TRUMPONOMICS - FAILURE IS PRE-PROGRAMMED
By Rudolf Hickel
[This article published in March 2017 is translated from the German on the Internet. Rudolf Hickel is a critical economist with the Bremen study group Alternative Economic Policy.]
Donald Trump's election was based on the political instrumentalization of socioeconomic fears of those who fell from the middle class in the US through job losses and changing to precarious work. Paul Krugman speaks of the falling "white working class." The desolation of once flourishing industrial districts ("Rust Belt") symbolizes the regional economic collapse. Trump also found support in the rural population uncoupled from the modernization process. Trump manipulated these reality-based anxieties with the claim that local jobs were ousted by the export-surpluses of Germany and China and "stolen" by the shifting to foreign countries. With many untruths and distortions, Trump succeeded in being identified as the "rescuer" by vast numbers of economic losers. Hatred for the "Washington Establishment" who covered up the social truth with their often lying "political correctness" also helped him.
With his basic decisions and his proposed 2018 budget, the question is raised whether the new policy will benefit those in rural areas who voted for him expecting to be free from poverty work and social descent. The following double judgment seems likely if his policy initiated with drumbeats is not retracted:
Firstly, those who expected from him an improvement of their situation will not see anything positive in his policy. Yes, the Trumpian policy will worsen their job chances and social situation. They were merely instrumentalized as a herd of voters. The winners are the owners of assets and the super-rich.
Secondly, the trade policy, financial policy and regulatory policy under the strategic goal "America First" will end in a weakening of the US. In addition, a setback can be expected in the inadequate multilateral projects arduously built over decades (WTO, IMF, World Bank and the UN).
The instruments of the most important policy fields are erroneously set up and made confused, contradictory and opportunistic by economic lobbyists in the Trump cabinet:
• The screening by protectionism with tariffs and a border-equalizing tax up to 20% on imports in the US will weaken international competitiveness through meager innovative pressure.
• The planned deregulation of the financial sector disciplined with the Dodd-Frank Act as an answer to the mega-financial crisis of 2007 makes probably a new collapse of the financial system with effects all over the world. Abolition of stress tests, prohibition of speculative investment banking and resolution procedures for transgressing banks ("living wills") are at the center.
• The planned reduction of corporate taxes by the central state from the current 35% to 15% or 20% recalls the Laffer-curve as the basis of Reagan's fiscal policy error. Additional investments of businesses should not be expected. Pressure on the state budget will increase through tax shortfalls. The division between rich and poor will intensify.
• Trump's proposal for his first budget provides an increase of military spending (from $521.9 to $574 billion, ten percent) and Homeland Security (seven percent). Veterans whose budget will rise six percent to $78.9 billion are among the winners.
• Financing the $1 trillion public infrastructure spending for transportation, streets, bridges, schools and public buildings announced in the election campaign is unclear as in the past.
• Social policy only occurs in the form of planned cuts of measures gained through struggle. Housing with subsidized rents is cut twelve percent. Experts expect the loss of social housing and allowances for millions of citizens. Spending on health will be reduced 16% through the planned reduction of Obamacare. Altogether 52 million citizens will be uninsured with its complete abolition. Only 28 million were uninsured under Obamacare.
• On one side, ecologically-threatening oil production projects will be resumed according to the government motto "Climate catastrophe is impossible." On the other side, federal environmental spending will be cut enormously. The US will withdraw completely and financially from the international climate change initiatives (also from the climate fund of the "Paris Agreement on Climate Protection").
Apart from a terrible incompetence in the consultation environment of Donald Trump, these proposals are based on fallacies and a reality distorted counterfactually. Macro-economic and ecological connections are simply ignored with the concentration on short-term profit-seeking. The government ideology of the US follows the shady business model of the former real estate tycoon Trump. The daily stock prices of US corporations are the focus. The necessary social and ecological sustainability does not have a chance.
Trump already claims success for his policy. Fake News per Tweet also dominates here. The stock exchanges blind for future developments and the politically-cuddled big banks count for the short-term profiteers. The strengthened economic growth and declining unemployment are the fruits of the earlier Obama policy. The inflation that the Federal Reserve announced with the first interest rate increase under Trump is now critical. If the expected continuing upgrading of the dollar occurs, the protectionist trade policy will break down through the inexpensive imports in the US.
The economic-, financial- and social policy demonstrates unmistakably that those who voted for Trump hoping for better working- and living conditions belong to the losers unlike the big shots of the financial industry and the US multinationals. If this knowledge torments the instrumentalized, then Trumponomics could break down politically as well as economically.