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“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

May 12, 2016 Posted by | Donald Trump, Economic Policy, Federal Debt | , , , , , , , , | Leave a comment

“Barking Up The Wrong Tree”: Ted Cruz Keeps Talking About ‘Wages’ — But He Won’t Support Raising Them

“Washington” is keeping wages down and impoverishing the American middle class, at least according to Ted Cruz, who has adopted economic populism as a line of attack against the political establishment as a routine part of his stump speech in recent months.

The Texas senator has tried to link rival Donald Trump to Democratic frontrunner and perennial enemy of the American right, Hillary Clinton. But the argument that the federal government, and by extension the Obama administration, was responsible for the decline in wages of American workers, was yet another baseless charged levied against a rhetorically-convenient “Washington establishment.”

Where to start. It’s unclear whether or not Cruz believes in a minimum wage. He has argued against a minimum wage, saying it leads to job losses among American minority groups. “Every time we raise the minimum wage, predictably what happens is a significant number of people lose their jobs, and they’re almost always low-income, they’re often teenagers, African Americans and Hispanics,” he said, voicing concern for demographic groups that are unlikely to vote for him anyhow, and for whom his policies don’t reflect the concern of his talking points.

In Cruz’s mind, the minimum wage is best left to the states. While he assails the loss of American jobs, sounding much like a vague, rehearsed mashup of Donald Trump and Bernie Sanders in their criticism of outsourcing, his policies have a different end in mind: employment above all else.

“I think it’s bad policy,” said Cruz on CNBC, criticizing the existence of a minimum wage. “And you know, one observation I make to folks is next time you go to a fast food restaurant and you start ordering on an iPad, you’re seeing the minimum wage.”

During a Senate hearing in 2014, Cruz spoke out against President Barack Obama’s proposed federal wage increase to $10.10. He said:

The undeniable reality, the undeniable truth, is if the President succeeded in raising the minimum wage it would cost jobs for the most vulnerable. The people who have been hurt by this Obama economy would be hurt worse with the minimum wage proposal before this body. In 2013 the President in his State of the Union address proposed raising the minimum wage to $9.00. Now a year later the request has magically changed to $10.10. The only reason (there’s no economic justification) the only reason is politics. And I suppose if the approval ratings of democratic members of this body continue to fall in another month we’ll see a proposal for $15.00 an hour and then maybe $20.00 or $25.00 an hour. But I think the American people are tired of empty political show votes. The nonpartisan congressional budget office says that raising the minimum wage could cost a loss of 500,000 to 1 million jobs.

Cruz is barking up the wrong tree. It is not the $7.25 an hour minimum wage that made companies like Carrier, whose managers were infamously recorded laying off 1,400 at its Indianapolis plant earlier this year, outsource those jobs to Mexico. As the Economic Policy Institute pointed out in a 2003 report, NAFTA resulted in a period of job growth in the U.S. between 1994 and 2000. But starting in 2001, jobs started disappearing. “Job losses have been primarily concentrated in the manufacturing sector, which has experienced a total decline of 2.4 million jobs since March 2001,” read the institute’s report. “As job growth has dried up in the economy, the underlying problems caused by U.S. trade deficits have become much more apparent, especially in manufacturing.” It pointed to systemic turmoil in internationalized labor markets, the result of free trade agreements, which allow companies to move to where living costs (and thus labor) are cheapest.

But for Cruz, the problem has always been the minimum wage, despite evidence to the contrary: Another EPI report released in 2013 outlining the benefits of increasing the minimum wage to $10.10 concluded, “Raising the federal minimum wage to $10.10 by 2016 would lift incomes for millions of American workers and provide a modest boost to U.S. GDP.”

Despite the doomsday predictions from Cruz and the rest of the 2016 Republican field, the report also predicted large increases in employment. By increasing the federal minimum wage to at least $10.10, low wage earners would experience a recovery of real income the likes of which we haven’t seen in decades.

However, the federal minimum wage has not budged by even a penny, leaving wage increases largely to states or large American cities, exactly the sort of decentralized political process Cruz would be expected to support: Los Angeles, San Francisco, Seattle have all instituted $15 per hour minimum wages following concerted efforts by local organizations that stemmed partly from frustration over partisan gridlock in Washington. Both California and New York’s governors signed bills this year approving wage increases to the $15 an hour benchmark over a period of time. A total of 29 states, and Washington, D.C., have instituted their own minimum wages exceeding the federal minimum wage, as a result of slow progress on the federal level.

Since the minimum was last raised to $7.25 in 2009, it has lost 8.1 percent of its purchasing power as a result of inflation, according to Pew Research. The OECD has described the American minimum wage as an outlier amongst wealthy, industrialized nations — it should really be around $12, if we were to use GDP per capita as a guide. American workers are in desperate need of a minimum wage increase, not just poorly paid employment.

 

By: Saif Alnuweiri, The  National Memo, April 29, 2016

April 30, 2016 Posted by | Jobs, Minimum Wage, Ted Cruz | , , , , , , , , | Leave a comment

“Trade And Tribulation”: Protectionists Almost Always Exaggerate The Adverse Effects Of Trade Liberalization

Why did Bernie Sanders win a narrow victory in Michigan, when polls showed Hillary Clinton with a huge lead? Nobody really knows, but there’s a lot of speculation that Mr. Sanders may have gained traction by hammering on the evils of trade agreements. Meanwhile, Donald Trump, while directing most of his fire against immigrants, has also been bashing the supposedly unfair trading practices of China and other nations.

So, has the protectionist moment finally arrived? Maybe, maybe not: There are other possible explanations for Michigan, and free-traders have repeatedly cried wolf about protectionist waves that never materialized. Still, this time could be different. And if protectionism really is becoming an important political force, how should reasonable people — economists and others — respond?

To make sense of the debate over trade, there are three things you need to know.

The first is that we have gotten to where we are — a largely free-trade world — through a generations-long process of international diplomacy, going all the way back to F.D.R. This process combines a series of quid pro quos — I’ll open my markets if you open yours — with rules to prevent backsliding.

The second is that protectionists almost always exaggerate the adverse effects of trade liberalization. Globalization is only one of several factors behind rising income inequality, and trade agreements are, in turn, only one factor in globalization. Trade deficits have been an important cause of the decline in U.S. manufacturing employment since 2000, but that decline began much earlier. And even our trade deficits are mainly a result of factors other than trade policy, like a strong dollar buoyed by global capital looking for a safe haven.

And yes, Mr. Sanders is demagoguing the issue, for example with a Twitter post linking the decline of Detroit, which began in the 1960s and has had very little to do with trade liberalization, to “Hillary Clinton’s free-trade policies.”

That said, not all free-trade advocates are paragons of intellectual honesty. In fact, the elite case for ever-freer trade, the one that the public hears, is largely a scam. That’s true even if you exclude the most egregious nonsense, like Mitt Romney’s claim that protectionism causes recessions. What you hear, all too often, are claims that trade is an engine of job creation, that trade agreements will have big payoffs in terms of economic growth and that they are good for everyone.

Yet what the models of international trade used by real experts say is that, in general, agreements that lead to more trade neither create nor destroy jobs; that they usually make countries more efficient and richer, but that the numbers aren’t huge; and that they can easily produce losers as well as winners. In principle the overall gains mean that the winners could compensate the losers, so that everyone gains. In practice, especially given the scorched-earth obstructionism of the G.O.P., that’s not going to happen.

Why, then, did we ever pursue these agreements? A large part of the answer is foreign policy: Global trade agreements from the 1940s to the 1980s were used to bind democratic nations together during the Cold War, Nafta was used to reward and encourage Mexican reformers, and so on.

And anyone ragging on about those past deals, like Mr. Trump or Mr. Sanders, should be asked what, exactly, he proposes doing now. Are they saying that we should rip up America’s international agreements? Have they thought about what that would do to our credibility and standing in the world?

What I find myself thinking about, in particular, is climate change — an all-important issue we can’t confront effectively unless all major nations participate in a joint effort, with last year’s Paris agreement just the beginning. How is that going to work if America shows itself to be a nation that reneges on its deals?

The most a progressive can responsibly call for, I’d argue, is a standstill on further deals, or at least a presumption that proposed deals are guilty unless proved innocent.

The hard question to deal with here is the Trans-Pacific Partnership, which the Obama administration has negotiated but Congress hasn’t yet approved. (I consider myself a soft opponent: It’s not the devil’s work, but I really wish President Obama hadn’t gone there.) People I respect in the administration say that it should be considered an existing deal that should stand; I’d argue that there’s a lot less U.S. credibility at stake than they claim.

The larger point in this election season is, however, that politicians should be honest and realistic about trade, rather than taking cheap shots. Striking poses is easy; figuring out what we can and should do is a lot harder. But you know, that’s a would-be president’s job.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, March 11, 2016

March 13, 2016 Posted by | Bernie Sanders, Protectionism, Trade Agreements, Trans Pacific Partnership | , , , , , , , , | Leave a comment

   

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