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Trump’s Econ Plan Offers Some Promise — with Plenty of Risk
The incoming Trump administration doesn’t seem the sort much concerned about “consensus” economic opinion or what so-called experts think. For instance: One recent survey of top economists found 93% disagreed with the notion that Trump’s 100-day economic plan would help middle-class workers. (“Even if we no longer import from and offshore to China and Mexico, manufacturing jobs won’t come back. If they did, they would before robots,” opined one.)
But you take your friends where you can find them. Such as at the OECD, the rich economy think tank. In a new report, it had nice things to say about Trumponomics: “The new Administration will begin implementing its policy priorities next year and in this context the fiscal stance is projected to become more expansionary as public spending and investment rise, while taxes are cut. This will provide a boost to the economy, particularly in 2018.”
Not bad! A couple of thoughts here. First, keep in mind that this economic boost is more about near-term stimulus rather than lifting long-term growth potential through supply-side structural reform. The latter would only show up later. Still, faster growth would be welcome, all else equal. The OECD expects the likely size of the stimulus would boost US economic growth to 2.3% from 1.9% in 2017, and to 3% from 2.2% in 2018. Hardly the hypergrowth Trump has promised, but better.
Second, there are other possible ways this all could play out. The OECD offers plenty of caution, with monetary and trade policy central:
Risks to the outlook are sizeable. The fiscal stimulus of the new Administration may be bigger or smaller than assumed in the projections. Labour market slack may evaporate more quickly and wage growth could rise more rapidly than anticipated, stoking stronger inflationary pressures and requiring the Federal Reserve to react more strongly.
On the other hand, weakening external demand and further appreciation of the dollar could create a drag on net exports and depress investment, creating disinflationary pressures and requiring macroeconomic policy to become more accommodative. Disruptions to international trade, including breaking global value chains would hurt growth. There are also risks of financial market turbulence as the Federal Reserve begins tightening.
In particular, as policy in other major currency areas is projected to remain very accommodative, the divergence with the United States could unleash unpredictable market reactions and financial flows.
As for the details of Trump’s infrastructure, I recommend this analysis by David Levinson.
Published in Economics, Politics
Some promise..
Having fallen to a 3-month low in October, Conference Board Consumer Confidence soared to 107.1 in November post-Trump – the highest since July 2007. This confirms Gallup’s survey which saw economic confidence at its highest level since before Lehman, swinging positive post-Trump after being almost uniformly negative since Obama’s election.
But is this just another bubble, a Trumpian bubble?
The pragmatist in me says the economy can’t help but take off in a big way if/when overweening regulation is removed and corporate tax rate cuts make any investment more profitable.
The conspiratorialist in me sees yesterdays upward revision in 3rd quarter GDP as a last gasp attempt by the Obama administration to claim credit for the Trump boom by saying that it started under them.
The pessimist in me says we’re too far gone culturally and educationally for any of it to make a difference.
Deregulation will spur the economy, the tax cuts and budget cuts will help some, but big spending and growing the deficit has a negative impact on medium and long term growth. This is all based on a Keynesian view of the world which is theoretically weak and remains without empirical support. Nominal expansion however is very likely and how the new administration deals with those pressures will be important. How many times and in how many places must we relearn this?
““Even if we no longer import from and offshore to China and Mexico, manufacturing jobs won’t come back. If they did, they would be for robots,” opined one economist.
For real? If, say, 30 million workers in China and Mexico were displaced by US production, this incremental production would ALL be done by robots?
I have to question how much this economist knows about either manufacturing or robotics. The displacement of manual labor by automation is by no means new (see for example my post here), and in real life, automation and human work tend to coexist.
As a case in point, one of the companies that has been most aggressive in using robotics is Amazon…not only in the warehouses, but also in the data centers. Amazon also has more than 250,000 human employees.
Somebody has to design, build, repair, upgrade, and service the robots. Other people have to recycle them when they are done, and I expect they have a rather short life. Much of the conventional wisdom regarding automation is fantasy, self driving cars and trucks, etc. Never going to happen. Also as there is a market for mass produced items suitable for automation there is also a fast growing market for items that can’t be produced by automation. Craft foodstuffs (craft beer is a good example, which is stealing market-share from large brewers) , furniture, all kinds of handmade luxury items requiring human input.
“Carrier says it has struck a deal with Trump to keep nearly 1,000 jobs in Indiana”