Almost the entire US voting population knows that Donald Trump is a compulsive liar and convicted criminal seeking office to assuage his delicate ego, shield himself from further criminal liability and enrich himself. Yet almost half the voters are planning to cast a ballot in his favor. A few plan to do so because Trump would cut their taxes. Others may do so for what we might call right wing populist issues. These two groups will likely stick with Trump no matter what. But there are also many people who are financially stressed, and think that gambling on a change in economic policy is more important than voting for decency or democracy. I believe these voters are the key to the election.
These fearful voters are asking “What have I got to lose?”
The answer is a whole lot.
Democrats need to do more to expose the economic dangers of a second Trump presidency.
This past week, a couple brilliant economists published articles about Trump’s plans, and the chaos and economic destruction that would inevitably follow.
Joseph Stiglitz wrote There’s No Debating Who Would Be Better for the US Economy. Stiglitz is one of 16 Nobel laureates in economics concluded that Trump’s plans would stoke inflation. He begins by looking back at the prior Trump presidency, and reminds us that while Trump was very good at taking credit for the growth that occurred early in his term caused by the momentum of Obama’s policies, Trump’s first big action was to slash corporate income taxes. The Republicans confidently told us this would lead to massive investment. It did. Just not in a way that improved US productivity, helped US workers or the middle class:
“But while he and congressional Republicans slashed taxes for corporations and billionaires, the promised surge of investment never materialized. Instead, there was a wave of stock buybacks, which are on track to exceed $1 trillion next year.”
Who benefits from $1 trillion stock buy backs? The very rich—including wealthy foreigners who own US stocks. (Some of them might even be Chinese! Or Mexican!) That was Trump’s big economic contribution.
By contrast, Biden opened with a one-two punch. He “secured passage of the American Rescue Plan, which made the country’s recovery from the pandemic stronger than that of any other advanced country. Then came the Bipartisan Infrastructure Law, which provided funding to start repairing crucial elements of the US economy after a half-century of neglect.” In 2022, Biden had another one-two punch. He “signed the CHIPS and Science Act of 2022, which launched a new era of industrial policy that will ensure the economy’s future resilience and competitiveness …. And with the Inflation Reduction Act of 2022, the US finally joined the international community in fighting climate change and investing in the technologies of the future.”
The overwhelming source of inflation after the pandemic was caused by “pandemic- and war-induced supply-side interruptions and shifts in demand,” and not by the American Rescue Plan.
But what about tomorrow? Again, Trump has one big idea.
Tariffs.
Tariffs would cause inflation to spike:
“Trump would raise tariffs, and the costs would mostly be passed on to US consumers. Trump assumes, contrary to basic economics, that China would simply lower its prices to offset the tariffs. But if it did that, no American jobs would be saved (consistency has never been one of Trump’s strengths).”
What about the long term effects of a second Trump presidency?
“The longer-run prognosis is clearer – and worse. America owes much of its economic success in recent years to its technological prowess, which rests on solid scientific foundations. Yet Trump would continue attacking our universities and demanding massive cutbacks in research and development expenditures. The only reason these cuts weren’t made during his previous term is that he did not have his party completely in tow. Now, he does.”
(Stiglitz published his article at Project Syndicate, which has a paywall. But I believe you get some free articles each month, so I hope you can click my link above.)
In the NY Times yesterday, Robert Rubin and Kenneth Chenault published The Enormous Risks a Second Trump Term Poses to Our Economy. Rubin was one of our nation’s great Treasury secretaries. During the Clinton years, he helped the US rebuild from Republican rule, adding 18 million new jobs. The policies eventually lead to a balanced budget proposal at the end of Clinton’s term. No Republican in history ever came close to matching that record. (Clinton, Rubin and the Democrats must have made managing the economy look easy, because almost half the voters then thought that even a Republican could do it. The Republican quickly cut taxes while declaring war on a country that didn’t attack us, leading to something great—The Great Financial Crisis! And Trump was the first President since Herbert Hoover to lose jobs during his term.)
Rubin is clear:
“When it comes to economic policy, Mr. Trump is not a remotely normal candidate. A second Trump term would pose enormous risks to our economy.”
Rubin confirms the Stiglitz assessment of the Trump first term. The tax cuts increased “demand in an already full-employment economy while having a negligible effect on business investment — added very little benefit in the shorter term and virtually nothing in the longer term.”
In a second term, Trump will double down on tax cuts for the rich.
“[E]xtending the 2017 tax cuts alone would add another $3.9 trillion to the federal debt and increase our debt-to-G.D.P. ratio by approximately 10 percent. This would probably lead to higher interest rates and greater inflation while undermining business confidence and could reduce our resilience in the face of future national-security or economic crises.”
His proposal for minimum 10% tariffs on all imports would “increase prices for American producers and consumers, reduce our global competitiveness and most likely lead other countries to retaliate against our exporters.” Keep in mind that this time, he wants tariffs imposed on every single import from any nation. Autos, computers, phones, appliances, pharmaceuticals and TVs will all cost more. Note that Rubin says prices for “American producers” will rise. Even cars made in the US rely on foreign parts. New housing relies upon foreign timber and materials. New US factories are built with capital equipment from abroad. Even the price of goods made exclusively in the US will cost more, because companies can charge more while remaining competitive with foreign producers.
Threats to withdraw from NATO and other defense commitments “could embolden our adversaries to act in hostile ways, increasing global instability that threatens our supply chains and our markets and increasing the risk of armed conflict.” Trump now looks back with regret upon the restraint he showed in his first term, and vows to be more radical and extreme in a second term.
“Some may feel that we made it through one Trump term and are thus likely to make it through another. But a more apt analogy is that after we survived one round of economic Russian roulette, Donald Trump is asking us to take another spin — only this time with many more bullets in the chamber.
That would be a very dangerous game.”
Robert Rubin knows what it takes to move an economy towards full employment while cutting the deficit. We should listen to him. And to Stiglitz. And to the other 15 Nobel laureates who warned of inflation in a second Trump term.
For voters who wonder what they have to lose, the answer is: a lot.
We have strong employment, with low inflation.
If there is a shock to the economy during a second Trump term, voters who feel financially stressed now should ask themselves what it would be like if inflation spiked, which would mean long term interest rates would move higher as well. And if something went wrong, they should ask themselves if they would have health insurance if they lost their job. Trump has vowed to take another shot repealing the ACA. They should remember that Rick Scott, who could end up being Senate Majority Leader, wants to sunset social security and Medicare.
If you feel financially stressed now, try having no safety net in a failing Trump economy.
Trump presents himself as a great businessman. But his primary success in business has been holding leveraged real estate in a time of inflation. He constantly failed in operating businesses, from steaks to for-profit universities. And he even figured out how to lose money running a casino. Is that the gamble you want to take?
This is the guy who told us he would reveal a healthcare plan that was “cheaper and better”, but once in office said that “nobody knew healthcare was so complicated.”
Democrats have a great record, and need to promote it. Republicans brought us the Great Depression and the Great Financial Crisis. Democrats brought us recovery from the mess they made.
During Covid, every developed economy suffered. But under Biden and a Democratic Congress, the US emerged as the strongest developed economy in the world. It wasn’t luck. The American Rescue Plan, the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act all played a role. So did the leadership of Biden, another excellent Treasury Secretary in Janet Yellen and a highly qualified economic team.
Can we improve? We can always improve.
Will we improve? Yes---If Democrats control the White House and Congress.
It’s still “the economy, stupid.”