The economic indicators might be okay, with the notable exception of the stock market as 2018 ended, but don’t let the numbers now lead you to believe the future is bright. It isn’t. The future is pretty scary and Donald Trump’s policies made it more likely the future will be difficult for the United States’ economy.
Debt matters, eventually.
Though the national debt isn’t causing interest rates to increase (and this hasn’t happened despite steeply rising debt since 2007), the annual federal budget deficits will cause problems someday. The nation will lack the flexibility to increase spending dramatically without severe consequences.
Some argue the debt and deficits only matter when they exceed gross domestic product. That time is coming. We might see stagnation or inflation, but what we won’t see is a stable economy.
Few economists argue against any national deficit spending. In fact, controlled deficit spending makes sense when interest rates are low and revenues are rising. Borrowing to invest in education, infrastructure, or basic research when the bond market favors borrowing and economic growth is steady is a perfectly reasonable decision. This would be similar to investing in tools when your business is growing or borrowing for education that will increase your earning potential. People borrow and nations borrow when the odds suggest a near-certain return on that investment risk.
In a downturn, the government can invest in needed and lasting infrastructure because the infrastructure will outlast any downturn. These projects need to be more than busywork, wasted efforts that won’t provide future benefits.
But, if a nation is deep in debt it becomes difficult to invest and even needed projects become difficult to fund via yet more debt.
Only the collapse of an economy leads to low interest rates despite high debt levels. In many ways, Japan’s economy is a low motion collapse. There are pointless projects and stagflation. An economy the United States once feared now wobbles along in the shadow of China and South Korea. The stronger Japanese companies are globalized, operating apart from the Japanese economy.
Another major setback to the U.S. economy could result in low-interest rates despite our high debt. In a panic, there will be stimulus spending that might not be enough to salvage the economy. Massive spending might be impossible, thanks to our debt. And any major spending would present problems for programs such as Social Security and Medicare.
We’re balancing on a razor’s edge, and that worries me.
Taxes can be raised on the top earners.
I’m all for low taxes and small government, but right now we should be trying to raise revenues. We should be cutting spending, too. The goal should be a near-zero deficit for 2020-21 and some reduction in the debt. But, those things won’t happen.
Trump still argue cutting taxes for all income levels will lead to growth. Cutting taxes for the middle class can stimulate growth. But, cutting already low taxes on the highest income brackets does nothing. Cutting taxes on the wealthy has only resulted in economic growth when effective tax rates exceed 50 percent of income. We’re nowhere near that — the highest income earners pay an effective rate of 26.8 percent. History suggests when the top earners pay 40 percent, there’s no negative effect at all. Raise taxes on the top brackets and reduce the deficit.
For every dollar raised, we should be cutting $1.25 in spending. It won’t happen unless Republicans and Trump demand a spending freeze or genuine cuts. I’ve seen no evidence that Trump or the GOP has the stomach to stop waste or to end federal programs that have outlived any usefulness they once had.
Cut spending, raise taxes, save for the future. It’s what we should do as a nation… and what we won’t do under Trump.
Trade policies from the 1920s.
Free trade helps every nation. It especially helps poor nations that have good and services wealthier nations want. That might not seem “fair” because we pay less for goods and services from emerging nations. Yet, trade eventually raises the living standard in a nation. Protectionism, to my perspective, keeps poor nations poor.
Trade wars with Mexico, China, South Korea, Japan, and Europe? President Trump is making a moral and economic mistake.
Yes, other nations can produce products for less. That’s true of some states versus others within the United States, too. But, as productivity rises, so do salaries and other benefits.
When you treat trading partners poorly, they eventually block your higher-end products from their markets. The trade war escalates and nobody wins. Consumers (who are workers) loose.
Companies do not pay tariffs or taxes. They pass those costs on to consumers. Crowing about how much China is paying in tariffs is bragging that our consumers are paying a lot more for goods.
Trump is the past, today.
Trump is an isolationist. He’s a nationalist. He is the voice of workers from the 1920s, the policies that helped ruin Herbert Hoover. By the time Hoover reversed his policies, it was too late. And, sadly, some of those policies still exist.
I am convinced Trump’s choices will eventually slow the United States’ economy. They will harm our standing in the world. We will be burdened by debt, without much to show for all that spending.
And, when bondholders start demanding higher interest to offset a perceived risk, that debt will cost our nation even more. Rising interest rates make the existing debt a greater demand on the annual budget. Already, interest on the debt matches military spending. That’s disturbing.
Trump doesn’t seem to care about how deficits, tax policy, trade wars, or other policies might cripple the U.S. in the future.
We should all be worried by his lack of concern.
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