Again? Raging People in the Age of Automation, Offshoring, and Globalization." 

Jobs and stagnating wages
America and the industrialized world need jobs for the majority. Jobs that allow people to stay at least somewhat connected to important markets such as quality education, health, housing, and at least some form of capacity to save a bit for retirement. Within the large economies of the world, the USA has the biggest and most complex economy, with highly developed financial markets and multinationals that operate in a deeply integrated global market.

The USA has a special "setup" in terms of income distribution, with roughly half of all market income going to the top 10% of the income distribution, which means that the "high" GDP per capita is not representative of the reality of the "bottom" 80% of the population. The USA is also by far the high-income country with the highest ratio of average top-20% to average bottom-20% earners, at 8.4, compared to Russia at 7.6, Canada and France at 5.5, Germany at 4.3, and Japan at 3.4. The USA also scores lower (and close to the bottom) than ALL other OECD countries on a long list of development indicators: elementary and high school literacy, basic math, and science abilities, teen pregnancy and abortion, life expentancy, criminality, incarceration rate, murder rate and crime rate, depression, and a host of other troubling indicators that suggest that something is wrong with the giant.

Automation and offshoring
Technological progress and offshoring have rendered many workers essentially useless. Income inequality if thus high because the gains from the process undertaken in the 1990s accrue almost entirely to the top 10%, which then get extra savings that go into stocks, housing, and other markets, which then increase future income and exacerbate the divide between low and high incomes, including opportunities to succeed and prosper. This is not a grand plan by evil people and is not necessarily new. It is the natural evolution of maturing economies. I will not write a 10 page post about this, as I explain the ins and outs of it all in my ebook. But I do want to discuss politics a bit...

Donald Trump and Politics
There are considerable challenges going forward, which many do not fully appreciate in their scope and complexity. This means we need to talk about policies and politics. The short-to-medium-term challenge (1 presidential term) is to create jobs. LOTS of jobs. I am talking "think big" here. No messing around. Even to the detriment of government debt. The politics of this could get ugly, as a good fraction of Republicans will oppose speding and Democrats who might allow massive spending if Clinton was in power may use Trump spending to block the process to hurt the GOP, especially that Trump wants to detax upper incomes. Detaxation of upper incomes is a bad idea at this particular point, as massive corporate detaxation should be the priority right now, because it creates jobs and will make labor gain some power from scarcity, hence real wage growth that has been nowhere to be seen for the better part of the past 20 years. Trump needs to deliver on growth and jobs for his first mandate. He faces global forces such as automation and offshoring that make many workers useless and do not generate enough extra demand "elsewhere" to compensate.

The policies to have this massive job creation and wage growth will run into roadblocks in the domestic political context, but the good news is that Trump has across-the-board Republican institutions on his side: White House, Congress majority, Senate majority, and will also have Supreme Court majority, and will probably replace Yellen (a known Democrat-leaning economist) with a GOP-leaning Fed chairman. The bad news is that this across-the-board GOP landscape was brought about by a majority that is hurting and raging for "change"... and that change may also come in the form of cuts in all kinds of help to the more fragile citizens, to the point it may increase even more not only income inequality, but also inequality of opportunity, which is more serious.

The international politics could also get ugly, as the USA may realize it could benefit from targeted trade policies that favour US-based production and jobs. Honestly, I would do it if I were the US President, since that is the promise he made to the electorate: jobs and purchasing power. This could be detrimental to trading partners such as my own country (Canada) or Mexico, but those have no geopolitical weight... but China DOES have geopolitical weight. Trump wants to get close with India, and that is a strategic choice that is interesting, but it could bring extra tension with China and in Asia in general, as the positioning of the players adapts to the changing global policy and political context. If Trump and his team can avoid a deepening of geopolitical tensions, this aspect could remain under control, but it could also serve as either 1) a diversion to the failure of delivering jobs and growth at home or 2) a reason to mobilize the electorate and politicians "with him against a common enemy" so that he may pursue deficit spending.

Growth and Jobs
If Trump delivers growth and jobs with increasing real wages, he may well become one of the most popular US presidents in a very long time. But he faces stiff competition from automation, offshoring, globalization, and the new economy that has specificities that are quite new relative to any other time in History, on top of the global demographic and fiscal context of most industrialized economies. The danger is to spend like there's no tomorrow, have a huge debt buildup, detax upper incomes, and bring the situation to a point where a hard choice must be made: tax more (who and how?) or cut in social programs. I don't know how this will all play out, but there is a domestic and global context that need to be understood to really "see" what is going on and better evaluate the future state of the USA and other countries. Read all about it in my book available very soon on Amazon!

This will be a very interesting (and up to now entertaining) 4 years. Like and Share!

​pbedard@yourpersonaleconomist.com