“Economic Food Poisoning”: The Bankrupt Delusions Of Donald Trump, The ‘King Of Debt’
According to Donald Trump, at $19 trillion the federal government has too much debt. Or so little debt that we could pay it off in eight years.
He says we could buy back federal debt at a discount by raising interest rates. But if interest rates rise by a couple of percentage points, he said last week that the United States of America would cease to exist.
As for taxes, we need to raise them on the rich. No, we need to lower them. Or raise them.
And American workers? Their wages are too high. No, too many earn nothing because foreign workers make so much less. Then again, maybe the minimum wage is too low.
If all his contradictory comments seem confusing, the fact is that they are. They are also difficult to square with Trump touting his economics degree from an Ivy League school, the University of Pennsylvania, where he claims he was a top student.
What reality-show hosts say is of no consequence. But every public word presidents speak gets scrutinized worldwide. Candidate Trump’s wildly inaccurate and ahistorical statements are of no official consequence, but were he president they would have serious and damaging effects on the United States.
Consider what Trump said on May 5 to CNN’s Wolf Blitzer about the cost of servicing federal debt: “If interest rates go up 1%, that’s devastating. What happens if that interest rate goes up 2, 3, 4 points? We don’t have a country.”
By Trump’s reckoning America should have ceased to be a country long ago. Back in 1982 the 10-year bond paid 14.6%. Uncle Sam’s average interest cost on all federal debt was 6.6% when George W. Bush took office. Last month it was just 2.3% even though the debt is 17 times the level of 34 years ago.
Trump talked about buying back debt at a discount and cited his own success in taking out loans, but not paying them back in full. “I’m the king of debt,” he said, in one of his frequent tangential comments focusing not on how a Trump administration would govern, but reminding us of his self-proclaimed greatness.
When journalists try to parse Trump’s words—no easy task because transcripts show jumbled thoughts galore—his response is to accuse them of misquoting him. So, whom to believe: Trump or that lying videotape?
On CNBC, Trump implied that when he took out some loans, he never intended to repay them in full.
“I’ve borrowed knowing that you can pay back with discounts,” he said on CNBC. “And I’ve done very well with debt. Now, of course, I was swashbuckling, and it did well for me, and it was good for me, and all that. And you know debt was sort of always interesting to me. Now, we are in a different situation with a country, but I would borrow knowing that if the economy crashed you could make a deal.”
That last sentence might send shivers down the spines of those who buy federal debt, as it could be read to say he would crash the economy as president just to make the market price of Treasury debt fall. I read his remarks as another example of his lack of articulation, but others could reasonably read into those remarks a plan to submarine the economy.
When challenged about his words, Trump revised his comments saying he was thinking only in terms of renegotiating the federal debt—88% of which matures in 10 years or less—to longer terms. What Trump didn’t mention is that Treasury bonds with maturities of up to 30 years pay on average 4.5% interest, more than double the average federal interest rate. The contradiction here is obvious: By Trump’s own words switching to longer-term Treasury bonds would result in interest expenses so high that America would cease to exist.
The Politics of Winging It
How and why “we wouldn’t have a country” were interest rates to rise is just one of the many observations that Trump has never been asked to explain.
When Trump’s comments drew widespread criticism as reckless, he turned the tables on those who reported what he said. He claimed that others put words in his mouth and distorted his intent.
So how do we make sense of the following: “If we can buy bonds back at a discount,” he said, “we should do that.” He also said that there would be no reason for holders of federal debt to ask the government to buy their bonds back at a discount. If that is so—and it is—then why say any of this?
The explanation is that Trump is winging it, making it up as he goes along just as he has through his career, which I have covered on and off for 27 years.
To those who understand economics, public finance and taxes, listening to Donald Trump talk about these issues is like listening to Sarah Palin talk about anything. The contradictions, the baseless assumptions, the meandering sentences that veer off into nowhere belong more in the fictional world of “Alice in Wonderland” where, as the Cheshire cat advised, “it really doesn’t matter which way you go” in search of the White Rabbit, but you could ask the Mad Hatter or the equally mad March Hare.
You might think that after decades of planning a run for the White House—after all, he did run in 2000 as a Reform Party candidate—Trump would have developed a clear set of views on economics. You might think he would have devoured policy papers, retained top experts and tested out ideas in speeches heard by few. You might think he would have polished and logical lines by now.
But that would require treating these issues as matters deserving of serious study. Absent such study, it is no surprise that much of what Trump says confounds those who have spent their lives studying economics, public finance, taxes and history.
Whatever Trump may have learned in college, his flip-flopping and wavering suggest that Trump saw no need to prepare to be president. It’s as if a chef decided he didn’t need to learn how to cook before pulling off a White House State Dinner.
Trump just tosses concepts into a pot. He starts with made-up numbers (our China trade deficit is $338 billion, not Trump’s $500 billion); adds some brazen conspiracy theories (Obama was not born an American citizen); mixes them with irreconcilable vagaries (taxes should go down, but so should budget deficits); tosses in some populist myths (thousands in North Jersey celebrated as the Twin Towers burned) and rotten ideas (the President telling Carrier, Ford and Nabisco where to build factories)—and finishes it all off with a bucket of rhetorical nonsense.
Trump is superb at one aspect of this. His economic stew would induce economic food poisoning, but he sells it with an appealing name: Make America Great Again.
By: David Cay Johnston, The Daily Beast, May 10, 2016
“Nobody Wins A Trade War”: Donald Trump And Bernie Sanders Are Promoting Dangerous Protectionism
As different as Donald Trump and independent Vermont Sen. Bernie Sanders are, they have one important policy goal in common. It’s a dangerous goal, one that elites in both parties must counter, before a new public consensus is formed and grave damage is done to the economy.
Both Trump and Sanders are, at their heart, protectionists. They both believe in tariffs and other obstacles to prevent foreign-made goods from competing with American-made goods, and keep foreign worker salaries from driving down Americans’ pay. Trump is the most direct and vocal about it, calling for tariffs as high as 45 percent against China. Sanders has yet to call for a specific tariff, but he’s called for repealing the North American Free Trade Agreement with Canada and Mexico. Eliminating NAFTA would restore tariffs that ranged up to 25 percent and lead to other measures that hinder trade between countries.
At first glance, it seems like a great idea to raise tariffs to protect American workers from globalization. But nearly all economists say that protectionism is a beast that will gore us if set loose. Protectionist measures by the U.S. will lead to reprisals by other countries and the tit-for-tat escalation of tariffs in a trade war will likely lead to a global depression (as it did in the 1930s). And even when protectionism is successful in boosting wages, it boosts consumer prices even faster, so most workers are no better off.
All this is generally accepted by leaders and advisers in both the Democratic and Republican parties. But the downside of protectionism is complicated and not well understood by the public, whereas the call for tariffs and border-closings (Trump’s Mexican wall) is simple and emotionally resonant. Hence the problem: In political communications, it’s well known that if a falsehood is not promptly and effectively countered by respected senior public figures, it tends to become accepted as true by the public at large, regardless of the damage it may cause.
This time, the public will not accept that so-called free trade alone will restore rising standards of living and breathe new life into the American dream. Most working Americans, all except those at the top, have seen their standard of living erode over the past 30 years, and “trust me” is no longer an adequate response. That’s why insider candidates – former Secretary of State Hillary Clinton, former Florida Gov. Jeb Bush and others associated with the failed status quo – are doing poorly, and outsider candidates are drawing far more support than expected.
To prevent a protectionist insurgency from wrecking the economy, the candidates who represent mainstream economic thinking need to do better. They need to offer more than a reminder of the Smoot-Hawley Tariff Act of 1930. Unfortunately neither party is well positioned to do this. Clinton has the albatross of NAFTA hung firmly around her neck, since her husband championed it while president. And until very recently, she’s been a strong supporter of the latest proposed trade treaty, the Trans-Pacific Partnership – which is pushed by President Barack Obama and supported by a wide range of Democrat-aligned pundits.
At the same time, those in the Republican mainstream have either ignored stagnant wages, or they’ve blamed them on excessive taxes and red tape. That has convinced enough voters to date. But Americans have been tugging on their boot straps for several decades now without effect, and they are not inclined to believe that if they only tug a little longer or a little harder they will be themselves lifted up. Just as Clinton is not well positioned to be credible on this issue, neither is former Massachusetts Gov. Mitt Romney, who has made much of his fortune by eliminating American jobs. The public senses this. That’s part of the reason Romney’s broadside against Trump had so little effect.
If Democrat and Republican elites intend to stave off a wave of protectionism, it’s time for some serious public discussion of alternatives that can meaningfully help ordinary working Americans and their families. The possibilities fall into three categories: The first involves investments that boost American productivity directly, like education and infrastructure. The second category requires steps that boost American incomes directly like radically expanding the earned income tax credit or strengthening unions. The third category involves measures that reduce what workers have to pay out-of-pocket in order to live, so that stagnant wages go further. These measures include tax-shifting (reducing the employee share of the payroll tax, for example), making higher education free (as it is in of the developed countries we compete against) and government-matching of employee contributions to retirement plans, so employees don’t need to save as much of their income.
Most of these ideas are anathema to conservatives, and many are considered outside the range of legitimate ideas that serious Democratic thought leaders can safely discuss in public. But a trade war and the jingoism that goes with it might be even more distasteful and is almost certainly more damaging. It’s time for elites of both parties to begin discussing the undiscussable, if for no other reason than to avoid worse.
By: David Brodwin, Cofounder and Board Member of American Sustainable Business Council; U. S. News and World Report, March 14, 2016
“It’s Now The Canadian Dream”: It’s Time To Bring The American Dream Home From Exile
It was in 1931 that the historian James Truslow Adams coined the phrase “the American dream.”
The American dream is not just a yearning for affluence, Adams said, but also for the chance to overcome barriers and social class, to become the best that we can be. Adams acknowledged that the United States didn’t fully live up to that ideal, but he argued that America came closer than anywhere else.
Adams was right at the time, and for decades. When my father, an eastern European refugee, reached France after World War II, he was determined to continue to the United States because it was less class bound, more meritocratic and offered more opportunity.
Yet today the American dream has derailed, partly because of growing inequality. Or maybe the American dream has just swapped citizenship, for now it is more likely to be found in Canada or Europe — and a central issue in this year’s political campaigns should be how to repatriate it.
A report last month in The Times by David Leonhardt and Kevin Quealy noted that the American middle class is no longer the richest in the world, with Canada apparently pulling ahead in median after-tax income. Other countries in Europe are poised to overtake us as well.
In fact, the discrepancy is arguably even greater. Canadians receive essentially free health care, while Americans pay for part of their health care costs with after-tax dollars. Meanwhile, the American worker toils, on average, 4.6 percent more hours than a Canadian worker, 21 percent more hours than a French worker and an astonishing 28 percent more hours than a German worker, according to data from the Organization for Economic Cooperation and Development.
Canadians and Europeans also live longer, on average, than Americans do. Their children are less likely to die than ours. American women are twice as likely to die as a result of pregnancy or childbirth as Canadian women. And, while our universities are still the best in the world, children in other industrialized countries, on average, get a better education than ours. Most sobering of all: A recent O.E.C.D. report found that for people aged 16 to 24, Americans ranked last among rich countries in numeracy and technological proficiency.
Economic mobility is tricky to measure, but several studies show that a child born in the bottom 20 percent economically is less likely to rise to the top in America than in Europe. A Danish child is twice as likely to rise as an American child.
When our futures are determined to a significant extent at birth, we’ve reverted to the feudalism that our ancestors fled.
“Equality of opportunity — the ‘American dream’ — has always been a cherished American ideal,” Joseph Stiglitz, the Nobel-winning economist at Columbia University, noted in a recent speech. “But data now show that this is a myth: America has become the advanced country not only with the highest level of inequality, but one of those with the least equality of opportunity.”
Consider that the American economy has, over all, grown more quickly than France’s. But so much of the growth has gone to the top 1 percent that the bottom 99 percent of French people have done better than the bottom 99 percent of Americans.
Three data points:
• The top 1 percent in America now own assets worth more than those held by the entire bottom 90 percent.
• The six Walmart heirs are worth as much as the bottom 41 percent of American households put together.
• The top six hedge fund managers and traders averaged more than $2 billion each in earnings last year, partly because of the egregious “carried interest” tax break. President Obama has been unable to get financing for universal prekindergarten; this year’s proposed federal budget for pre-K for all, so important to our nation’s future, would be a bit more than a single month’s earnings for those six tycoons.
Inequality has become a hot topic, propelling Bill de Blasio to become mayor of New York City, turning Senator Elizabeth Warren into a star, and elevating the economist Thomas Piketty into such a demigod that my teenage daughter asked me the other day for his 696-page tome. All this growing awareness is a hopeful sign, because there are policy steps that we could take that would create opportunity and dampen inequality.
We could stop subsidizing private jets and too-big-to-fail banks, and direct those funds to early education programs that help break the cycle of poverty. We can invest less in prisons and more in schools.
We can impose a financial transactions tax and use the proceeds to broaden jobs programs like the earned-income tax credit and career academies. And, as Alan S. Blinder of Princeton University has outlined, we can give companies tax credits for creating new jobs.
It’s time to bring the American dream home from exile.
By: Nicholas Kristof, Op-Ed Columnist, The New York Times, May 14, 2014
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