EC No, Mr. President, There Isn’t A Santa Claus

In fiscal policy also, the Trump administration needs a Santa Claus to bail it out, though here there has been a certain amount of self-help. The United States is currently running budget deficits of $1 trillion a year, at the top of a business cycle. Were there to be any kind of recession, those deficits would rapidly spiral above $2 trillion, 10% of GDP. That is insupportable in the long run; like Japan since 1990, the country will simply incur so much debt that debt management dominates every waking moment, and bankruptcy continually looms.

Almost all this problem stems from actions that pre-date Trump. The Social Security and Medicare deficits now looming were caused by policies enacted decades ago, and most of the $1 trillion deficit was caused by disgracefully sloppy budgetary management and wasteful new spending programs under the two Presidents Bush and President Obama (though not President Bill Clinton, bless him.) Trump has added only modestly to the problem, with his military spending build-up and his 2017 tax cut (which may pay for itself through faster growth.)

Trump has however pursued two initiatives that may lessen the budget problem, though they are unlikely to eliminate it altogether. First, his tax reform and other pro-growth policies, notably deregulation, appear to have restored the trend growth rate of the U.S. economy to around 3% annually and U.S. productivity growth to around 2% annually. With 2% annual productivity growth in the economy, there is at least a decent chance that the Federal government’s revenues will increase towards the bloated spending level, narrowing the deficit and lessening the debt problem.

Second, Trump’s tariff wars produce revenues for the Federal government and help balance the tax system, which previously was loaded entirely on the domestic economy and not at all on trade. Again, it is very unlikely that tariffs will produce enough revenue to balance the budget, and they would do enormous damage to world trade if they did, but they will certainly make a hole in the deficit, probably reducing it by around 10-20%. That is greatly to be welcomed.

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(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of "sell" recommendations put ...

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Barry Hochhauser 2 months ago Member's comment

Martin Hutchinson, why do you suppose #Greenspan did nothing to correct the problem even after he identified the issue early on?

Angry Old Lady 2 months ago Member's comment

Wait a minute... Santa isn't real??

Gary Anderson 2 months ago Contributor's comment

I can't believe I just read this.

Alexis Renault 2 months ago Member's comment

Why not?

Gary Anderson 2 months ago Contributor's comment

The trend growth is likely below 3 percent. Most rational people do not hope Trump wins in 2020. He is doing great damage to our nation on many fronts, including economic policy. He is a dreadful human being on many fronts. The author does not share my views, which is fine. But it is a tough read.

Alexis Renault 2 months ago Member's comment

I agree that #Trump is a dreadful human being. Personally I can't think of a single positive thing to say about him personally. But I was under the impression that Wall Street and business in general were supportive of Trump and his policies.

Gary Anderson 2 months ago Contributor's comment

I don't think Wall Street thinks tariff wars, full blown tariff wars, can be won. Certainly, Wall Street gives Trump the benefit of the doubt, that he is negotiating. But this is really how business in the US feels about the potential tariff war, and certainly the steel tariffs are just killing American business slowly by 1000 cuts: https://www.uschamber.com/tariffs

Alexis Renault 2 months ago Member's comment

:-(