So now that Donald Trump has secured the Presidency (albeit despite continued attempts to wrest it from him via the Electoral College) the big question on everyone’s mind is, what about the economy? Despite an expansion getting long in the tooth and despite the likelihood that Trump will have a significant recession on his watch, the fact is that he could have a significantly positive impact on the U.S. economy.
Firstly, he seems to be indicating that he is serious about cutting regulation and reducing the number of civil servants. Those excited and/or fearful that the country is about to change are right to be so. In the postwar period, the federal regulatory state and the federal civil service have grown. Rather than restructure regulations to reflect a changing economy, regulations have been piled on regulations. If we were starting from scratch today, we would not design a regulatory state like the one we currently have. Also, the federal civil service has grown to administer the increasing amounts of regulation. The point is that government functions largely as it did in the 1950’s, whereas the private sector has had a couple of retoolings during that period. All of these regulations not only add to the cost of doing business and inhibit growth, but they foster industries designed to help the private sector manage through these regulations. These jobs are effectively non-economically productive jobs, thereby depriving the economy of productive workers. By dramatically reducing regulations and even shutting down some government departments, Trump can expand the productive capacity of the American economy.
Secondly, Trump is looking to decrease the corporate tax rate. While there is a case to be made that perhaps Trump will lower it too far, the fact is that the U.S. has one of the highest corporate tax rates in the industrialized world. Businesspeople have been complaining about this for many years. By lowering the tax rate, Trump can make the U.S. more competitive in attracting investment, and by extension, jobs.
Thirdly, international trade has been the one area where Trump has received most of his serious economic criticism. For those like myself who have been trained in neo-liberal theory, the idea of erecting trade barriers seems tailor made to reduce economic growth, possibly through the start of a trade war. The problem with the theory in the real world is that it assumes that people who are displaced in one industry can easily move over and be employed in another industry. At the time that theory was birthed in the first half of the 19th century, that was a reasonable assumption. A laborer with a strong back and average intelligence could be tasked with many of the jobs then available. However, today most jobs are highly specialized meaning that if you lose one, going into another industry means that you will likely have to start all over at the bottom and work your way up to a similar position. This is one of many reasons that while jobs have gone overseas, they have not been replaced by equal or better jobs. The trade agreements that have been signed over the last 30 years have taken away jobs (and lowered prices), but those jobs haven’t been replaced. By renegotiating the deals with an eye on obtaining a better deal for America’s workers, Trump can bring some jobs back to the U.S.
In short, Trump’s economic plans, might perhaps, help the U.S. economy in the long run. Whether it will help or not really depends on what regulations are eliminated, to what extent they are eliminated, and what the new trade deals look like. It is possible that these moves could leave the U.S. worse off, if they are not handled right. But if handled right, they could leave the U.S. even better off. We have been told over the last few years that a low growth world is the best that the U.S. can do, and that we had better just get used to it. A massive reduction in the corporate tax rate, a massive reduction in the regulatory state, and fair (rather than free) trade deals would remake the U.S. economic landscape. The impact on the U.S. economy, if these policies are implemented, could be huge.