by Daniel Brouse
Economist, Pi Gamma Mu, Fiscally Conservative Republican since 1980
January 23, 2020
What are the costs and benefits to the United States under a Trump economy?
Financial Analysis: Current State of Affairs
First, start with a financial analysis — a snapshot of the current economic health of the nation. What would a financial analysis that is similar to an individual applying for a bank loan, or a married couple visiting a financial planner for their retirement plan, look like? What are the assets and liabilities? What type of assets and liabilities are in your portfolio? What are your saving patterns? Did you get a large gift from your parents or have you been showing a strong pattern of saving over time? What is your income? Have you made dubious loans to yourself? Where does your income come from? What is your credit history?
A financial analysis of the U.S.A. results in a failing grade.
Impacts of Fiscal and Monetary Policy
After examining the current state of affairs, examine the fiscal policies of the Executive Branch and the monetary policies pushed onto the Federal Reserve. The Trump administration has taken extremely negative positions with free-trade, as well as, jeopardized the standing of the world reserve currency.
Tariffs
The Trump administration has destroyed the United States leadership in free-trade. Huge taxes were placed upon the American public through the use of tariffs. The tariffs were put on goods and services from around the world and paid for by the American consumer. The placement of tariffs have circumvented congress’ oversight and consumer protection considerations. Not only do tariffs introduce new taxes on the population, they also destroy trade relationships with other countries. That is to say, tariffs and retaliatory tariffs cause foreign countries to look elsewhere for their imports. For example, China’s retaliatory tariffs on agriculture resulted in China developing new trade partnerships that do not include the USA.
Here is a partial list of Trump Tariffs:
Solar panels: 15 – 30%
Washing machines: 16 – 50%
Steel and aluminum: 10 – 25%
Chinese products: 15 – 50%
South Korean products: 25%
More tariffs were placed on India, Canada, Mexico, the European Union and others.
Tariffs not only have a direct impact on U.S. current affairs, but they will leave everlasting damage.
Inflation
The overall Trump economic policy has put the economy at risk of high inflation and interest rates.
Inflation Update: Immigration and the Wage Inflation Spiral (June 12, 2022)
An important factor in the 2022 record inflation situation can be traced back to the Trump immigration policy.
The US has stagnant population growth (as does the UK, EU, etc. Japan has a declining population.)
During the Trump administration, the US drastically curtailed immigration. The Biden administration continues to do so today.
The result has been wage inflation. The wage inflation that started in 2018 began the overall inflation spiral that continues today. A wage inflation spiral happens when the initial wage inflation is canceled out by the price inflation requiring further wage inflation to keep up with the price inflation… the increase prices require more wage inflation for employees to keep pace with the cost of living… the subsequent rise in wages results in the need to raise prices to pay the workers… and round and round we go.
The solutions are to either increase our population (through immigration) and/or increase our productivity by eliminating the need for humans.
How the Inflation Spiral Started: Immigration
The Trump administration’s policy on immigration and building The Wall have a devastating impact on the economy. The U.S. economy is a capitalistic system based on population growth. The birth rate in America is close to zero percent. In order to maintain the standard of living, the country needs to gain millions of people through immigration. The Trump policies have attempted to eliminate immigration.
— Daniel Brouse (2020)
* “Over the course of four years, the Trump administration set an unprecedented pace for executive action on immigration, enacting 472 administrative changes that dismantled and reconstructed many elements of the U.S. immigration system. Humanitarian protections were severely diminished. The U.S.-Mexico border became more closed off. Immigration enforcement appeared more random. And legal immigration became out of reach for many. All of this was accomplished nearly exclusively by the executive branch, with sweeping presidential proclamations and executive orders, departmental policy guidance, and hundreds of small, technical adjustments.” — Migration Policy Institute’s Four Years of Profound Change (2022>
* “After years of wage stagnation, we are finally seeing rising wages,” Donald Trump (State of the Union 2018)
“The Employment Cost Index, a measure of salary and benefit costs, registered a 2.6 percent gain for the full year, tied for the best since 2007.” — CNBC (January 31, 2018)
* From December of 2020 through January of 2022, nominal wages and salaries were up 4.5 percent, the fastest increase since 1983. — Bureau of Labor Statistics (BLS)
World Reserve Currency
“A nation that prints its own currency, and that currency is the world reserve currency, is not threatened by deficits. Until that currency stops being the reserve currency,” said Sidd Mukherjee.
The U.S. dollar as the world reserve currency has given the United States an unfair economic advantage. The U.S. has been able to “print” and borrow money in ways that break the rules of economics; however, the Trump administration has jeopardized the standing of the dollar as the world reserve currency.
The major economic powers of the world entered into a nuclear arms deal with Iran called the Joint Comprehensive Plan of Action (JCPOA). In October of 2017, Trump began pulling out of the agreement. On May 8, 2018, Trump announced the United States withdrawal from JCPOA and declared economic warfare on Iran. The warfare included “tough new sanctions” on Iran. The other countries to the treaty attempted to maintain the JCPOA by developing a new system to by-pass the world reserve currency.
Germany, France and Britain officially set up a European mechanism to facilitate non-dollar trade with Iran, the Instrument in Support of Trade Exchanges (Instex). Russia and other countries have since joined Instex.
Risk Management
The future of the nation is dependent on current risk management. “On the High Risk List; the fragmentation, overlap, and duplication annual report; natural disasters and climate change; and other topics,” reports the General Accounting Office of the USA. Pollution, in particular air pollution, is also a substantial risk. CO2, methane and other greenhouse gases have all increased under the Trump plan. Trump has withdrawn from the Paris Agreement and has consistently called climate change a hoax.
It’s never a good idea to say “never”… but, risk-management-denial always increases the probability of a worse case scenario.
Not only is our nation’s current cash-flow severely hemorrhaging due to extreme weather events (and other costs associated with climate change), but this is just the tip of the iceberg. Climate change denial is risk-management-denial.
Pollution and Climate Change Costs Unsustainable
Trump recently stated, “We have the cleanest air.” This is a boldfaced lie. Air pollution in the form of particulates and ozone are a severe health emergency in the United States.
“According to a 2009 report, around ’60 percent of Americans live in areas where air pollution has reached unhealthy levels that can make people sick.’ Air pollution can cause a variety of health problems including, but not limited to infections, behavioral changes, cancer, organ failure, and even premature death.” (Wikipedia) Air pollution is the number one cause of illness in the world and the second leading cause of death. The cost of air pollution can not be contained by one country — pollution knows no borders. It is estimated 8 million people a year die from air pollution.
A report by Stanford and Carnegie Mellon University states, “Air pollution negatively impacts the U.S. economy, costing the U.S. roughly 5 percent of its yearly gross domestic product (GDP) in damages ($790 billion in 2014). The highest costs come from early deaths, attributable to exposure to fine particulate matter (PM2.5).” The number had been falling up to 2016, but Trump has dramatically undermined clean air laws. As of December 2019, Trump had rolled back 95 environmental protection laws.
Air pollution also contributes to the climate change crisis, and in an exponential feedback loop, climate change contributes to air pollution. For instance, the wildfires in California and Australia were made more severe due to human induced climate change. The wildfires resulted in air pollution that costs billions of dollars in damages, illness and death. The wildfires also contributed to greenhouse gases and climate change that will result in more wildfires.
Though a huge cost, the climate change / air pollution feedback loop is just a small cost of climate change. Not only has the Trump administration not properly assessed the risk of climate change, the administration has undermined efforts to mitigate climate change. Even more brazen, the administration has enacted policies that hasten the devastation of global warming.
The costs of climate change are huge. The Hamilton Project and the Stanford Institute for Economic Policy Research reports, “Damages to the U.S. economy grow with temperature change at an increasing rate.” The Washington Post reports, “Climate change could cost the U.S. economy up to 10.5% of GDP by 2100.” The cost of not adapting to climate change will likely cripple the American economy.
The current costs, the costs of not adapting, and the costs of not preventing climate change are overwhelming to calculate. Take flood insurance as an example. Sea level rise and extreme weather events have redrawn floodmaps and bankrupted the National Flood Insurance Program. What flood insurance that is still available has started a series of exponential increases in premiums. Real estate along the coasts and flood prone areas will become worthless in the coming years.
The other costs associated with the Trump administration’s climate change policy is too long to list. Fossil fuel elimination and climate change mitigation our essential for risk management.
Immigration and the Acquisition Of Private Property
The Trump administration’s policy on immigration and building The Wall have a devastating impact on the economy. First, the U.S. economy is a capitalistic system based on population growth. The birth rate in America is close to zero percent. In order to maintain the standard of living, the country needs to gain millions of people through immigration. The Trump policies have attempted to eliminate immigration.
Also of a long-term negative impact is the building of The Wall. Funds to build the wall were diverted against the will of congress. The funds were then used to seize private land. The land seizures and The Wall have had a major impact on nature preserves and indigenous sacred grounds. Just as detrimental are the eminent domain acquisitions of individuals’ land. Socialization of private property is an attack on the economic system. The costs to the economy and freedom are not quantifiable.
Income Inequality
The Trump administration’s policies have widened the economic divide and income inequality in the United States. Trump said, “inequality is down.” The next day federal data was released and the Washington Post reported, “The separation between rich and poor from 2017 and 2018 was greater than it has ever been.”
“Wages are up, and inequality is down. Something that people don’t like writing about.” Trump said during a press conference following the United Nations General Assembly meeting in New York. Again, this is not true. The Economic Policy Institute reports, “Slow wage growth is a key sign of how far the U.S. economy remains from a full recovery. Nominal wage growth since the recovery officially began in mid-2009 has been low and flat.”
BENEFITS
There have not been any real benefits from Trump policies. Some people try to point to employment and tax cuts.
Employment
Employment and unemployment numbers became irrelevant as an economic indicator in the 1990’s. The internet and the worldwide web transformed the definition of employment. In addition, you would need to deduct all the jobs lost through the elimination of most temporary work visas. Many of these jobs have not been filled, especially in agriculture, horticulture and hospitality. Billions of dollars in wages and taxes have been eliminated through the Trump immigration policy. These numbers are not included in employment figures.
During the fourth quarter of 2016, 7.6 million people were unemployed. At the end of 2018, 9.0 million people remained unemployed. Yet, Trump claims to have created 5 million new jobs. Do the math.
In January 2020, Trump boasted at a campaign rally in Wildwood, NJ that “factory jobs were the best ever in the history of the United States.” Reuters reported, U.S. factory sector in deepest slump in more than 10 years. “The U.S. manufacturing sector fell into its deepest slump in more than a decade in December as the U.S.-China trade war kept a lid on factory output, orders and employment…. The Institute for Supply Management (ISM) said its index of national factory activity fell to 47.2 last month from 48.1 in November. It was the lowest reading since June 2009 and, coupled with readings for both new orders and factory employment at multi-year lows, thwarted expectations for a leveling off in the pace of decline in a sector buffeted by trade tensions. ”
Tax Cuts
The only beneficial tax cut that has been made by the administration was to lower corporate taxes. Corporate profits are already taxed as income to shareholders. The corporate tax is double taxation. A fair tax policy would not have corporate taxation. However, the other Trump trade and tax policies’ negative impacts far outweigh the positive impact of a reduction in corporate tax rates.
But, What About Obama?
Obama increased the national debt by about $1 trillion/year. Trump is increasing the national debt by about $1 trillion/year. What makes Trump worse than Obama — Trump is suppose to be a fiscally conservative Republican. Obama wasn’t suppose to be. So, for that reason, Trump’s deceit makes it worse than Obama. Trump is not stopping the problem. Worse yet, he is contributing to the problem at the same rate as Obama, as well as, putting the future economy at risk through bad trade and environmental policies. Trump is trying to con the American public into a false narrative on the economy. In fact, this is not “the best economy ever. Rather, it is the worst economy ever.
Morning Brew reported, U.S. Budget Deficit to Exceed $1 Trillion in 2020. “The U.S. budget deficit will top $1 trillion this year, according to a new report from the nonpartisan Congressional Budget Office (CBO). What that means: The government will spend $1.02 trillion more than it collects in 2020. The widening deficit is a result of the 2017 tax cuts and an increase in spending on federal programs.”
By 2020, the debt to GDP ratio hit its highest level ever at 125%.
Conclusion
The national debt is unsustainable. The debt, risk-management-denial, deceit, nationalism, and greed will sink our ship.
ABOUT THE AUTHOR
The responsibility an economist accepts is to determine the “costs and benefits of our actions on society.” Then, attempt to convert the difference into dollars. Is economics opinion? That depends on your value of the costs and benefits of your actions on society.