Now that Donald Trump is our U.S. president, people are increasingly aware of a new level of peril for this nation. Most of the focus so far has been on the president’s inexperience, ineptitude, and lack of stature. We are rapidly learning, however, that Donald Trump is not the populist he pretended to be, as he is already betraying campaign promises. He has adopted the entire GOP agenda of eliminating Obamacare, and reducing Social Security and Medicare benefits. The radicals he is appointing to positions of power will work to eliminate regulations that restrain big business, from the oil and coal industries to Wall Street. Soon, the GOP Congress will advance bills to cut taxes on the rich and corporations to record low levels.
Paul Krugman in Today’s NY Times (“On Economic Arrogance”) wrote: “In Trump-world, numbers are what you want them to be, and anything else is fake news.” He pointed out that the Trump team claims to be able to produce twice as much income (GDP) growth as reputable economists expect. He is right about these woefully inflated expectations, and more generally about the new administration’s lack of respect for science, and real-world factual accuracy. But, as Paul Krugman has also observed, mainstream (neoclassical) economics has been unable to explain the perpetual recession (actually, for the bottom 90%, a depression) since the Crash of 2008. The unrecognized reality is that aggregate growth is gradually declining, and will continue to do so until the top income tax rate is restored to near pre-1980 levels.
Such an increase in tax progressiveness is essential. It would reduce income and wealth inequality — now at all-time highs — and enable government to fund essential projects, like repairing crumbling infrastructure and deploying alternative energy sources. This may seem hard to believe, but it’s true: It would also increase the rate of aggregate growth.
I’ll explain that point in a later post. The key point here is that Donald Trump relies entirely on the threadbare “trickle-down” philosophy which has always been disproved in the real world. Without growth, the hundreds of billions of foregone revenue dollars will necessarily increase the national debt (already more than $19 trillion and growing exponentially) unless there are equivalent cuts in government spending. The billionaires have shown no sign of willingness to give up any of their profits and enormous wealth, so that means they will keep cutting government social and environmental programs, many of which are already tapped out. The growth of inequality, poverty, and environmental damage will accelerate, while federal deficits continue to grow.
The new president blusters that he “inherited a mess,” but the economic mess he inherited, which is largely the result of prior GOP income tax reductions at the top, will be greatly worsened under his announced plans. Experienced investment advisers are increasingly warning that another stock market crash may be imminent, with the bursting of student loan, automobile loan, consumer loan, and/or housing mortgage debt bubbles. Regardless, it is painfully obvious that the federal debt is vastly over-extended: the CBO has projected the interest on the national debt, even under its optimistic base case, to exceed the entire projected DOD budget by 2022.
This is not “conservative” economic policy — it’s radical and irresponsible. As I explain (and document) in my 2016 e-book “Reinventing Economics: The Failure of Capitalism and the Economics of Inequality,” There is no basis in scientific economics for the notion that the economy can grow its way out of such a quagmire. I’m now working on a concise summary of my book. Meanwhile, I’ll post further explanations on this blog.