Trumponomics Can Spell George W. Bush-type Apocalypse

-A +A
0

 

Trump -- smooth operation?
 
[Economic Commentary]
 
In fairness to all and with consideration to what follows, I had opposed Trump’s election for many reasons.  Many of them were social. Many of those reasons were economic. Historically, I have looked at the moves of governments and businesses with the understanding that there were some decisions that just didn’t make long term sense and would never be acted upon. Unfortunately, experience teaches otherwise. 
 
The recent 5% run up in the stock markets sending the Dow Jones industrial averages over 20,000 for the first time ever are given to Trump’s election, but more realistically, they are the result of the improvements in the economy as a result of the drop in unemployment to what is considered "structurally full employment," consumer confidence
--the result of increasing and anticipated increases in wages-- lower gas prices and higher healthcare benefits.
 
These conditions halved to an increase in revenues, which have been the missing ingredient for GDP growth. For most of the Obama terms, GDP had grown at a snail’s pace, as the nation sought to pay for the pillages by banks during the George W. Bush administration. At one point, the estimate for bank payoffs was a trillion dollars. Then Fed Chairman Ben Bernanke and Congressional committees agreed that blind repayments to the banks were needed to prevent collapse of the banking system, which, it was argued, would bankrupt the country and lead to political instability. Much of this debt we still carry, though the institutions that received funds, for the most part, claim the monies have been returned with profits.
 
In the Alan Greenspan era, prosperity was defined in terms of "productivity"; that is, the number of man hours required to produce a given quantity of goods.  With the advent of the computer-internet generated economy, jobs were lost to the advantages of the cyber world. Further, with historic trade agreements in effect, jobs were lost to countries that hired factory workers for less. Hence, that which couldn’t be substituted by capital was exported for low cost.
 
In the meantime, prices on food, gas and healthcare escalated. Food, gas, and healthcare commodities are considered too volatile to be considered in basic inflation measures.
With job loss and increases in basic necessity prices, we entered into the "great recession."  Unemployment reached double digit levels officially at 10% (up to 20% depending on who was measuring) and "underemployment” (jobs for which employees are grossly overqualified and taken of necessity or unemployed) breached 20% of the working population easily.
 
Factory jobs were permanently lost due to either technology or export. This created an overall decline of GDP growth, which manifest in lack of corporate revenue. We had the most efficient factories in the world. For years, the U.S. GDP increase was based on lower cost of production; but our collective standard of living declined.
 
Politically, this lead to demonstrations against "the one-percenters," who gained as stock prices and other asset classes rose. It was noted in the business press that growth was unsustainable in those circumstances; business would need revenues to generate profits.
 
Coincidentally, there was movement for a federal mandate to raise the minimum wage across the country, near-term to $10 per hour, graduating to $15 per hour. Unemployment has declined as the U.S. went from a manufacturing to a service economy. Though salaries are subdued from the $50,000 per year blue collar level to the $30,000 service job level, people are seeing employment rise. Hence, we have seen an increase in consumer confidence and consumption, which represents some 70% of GDP.
 
The new reality is that the Donald Trump election looks to change the current picture considerably. Trump appointees do not only embrace the business management philosophies, but are the personification of those philosophies. As a rule, they are very conservative and are already taking predictable steps. Trump's vice president, Mike Pence, is a religious right wing. He is critical of conventional school systems, favoring charter schooling and vouchers for parochial and private schooling. He has given tax breaks as governor of Indiana to companies that have exported jobs.
 
Trump’s chief strategist and senior counselor, Steve Bannon is self-described "alt-right", which embraces the American Nazi Party and the Ku Klux Klan. Trump's chief of staff is Tea Partyer and RNC chair Reince Preibus.
 
There are several reasons that all this can lead to troubled times going forward. At 70% of GDP, any significant drop in consumption almost by definition leads to recession. Trump promises to compensate for blue collar jobs lost to mechanization and outsourcing with infrastructure jobs and a lower tax rate. He has been all over the map relative to
the minimum wage, but his staff has ardently opposed any increases. 
 
The state of Tennessee has already embraced "right to work" status and repeal of the $10 minimum wage. If the Carrier deal represents Trump's plans for keeping jobs here, it leaves much to be desired. First, Vice President Pence, while governor, traded $7 million in incentives for the jobs. Of the 1,100 jobs Trump claims to have saved, 300 were never
up for discussion. According to the Washington Post, that number comes to 730 with many of those jobs to be lost to automation.
 
Meanwhile, an additional 700 jobs from another Indiana United Technologies plant (the mother company of Carrier Corp.) will disappear. This kind of move augers increases in productivity at the expense of government with the loss of tax revenue. Trump’s administration is going to take a big swing at Obamacare.  I had originally thought that  Obamacare would be scrapped for an identical Trumpcare or maybe a revised Affordable Care Act.
 
It seems that the current plan is to repeal without any substitute. This will hurt those who stood to benefit from a lowered-cost insurance.  It will leave many uninsured, causing postponement of medical care and leading to more expensive hospital emergency care treatment. This becomes even more problematic as other costs rise and a competition ensues between, for example, the cost of gas to get to work and the cost of medicine.
 
With Trump’s more aggressively pro-Israel, anti-Palestine stand, it is likely that we will see an increase in terrorism and petroleum prices. While hydraulic fracturing (fracking) have lowered the cost of oil to $45 from the $60 range per barrel, there have been significant consequences. There has been considerable leakage into public water systems and earthquakes have occurred in Oklahoma that have been directly attributed to fracking.
 
In the meantime, Trump’s EPA choice, Scott Pruitt, has been active in the attempt to dismantle the agency.  He has referred to green house gas effects as "largely fictitious". Therefore, we can anticipate support for the current carbon based fuel production model.  We are already seeing disastrous results. Aside from the Oklahoma earthquakes, which we are told will increase in severity, we are seeing increases in sea levels and temperatures.
 
There is no guessing in a Trump presidency.  He was clear on his agenda during his campaign and is consistent in the aftermath. He has retreated from the Trans-Pacific Partnership, announced review of NAFTA with Mexico and Canada, undermined Obamacare and endorsed the Dakota Access pipeline and the Keystone pipeline.
 
The secretary-designate of the Energy department former Texas governor Rick Perry had vowed to abolish that agency and the recent- chair of Exxon, Rex Tillerson, now heads the department of state. 
 
Trump has announced his intent to move the Israeli embassy to Jerusalem, while endorsing the Israeli settlements and after meeting Israel's prime minister Benjamin Netanyahu this week he even said he wouldn't oppose abandoning the two-state solution.
 
Kentucky has become a right to work state as Trump’s head of Labor secretary-designate opposes minimum wages. In short, everything that Obama has built looks to be dismantled by the Trump vision.  Even as the U.S. is at "full employment", with unemployment floating around 4.7%, Trump has promised jobs in both manufacturing and
infrastructure.  With automobiles selling at the 17 million units annual level, we are at record levels of production. That said, capacity utilization is at 75.4%, a hair above last year’s and a full 10% below highs.
 
This means that even with this level of use, there is still unused manufacturing potential. Trump is counting on an increased utilization number and infrastructure and construction to raise personal revenues enough to offset tax cut to corporations. During the campaign he spoke of lowering corporate rates to 15% from 35%.
 
The question here is how much that capacity would require labor (employees) versus capital (machines). But if low-skilled workers can’t get blue collar opportunities, the "right to work" and lower wage jobs will push the economy back into the high-productivity low-revenue scenario that we have just exited.
 
I don’t believe that a pickup in heavy industry projects will hit as quickly as "right to work" laws. This means lower paychecks and job losses from productivity.  I have seen practical brick-laying machines and can imagine robots taking other blue collar roles.
 
The Republican emphasis on shrinking government will see massive government layoffs, outside of policing and military- related jobs. Government is one of the largest employers in the country. Criminal justice (prisons and patrolling) will see more privatization, but these jobs are typically lower-paying and have fewer benefits than government jobs. Though the results may be socially displeasing, the costs will become punishing as companies find the true cost of containment plus civil penalties. With his socially unacceptable cabinet, Trump will be scrutinized and though an unbalanced Supreme Court may ultimately endorse his decisions, his presidency will be unpopular.
 
At the end of the day, consumption declines. Investment goes up as we continue to trade capital for employees.  Government spending increases with the ramp up to infrastructure spending. This will not be offset by the new tax codes. Tax changes will pass through a Republican congress quickly.  A belligerent foreign policy stand starting with the anti-Palestine posture and China will prop our military-industry complex but will not encourage or create jobs.  It may hurt trade with China and Viet Nam
among others.
 
The end result will resemble George W. Bush's administration. There will be high debt and spending with lower taxation. Inflation in this environment will stay low and the fed may raise only once next year versus the anticipated two to three times.
 
 

Also Check Out...

The United Nations Prioritizes
People Of Color Rocked Tanglewood
ISHMAEL REED’S PLAY “THE HAUNTING
CONGRESSWOMAN NORTON WILL
A WILLY WONKA STORY, LOCAL
ATTORNEY GENERAL JAMES CONDEMNS