Hello, investors. Come join the foreign policy experts in daily panic attacks over what a President Donald Trump would mean for your world. What does one do about a candidate whose tax plan would send America into the fiscal abyss — who flaps lips about not making good on the national debt?
Should we be investing in the makers of Xanax and Klonopin? And on the personal side, are there enough benzodiazepines to go around?
We’re not talking just about the very rich. Anyone with a retirement account or a small portfolio has something to lose. The economic consensus is that a Trump presidency would sink all boats. And that certainly applies to Trump’s own economically struggling followers in the least seaworthy craft.
“Most Rust Belt working-class Americans don’t get it,” Bob Deitrick, CEO of Polaris Financial Partners in Westerville, Ohio, told me. “The working class thinks he’s going to stick it to the elites.”
The facts: The Trump tax plan would deliver an average tax cut of $1.3 million to those with annual incomes exceeding $3.7 million. The lowest-income households would get $128. (No missing zeros here.)
Folks in the middle would see federal taxes reduced by about $2,700, which sounds nice but would come out of their own hide. Medicare and other programs that benefit the middle class would have to be slashed. So would spending on science research, infrastructure and services essential to the U.S. economy.
Or we could skip the very deep spending cuts and see the national debt balloon by nearly 80 percent of gross domestic product, calculation courtesy of the Tax Policy Center.
Some might think that Trump’s tax plan — including the repeal of the federal tax on estates bigger than $5.43 million — would impress the income elite, but they would be wrong. In a recent poll of Fortune 500 executives, 58 percent of the respondents said they would support Hillary Clinton over Trump.
Most in this Republican-leaning group are undoubtedly asking themselves: What good is a fur-lined deck chair if the ship’s going down?
Then there are the others.
“Do middle-class Americans have any idea what could happen to the economy or the stock market if our president ever vaguely suggested defaulting on the national debt?” Deitrick asked. (His clients tend to be upper-middle-class investors.)
He recalls the summer of 2011, when a congressional game of chicken over raising the federal debt ceiling led to the possibility of a default. The Dow lost 2,400 points in a single week. And taxpayers were hit with $1.3 billion in higher borrowing costs that year alone.
Trump said on CNN that he is the “king of debt,” which in practice means he frequently doesn’t honor it. That’s why many major lenders shun him, talking of “Donald risk.”
Speaking of, Trump famously said in a Trump University interview, “I sort of hope (the real estate market crashes), because then people like me would go in and buy.”
But he also predicted that the real estate market would not tank — shortly before it did. Perhaps he never figured out there was a housing bubble. Or it was part of a clever scheme to peddle real estate courses with brochures asking, “How would you like to market-proof your financial future?”
Imagine a whole country taking on “Donald risk.”
The business community runs on stability. It can’t prosper under a showman who says crazy things and denies having said them moments later. A Trump presidency promises more chaos than a Marx Brothers movie — and you can believe it would be a lot less fun.
By: Froma Harrop, The National Memo, June 7, 2016
When economic crisis struck in 2008, policy makers by and large did the right thing. The Federal Reserve and other central banks realized that supporting the financial system took priority over conventional notions of monetary prudence. The Obama administration and its counterparts realized that in a slumping economy budget deficits were helpful, not harmful. And the money-printing and borrowing worked: A repeat of the Great Depression, which seemed all too possible at the time, was avoided.
Then it all went wrong. And the consequences of the wrong turn we took look worse now than the harshest critics of conventional wisdom ever imagined.
For those who don’t remember (it’s hard to believe how long this has gone on): In 2010, more or less suddenly, the policy elite on both sides of the Atlantic decided to stop worrying about unemployment and start worrying about budget deficits instead.
Some of us tried in vain to point out that deficit fetishism was both wrongheaded and destructive, that there was no good evidence that government debt was a problem for major economies, while there was plenty of evidence that cutting spending in a depressed economy would deepen the depression.
And we were vindicated by events. More than four and a half years have passed since Alan Simpson and Erskine Bowles warned of a fiscal crisis within two years; U.S. borrowing costs remain at historic lows. Meanwhile, the austerity policies that were put into place in 2010 and after had exactly the depressing effects textbook economics predicted; the confidence fairy never did put in an appearance.
Yet there’s growing evidence that we critics actually underestimated just how destructive the turn to austerity would be. Specifically, it now looks as if austerity policies didn’t just impose short-term losses of jobs and output, but they also crippled long-run growth.
The idea that policies that depress the economy in the short run also inflict lasting damage is generally referred to as “hysteresis.” It’s an idea with an impressive pedigree: The case for hysteresis was made in a well-known 1986 paper by Olivier Blanchard, who later became the chief economist at the International Monetary Fund, and Lawrence Summers, who served as a top official in both the Clinton and the Obama administrations. But I think everyone was hesitant to apply the idea to the Great Recession, for fear of seeming excessively alarmist.
At this point, however, the evidence practically screams hysteresis. Even countries that seem to have largely recovered from the crisis, like the United States, are far poorer than precrisis projections suggested they would be at this point. And a new paper by Mr. Summers and Antonio Fatás, in addition to supporting other economists’ conclusion that the crisis seems to have done enormous long-run damage, shows that the downgrading of nations’ long-run prospects is strongly correlated with the amount of austerity they imposed.
What this suggests is that the turn to austerity had truly catastrophic effects, going far beyond the jobs and income lost in the first few years. In fact, the long-run damage suggested by the Fatás-Summers estimates is easily big enough to make austerity a self-defeating policy even in purely fiscal terms: Governments that slashed spending in the face of depression hurt their economies, and hence their future tax receipts, so much that even their debt will end up higher than it would have been without the cuts.
And the bitter irony of the story is that this catastrophic policy was undertaken in the name of long-run responsibility, that those who protested against the wrong turn were dismissed as feckless.
There are a few obvious lessons from this debacle. “All the important people say so” is not, it turns out, a good way to decide on policy; groupthink is no substitute for clear analysis. Also, calling for sacrifice (by other people, of course) doesn’t mean you’re tough-minded.
But will these lessons sink in? Past economic troubles, like the stagflation of the 1970s, led to widespread reconsideration of economic orthodoxy. But one striking aspect of the past few years has been how few people are willing to admit having been wrong about anything. It seems all too possible that the Very Serious People who cheered on disastrous policies will learn nothing from the experience. And that is, in its own way, as scary as the economic outlook.
By: Paul Krugman, Op-Ed Columist, The New York Times, November 6, 2015
“From Deep Inside The Fold”: Donald Trump Isn’t A Republican Traitor; He’s Giving Primary Voters Exactly What They Want
As panic sets in among Republicans at the prospect of Donald Trump either winning the GOP nomination, dividing the right by bolting the party to run as an independent, or merely trashing the rest of the field without restraint for the next six months before imploding, a narrative is taking hold among conservatives that’s equal parts self-protective and self-pitying. Trump, in this telling, isn’t really a Republican at all. He’s some extra-partisan saboteur who’s looking to blow up the GOP for his own purposes.
It’s true that Trump’s issue matrix (very far right on immigration, more centrist or pragmatic on entitlements and taxes, hawkish on foreign policy while denouncing the Iraq debacle without hedging) is not one that’s typically embraced by Republican presidential contenders. Yet conservatives are being too easy on themselves when they treat Trump as some force of nature that came out of nowhere or an anti-Republican conspiracy hatched in cahoots with the Clintons.
Trump may not precisely endorse the constellation of policies favored by either the GOP establishment or its reformist wing. But he’s not an ideological apostate arbitrarily endorsing idiosyncratic positions with no plausible connection to the conservative movement. On the contrary, he’s pushing a program that amounts to a distinctively Republican heresy.
Let’s start with immigration. It’s easy for members of the Republican establishment to see Trump’s position as anathema on this issue because they tend to oppose immigration restrictions — because they’re cosmopolitan elites, because they think the party desperately needs Hispanic votes to remain competitive, and because they’re beholden to a donor class that overwhelmingly favors allowing low-wage workers into the country.
But a party is nothing without voters, and the GOP’s overwhelmingly white and disproportionately rural voters — the actual foot soldiers of the party — take a polar opposite view on the issue. It was their revolt that sank immigration reform after the 2012 election, and it’s their support that is buoying Trump’s campaign. The establishment might not like it, but the fact is that Trump is never more in line with Republican voters than when he rails against undocumented immigrants and their ”anchor babies.”
Trump is exploiting another tension between the GOP elite and the grassroots on issues of tax cuts and government spending on entitlements. The Republican establishment is relatively consistent in its hostility to big government, preferring to cut taxes along with spending, with the latter ideally accomplished by such reforms as partial privatization of Social Security and the transformation of Medicaid into a program that hands out block grants.
The Republican base is far less consistent. It wants to cut taxes, and it likes speeches that rail against government spending. But when it comes to making real-world spending cuts, GOP voters (who tend to be older than Democrats and therefore more dependent on government programs that aid the elderly) agree with the person who famously (and absurdly) declared, ”Keep your government hands off my Medicare!” The grassroots want a free lunch, in other words, which is one important reason why the federal budget deficit has soared under every Republican president since Ronald Reagan.
Add in a growing willingness on the right to see the rich pay more in taxes, and Trump’s seemingly off-sides positioning begins to make sense in Republican terms. Yes, the mix of support for tax cuts and hikes, spending cuts and entitlement protections that one finds in the GOP base is contradictory, even incoherent. But it’s where conservative voters are, and Trump is the one candidate promising to give them exactly what they want.
Then there’s Trump’s blustery approach to foreign policy and trade relations: ”Elect me,” he seems to be saying, ”and I’ll be the toughest negotiator you’ve ever seen. I’ll get my way by sheer force of indefatigable will.” But of course, the Republican toughness fetish set in a long time before Trump. Ever since the Sept. 11 attacks and George W. Bush’s cowboy swagger and “Dead or Alive” threats to Osama bin Laden, the GOP has been obsessed with projecting strength — and assuming that the U.S. is bound to get its way if only the president unapologetically drives the hardest bargain at every moment. Trump is merely proving to be marginally more convincing than his rivals on this score because he’s been cultivating an omniconfident image in the public eye for decades.
Finally, we have Trump’s campaign slogan: ”Make America Great Again!” Calling the country ”great” is as American as apple pie, of course, but it was given new force in the late 1990s by the second-generation neocons, who championed an ideology they called National Greatness Conservatism. By now, nothing could be more commonplace than for a Republican to praise America’s super-duper, better-than-everyone-else exceptionalism.
Trump’s only modest innovation is to add the word ”again,” which grows out of the discontent with Barack Obama that’s laced through every speech Ted Cruz has ever given. Turn on right-wing talk radio any day of the year and you’ll hear hosts railing against American decline, which (as Charles Krauthammer put it during Obama’s first term) is a deliberate ”choice” that the current president is actively, even enthusiastically, pursuing. The amazing thing is that no one else thought to grab (and trademark) this GOP cliché for a campaign slogan before now.
Donald Trump might scramble the pieces of the Republican coalition and emphasize different policies than the party’s leadership would prefer, but he’s not a traitor to the GOP. He’s a heretic — one whose heterodoxy comes from deep inside the Republican fold.
By: Damon Linker, The Week, September 1, 2015
“Greece’s Economy Is A Lesson For Republicans In The U.S.”: The Toxic Combination Of Austerity With Hard Money
Greece is a faraway country with an economy roughly the size of greater Miami, so America has very little direct stake in its ongoing disaster. To the extent that Greece matters to us, it’s mainly about geopolitics: By poisoning relations among Europe’s democracies, the Greek crisis risks depriving the United States of crucial allies.
But Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment. And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman.
To understand the real lessons of Greece, you need to be aware of two crucial points.
The first is that the “We’re Greece!” crowd has a truly remarkable track record when it comes to economic forecasting: They’ve been wrong about everything, year after year, but refuse to learn from their mistakes. The people now saying that Greece offers an object lesson in the dangers of government debt, and that America is headed down the same road, are the same people who predicted soaring interest rates and runaway inflation in 2010; then, when it didn’t happen, they predicted soaring rates and runaway inflation in 2011; then, well, you get the picture.
The second is that the story you’ve heard about Greece — that it borrowed too much, and its excessive debt led to the current crisis — is seriously incomplete. Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.
Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.
Today, however, Greek debt is over 170 percent of G.D.P. and still rising. Is that because Greece just kept on borrowing? Actually, no — Greek debt is up only 6 percent since 2009, although that’s partly because it received some debt relief in 2012. The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.
Does this mean that austerity is always self-defeating? No, there are cases — for example, Canada in the 1990s — of countries that slashed their debt while maintaining growth and reducing unemployment. But if you look at how they managed this, it involved combining fiscal austerity with easy money: Canada in the ’90s drastically reduced interest rates, encouraging private spending, while allowing its currency to depreciate, encouraging exports.
Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.
So who wants to impose that kind of toxic policy mix on America? The answer is, most of the Republican Party.
On one side, just about everyone in the G.O.P. demands that we reduce government spending, especially aid to lower-income families. (They also, of course, want to reduce taxes on the rich — but that wouldn’t do much to boost demand for U.S. products.)
On the other side, leading Republicans like Representative Paul Ryan incessantly attack the Federal Reserve for its efforts to boost the economy, delivering solemn lectures on the evils of “debasing” the dollar — when the main difference between the effects of austerity in Canada and in Greece was precisely that Canada could “debase” its currency, while Greece couldn’t. Oh, and many Republicans hanker for a return to the gold standard, which would effectively put us into a euro-like straitjacket.
The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s right. Because if the right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 10, 2015
“The GOP Primary Is Where Ideas Go To Die”: You Can’t Be A Smart Candidate In A Party That Wants To Be Stupid
So now we have us some candidates, on the Republican side. Who’s the big kahuna? Jeb Bush? He keeps getting called front-runner, and I suppose he is, even though the polls sometimes say otherwise. Scott Walker? Certainly a player. Rand Paul? Pretty bad rollout, but he has his base. The youthful, advantageously ethnicized Marco Rubio? Some as-yet-unannounced entrant who can hop in and shake things up?
Each has a claim, sort of, but the 800-pound gorilla of this primary process is none of the above. It’s the same person it was in 2008, and again in 2012, when two quite plausible mainstream-conservative candidates had to haul themselves so far to the right that they ended up being unelectable. It’s the Republican primary voter.
To be more blunt about it: the aging, white, very conservative, revanchist, fearful voter for whom the primary season is not chiefly an exercise in choosing a credible nominee who might win in November, but a Parris Island-style ideological obstacle course on which each candidate must strain to outdo his competitors—the hate-on-immigrants wall climb, the gay-bashing rope climb, the death-to-the-moocher-class monkey bridge. This voter calls the shots, and after the candidates have run his gauntlet, it’s almost impossible for them to come out looking appealing to a majority of the general electorate.
You will recall the hash this voter made of 2012. He booed the mention of a United States soldier during a debate because the soldier happened to be gay. He booed contraception—mere birth control, which the vast majority of Republican women, like all women, use. He lustily cheered the death penalty. He tossed Rick Perry out on his ear in part because the Texas governor had the audacity to utter a few relatively humane words about children of undocumented immigrants. He created an atmosphere in which the candidates on one debate stage were terrified of the idea of supporting a single dollar in tax increases even if placed against an offsetting $10 in spending cuts.
He is a demanding fellow. And he is already asserting his will this time around. Why else did Bush endorse Indiana Governor Mike Pence’s religious freedom bill in an instant, only to see Pence himself walk the bill back three days later? Bet Jeb would like to have that one back. But he can’t. The primary voter—along of course with the conservative media from Limbaugh and Fox on down—won’t permit it.
Now, as it happens, some of these candidates come to us with a few serious and unorthodox ideas. We all know about Rand Paul and his ideas about sentencing reform and racial disparities. He deserved credit for them. He was a lot quicker on the draw on Ferguson than Hillary Clinton was. But how much do we think he’s going to be talking up this issue as the Iowa voting nears? Time might prove me wrong here, but Paul has already, ah, soul-searched his way to more standard right-wing positions on Israel and war, so there’s reason to think that while he might not do the same on prison issues, he’ll just quietly drop them.
More interesting in this regard is Rubio. I read his campaign book not long ago, along with five others, for a piece I wrote for The New York Review of Books. Rubio’s book was the best of the lot by far. It was for the most part actually about policy. He put forward a few perfectly good ideas in the book. For example, he favors “income-based repayment” on student loans, which would lower many students’ monthly student-loan bills. It’s a fine idea. The Obama administration is already doing it.
Beyond the pages of the book, Rubio has in the past couple of years staked out some positions that stood out at the time as not consisting of fare from the standard GOP menu. He’d like to expand the Earned Income Tax Credit to more childless couples. Again, there are synergies here with the current occupant of the house Rubio wants to move into—the Obama administration is taking up this idea.
Now, there is to be sure another Rubio, one who’d feel right at home on Parris Island. He is apparently now the quasi-official blessed-be-the-warmakers candidate, with his reflexive hard lines on Iran and Cuba. Along with Senate colleague Mike Lee of Utah, he also has put forth a tax plan that would deplete the treasury by some $4 trillion over 10 years—for context, consider that George W. Bush’s first tax cut cost $1.35 trillion over a decade—in order that most of those dollars be placed in the hands where the Republicans’ God says they belong, i.e., the 1 percent of the people who already hold nearly half the country’s wealth.
I think it’s a safe bet that we’ll see the neocon Rubio and the supply-side Rubio out on the stump. But the Rubio who wants to make life better for indebted students and working-poor childless couples? Either we won’t see that Rubio at all, or we will see him and he’ll finish fourth in Iowa and New Hampshire and go home. You can’t be a smart candidate in a party that wants to be stupid.
Might I be wrong about the primary voter? Sure, I might. Maybe the fear of losing to Hillary Clinton and being shut out of the White House for 12 or 16 consecutive years will tame this beast. But the early signs suggest the opposite.
After all, how did Scott Walker bolt to the front of the pack? It wasn’t by talking about how to expand health care. It was by giving one speech, at an event hosted by one of Congress’ most fanatical reactionaries (Steve King of Iowa), bragging about how he crushed Wisconsin’s municipal unions. That’s how you get ahead in this GOP. I’d imagine Rubio and Paul and the rest of them took note.
By: Michael Tomasky, The Daily Beast, April 15, 2015