The Trump Economy On the Brink

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Michael Siegel

Michael Siegel is an astronomer living in Pennsylvania. He is on Twitter, blogs at his own site, and has written a novel.

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42 Responses

  1. Avatar Oscar Gordon
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    says:

    Don’t worry, China will just absorb the price increases!

    Navarro is a dangerous fool.Report

  2. Avatar Mike Schilling
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    says:

    Republicans won’t do it because they are completely cowed by Trump. Democrats won’t do it because they don’t have any actual power. (Fixed that for you.) By the way, the tax cuts and massive deficits aren’t Trump’s; they’re Ryan’s and McConnell’s. You can’t name a GOP candidate from 2016 who wouldn’t have signed that bill. Pretending that tax cuts pay for themselves is a longstanding GOP tradition,Report

    • Avatar Mr.Joe in reply to Mike Schilling
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      says:

      ^THIS! 10 times This.

      Trump’s skill is gilding turds and selling them for a premium. Much like the attempted ACA repeal, Trump was mostly MIA and not involved in the actual crafting of the TCJA. He just needed congress to pass something so he could sell it. The contents were largely irrelevant. Branding and marketing is what he likes to do and he is damn good at it.Report

  3. Avatar Saul Degraw
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    says:

    Yeah, I think we are heading towards a recession. Possibly a major global, recession barring an absolute miracle. On Saturday, Trump double down on his “hereby order” and insisted he could command U.S. companies to stop trading with China.

    I will say what I have said about Trump before: he is an idiot, racist, narcissist, bad businessman who inherited his wealth largely, and he is probably undergoing serious cognitive decline*.

    What is striking and perhaps disturbing is how quickly the Republican Party has abandoned its former free trade principals because of Trump. They are going back to an older version of themselves as you note and one that was a disaster. There is a saying that the left uses “The Republican Party fears its base, the Democratic Party loathes its base.” I don’t think this is completely true but it is striking. There have to be GOP politicians and policy wonks that know something bad is going to happen because of Trump’s comments and actions but they say and do nothing. They do this because the base loves Trump and they fear losing their jobs in primaries. Instead, a lot of them read the writing on the wall and announce that they are not seeking reelection.

    Trump’s nationalism is not new. If anything the U.S. is slightly behind on the trend compared to Hungary, Poland, Russia, India, and other countries.

    One problem I think is that our brains still work on principals on ideals that helped us survive in ancient times but are now useless and need to be discarded. One of these reptile brain features seems to be a fear, distrust, and dislike of outsiders. There seems to be a wish among many people for economic self-sufficiency in a way that kind of resembles an idealized Smurf Village or Shire. Everyone has a task and the town is a small self-sufficient community that is not dependent on anyone else. The only problem is that people want their modern entertainments and tech so you need Broadband Hobbit, Biomedical engineer smurf, and videogame developer smurf. We love the things that trade and interdependency produce but hate the interdependency.

    The Atlantic has an article about overtourism and how a lot of the more picturesque places in the world dislike how much of their economy is dependent on tourism and visitors. The problem is that a lot of cities/locations are essentially economic wastelands but for tourism. This does not just include rural locations. Cities like Venice and Florence have relied on tourism for large parts of economic activity since the 19th century if not before.
    But people seethe at this and wish it were not so.

    I do wonder if a lot of people want something like the Hukou system (even if they do not know what the Hukou system is) to keep people out but also to prevent brain drain. I event think people would want it within the United States to keep outsiders away despite the privileges and immunities clause of the Constitution:

    https://en.wikipedia.org/wiki/Hukou_systemReport

  4. Avatar Chip Daniels
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    says:

    Today is my pessimistic take, that even a recession will have only slight effect on Trump’s re-election chances.

    Trump’s base is motivated by anger and the desire to inflict pain and punishment. And so they will accept an almost unlimited amount of economic pain before giving up on him.Report

  5. Avatar Pinky
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    says:

    There are two completely unrelated questions to consider with Trump: what he’s saying and what he’s doing. I’m very concerned about his trade war actions. I’m not concerned about his trade war statements, except to the extent that they may trigger foreign responses. There’s nothing that’s happened in the stock market, and not much in labor or capital, that couldn’t be reversed by negotiations between the US and China.

    Global economic downturns happen, and we may be headed toward one. Global crashes are something different. They’re tough to predict. A good rule is: don’t provoke one.Report

    • Avatar J_A in reply to Pinky
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      says:

      I can tell you from personal experience this year of our Lord 2019 that that big industrial conglomerate vaguely related to Edison, who sells light bulbs and power plants, and briefly sold us Friends, is massively obsessed with every single Presidential tweet.

      That unnamed industrial conglomerate changed the terms of their proposal to sell poor me a power plant four times in response to tweets, and the final contract, worth fifty millions, has detailed language about what to do when new tariffs appear between now and Oct 2020.

      As unnamed upper level executive of unnamed corporation said to poor me, It is impossible to transact business when everything changes by tweet.

      The effect to poor me’s shareholders was about six more million in tweet related costs, and a price opener in the contract in case of more tweets. Yes, poor me’s shareholders, with 14 billion in investments, are being hit not just by what Trump does, but by what he tweets. And no future trade agreement between a Democratic USA Government and China will bring the extra costs back. The impact and the damage is happening now.Report

  6. Avatar George Turner
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    says:

    The recession panic will only last until RBG has to be replaced and the confirmation hearings start.

    Russian Collusion!
    Brrett Kavanaugh is a serial rapist!
    Mueller Probe!
    White Supremacy!
    Recession! (<- We are here)
    Amy Barrett is a cultist papist stooge!Report

    • Avatar Andrew Donaldson in reply to George Turner
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      says:

      Recession is inevitable, question of when and how badReport

    • Avatar greginak in reply to George Turner
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      says:

      Emergency!!!!! Engage distraction mode. Fire all distraction tubes!!!!Report

    • Avatar Pinky in reply to George Turner
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      says:

      You left out Trump’s dementia.

      Did you read the transcript from the NYT meeting on how they should cover the next two years? Illuminating. They were pretty up-front that the last two were all about Russian collusion, but since that narrative collapsed, they were switching to white supremacy. They even cast it in terms of the last two / next two, probably without realizing that when they talk about covering the world as it is, they mean writing about what they perceive as the president’s greatest weaknesses.

      I’d hate to see a recession, I’m afraid of a trade war, and I’m no fan of Trump. But the press is a joke.Report

  7. Avatar Jaybird
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    says:

    If you think that positional goods are more important than absolute goods, it makes sense to ask questions about why we sent all of our manufacturing (and associated jobs) overseas.

    If absolute goods are the important thing, you only have to explain why the unemployed people in the rust belt ought to be happier with their cheaper tech.Report

  8. Avatar Chip Daniels
    Ignored
    says:

    From Peter Nicholas in The Atlantic:
    https://www.theatlantic.com/international/archive/2019/08/donald-trump-g7-summit/596788/

    Trump’s narrative encapsulates a larger problem: whether he can be taken at face value, means what he says, and knows his own mind...
    How is anyone to know for sure when White House policy is articulated largely through bursts of 280-character tweets, interspersed with screeds about the latest personnel moves at Fox News?

    At this point, no nation on earth can trust that the United States will honor any commitment, or even has any to honor.

    Whether the President is suffering from senile dementia, or is simply acting out as a sociopathic narcissist, is now an academic question.
    What is clear is that the most powerful economy and military in the world is being guided by someone who in any other capacity would require an intervention.

    Which is why the problem lies not with Trump but with the voters, media, Congress and the courts.

    Its ironic that of all the institutions which are given the power to rein in a mad president, its only Wall Street, the institution which has no Constitutional power that is the one sending alarm signals that the ship of state is on a collision course with reality.

    Tomorrow morning should be interestingReport

    • Avatar George Turner in reply to Chip Daniels
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      says:

      He’s so crazy that other world leaders are adopting his policies because they want to be successful, too!Report

      • Avatar JoeSal in reply to George Turner
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        says:

        The threshold of sanity begins with not trading with commies.Report

      • Avatar Chip Daniels in reply to George Turner
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        says:

        From the article:

        At the Group of Seven meeting in Biarritz, France, there are, in effect, two different summits under way—one that’s happening in President Donald Trump’s mind, and another that is actually happening on the ground; there’s the summit Trump is trying to will into existence, and the summit unfolding in real time.

        His counterparts, he insists, are coming forward and agreeing with him that it’s a good idea to readmit Russia to the group, he said today (it was tossed out in 2014 after it annexed Crimea). He’s hearing broad support for his trade dispute with China and a lunch visit yesterday with Emmanuel Macron was the best he’s had yet with his French counterpart, he said.

        Yet in none of these instances does Trump’s version of events hold up. Pressed to name the other leaders who endorse the notion of letting Russia back in, for example, Trump demurred. “I could, but I don’t think it’s necessary,” he said. Report

  9. Avatar Road Scholar
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    says:

    I don’t know how many people are actually cheering for a recession; out of 350M there are certainly a few. My attitude is that a recession is inevitable someday and likely sooner than later given that we never bothered to really fix what’s broken in the financial sector after 2008 amplified by Trump’s foolishness. So if it’s just a matter of when not if, then 2020 is a relatively opportune moment all things considered.

    My views on matters economic are decidedly heterodox. I trace our primary source of economic woes of various sorts to the Nixon Shock of formally abandoning the notional gold standard and controlled currencies of the Bretton-Woods era, which led to the chronically unbalanced trade situation of the last 40+ years. Yes, I believe the trade deficit matters. Not in a bilateral sense vis-a-vis China or Mexico or whoever, but our overall imports vs exports. Quite simply, we’ve been purchasing and consuming more than we’ve been producing and selling. Collectively, we simply don’t earn enough to support our lifestyle and the only way to sustain that is through debt, both federal and personal, which has exploded in that time period. It’s not even really economics, just basic accounting. And of course, the same folks that insist that the trade deficit doesn’t matter simultaneously get all worked up over the Federal debt, resolutely refusing to see the connection between the two, or perhaps pointing the causal arrow in the other direction.

    But the answer isn’t the Trumpian response of engaging in trade wars, casting our trading partners as enemies. It lies in understanding how a floating fiat currency actually works and adjusting our monetary policy accordingly.Report

    • Avatar J_A in reply to Road Scholar
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      says:

      Collectively, we simply don’t earn enough to support our lifestyle and the only way to sustain that is through debt, both federal and personal, which has exploded in that time period. It’s not even really economics, just basic accounting.

      Your basic accounting is only partially correct.

      We should never confuse assets with limited vs unlimited useful life. An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit. The useful life on an asset should be at least as long as the tenor of the debt associated with that asset.

      A person’s main asset is not her house or her 401k, it is her ability to work and generate income , and that asset has a useful life of about 45 years. From an economics perspective, houses and 401k and other investments that we call a person’s assets, are just mechanisms for that person to save some of its excess revenue generating capabilities and temporally shitting that revenue past their own useful life. Taking more debt than that that can be serviced during your productive lifetime, or that exceeds at some point your revenue generating capability, well, that will definitely bankrupt you.

      Countries are different, though, countries’ assets are not roads or bridges either, it’s their tax base. To the extent that the government can collect taxes, their revenue generating capability has not been impaired. To the extent that people have children, there will be more taxpayers in the future, and the asset base of the country has actually grown, even with the same tax base.

      For the same reason, countries (and certain kinds of companies, like natural monopoly utilities) are not expected to pay down the principal on their debts. If the useful life of their asset, the tax base, is unlimited, an growing, the term of the debt should also be unlimited, and growing, to, ideally, keep a stable ratio of debt to GDP. Debt service should cover only the interest payment (in real life, countries pay the principal, and then replace that principal with new debt).

      To the extent there’s a temporary crises, like a recession, its natural -and prudent- for countries to continue its current debt level, or take additional debt, which will be eventually served by the natural growth of the tax base.

      Of course, there’s a limit to how much a country can raise much the tax burden on its population, but the USA is very far from that limit. It is one of the lightest taxed developed economies, and we just passed a massive (and unnecessary) tax cut. We can safely significantly increase taxes if needed be. It will be political suicide for those that vote in favor of tat tax raise. but the USA won’t be bankrupt by it.Report

      • Avatar JoeSal in reply to J_A
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        says:

        Roads comment is more whole and your comment is more partial because he at least addresses a potential for problems of fiat. It appears you have excluded them.Report

    • Avatar PhilipH in reply to Road Scholar
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      says:

      The answer also lies in remembering that the national debt and the federal deficit are all about federal expenses against a tax base, not consumer purchasing rooted in imports and exports. The debt as discussed in the media is a separate entity from consumer debt – which is also not exactly related to the import-export imbalance that is the trade deficit. conflating all three is a reason why bad economic policy (like trickle down) can flourish in the US.

      The national debt and deficit are completely a function of the taxes we collect and the money the government spends. And for 4 decades politicians have tried to sell us a bill of goods that says cutting those taxes while NOT cutting that spending is OK because the economy will grow enough to offset it. When that happens its not because we should tax ourselves for the services we want – its because we need to cut taxes more. That gap will never be made up by protectionist trade policy or tariffs or any thing else in the trade arena because it snot driven by trade.

      And if you want the trade deficit to shrink, we as a nation either have to be willing to pay more for the goods we buy so they can be made here, or we have to trash our environment and go back to harming our workers so the costs are the same and profits can be preserved at the level they are now. Otherwise in the consumer good arena we will always run a deficit to other countries. But again, that’s not part of the federal deficit or national debt. Different drivers, different solutions.Report

      • Avatar JoeSal in reply to PhilipH
        Ignored
        says:

        This is a pretty good comment Philip, you touched on consumer debt(of the tax base) that is often left out of the calculations when most entities are considering debt services.

        There wasn’t any mention of what taxes do to the velocity of money, but all in all you included a broader picture than is often given. Good stuff.Report

  10. Avatar Philip H
    Ignored
    says:

    Trump wants the Fed to cut interest rates because it saves him money. He cares not one wit about anything else in that regard.Report

    • Avatar JoeSal in reply to Philip H
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      says:

      Yep, and Obama wanted the Fed to cut interest rates because he liked fluffy kittys. Nice try dude.Report

      • Avatar Philip H in reply to JoeSal
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        says:

        Read a little dude – the Washington Post had a really nice story about how nearly all the multi-million dollar loans he has underpinning his current real estate empire are variable rates – which means Fed rate cuts save him cash. He’s all about him first and foremost – and when you are a real estate mogul having your cash tied up in loans is no bueno. Fed rate cuts personally benefit him.Report

        • Avatar JoeSal in reply to Philip H
          Ignored
          says:

          There is no reason to assume he isn’t doing it for the exact same reason Obama did. But hey, keep drinking that WaPo toxic waste.Report

          • Avatar Mr.Joe in reply to JoeSal
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            says:

            There is 3+ billion reasons to assume he might have other motives. Long history of businesses that depend on other people’s money say he has personal upside in cheap money.Report

            • Avatar JoeSal in reply to Mr.Joe
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              says:

              Its weird that the position he is in, with this economy, it can’t for sure be parsed that it is his greed or activity for a better economy that is the motive.

              After 8 years of idiocy i guess a blind profiteering squirrel could do better than the social democrats.Report

  11. Avatar Rufus F.
    Ignored
    says:

    I don’t know who’s hoping for a recession or why they would. My mother is one of those older people who loves Trump and only watches Fox News. If there’s a recession, she’d say he’s trying to save the economy and it’s the fault of his enemies. She might be an outlier, but I’m not even sure it would hurt his chances for reelection. Regardless, it would be bad.Report

    • Avatar Philip H in reply to Rufus F.
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      says:

      The problem with your mother’s approach is that she will be hurt by a recession and all the while ignore who is hurting her and why. That’s the crux of the issue with the diehard Trump supporters. They have accepted the misdirection on numerous issues and thus are enabling the calamity to grow.

      As to his reelection chances – coal miners in Kentucky may well be waking up to the fact that he’s not putting them back to work. Ditto steel workers in Birmingham and car parts people in Detroit. Whether they defect will be determined by who the Democrats settle on and what message that person carries.Report

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