Friday, August 23, 2019

Voodoo Economics May Be Catching Up with Trump/GOP

The stack market - actually the bond market - has been showing signs that the economy is slowing and that a recession might well begin in 2020 or before.  Recently job growth and GDP figures have been revised downward and manufacturers and consumers are feeling the adverse effects of Trump's insane trade wars with China and other nations.  And then there are America's farmers who have been dealt the double blow of Chinese tariffs and the impacts of climate change, particularly in the Mid-West, even as the GOP denies climate change is occurring.  To what ought to a shock to no one, the Trump/GOP tax cut for the wealthy and huge corporations - which only scattered crumbs for everyone else - has yet again proven that huge tax cuts for the top income brackets (i) do not pay for themselves, (ii) explode the deficit, and (iii) do not strengthen the economy overall. These three realities have been known since the days of Ronald Reagan, yet the GOP continues to live in a fantasy world.  A column in the New York Times looks at the slowing economy and the efforts of Trump and the GOP to shift blame from themselves.  Here are excerpts:

Almost four decades ago then-candidate George H.W. Bush used the phrase “voodoo economic policy” to describe Ronald Reagan’s claim that cutting taxes for the rich would pay for itself. He was more prescient than he could have imagined.
For voodoo economics isn’t just a doctrine based on magical thinking. It’s the ultimate policy zombie, a belief that seemingly can’t be killed by evidence. It has failed every time its proponents have tried to put it into practice, but it just keeps shambling along.
[W]henever tax cuts fail to produce the predicted miracle, their defenders come up with bizarre explanations for their failure.
 My favorite until now came from Art Laffer, the original voodoo economist and recent recipient of the Presidential Medal of Freedom. Why did George W. Bush’s tax-cutting presidency end not with a boom, but with the worst economic slump since the Great Depression? According to Laffer, blame rests with Barack Obama, even though the recession began more than a year before Obama took office. You see, according to Laffer, everyone lost confidence upon realizing that Obama might win the 2008 election.
 Trump has gone one better. As it has become increasingly clear that the results of his tax cut were disappointing — recent data revisions have marked down estimates of both G.D.P. and employment growth, to the point where it’s hard to see more than a brief sugar high from $2 trillion in borrowing — Trump has invented ever more creative ways to blame other people. In particular, he’s now claiming that the promised boom hasn’t arrived because his opponents are hexing the economy with bad thoughts: “The Democrats are trying to ‘will’ the Economy to be bad for purposes of the 2020 Election.”
 [B]laming the Fed for the tax cut’s fizzle won’t wash. For one thing, the Fed has actually raised rates less than in previous economic recoveries. Even more to the point, the Trump economic team was expecting Fed rate hikes when it made its extravagantly optimistic forecasts.
 The Trump tax cut was supposed to create a boom so powerful that it would not only withstand modest Fed rate hikes, but actually require such hikes to prevent inflationary overheating. You don’t get to turn around and claim betrayal when the Fed does exactly what you expected it to do.
 Since the Fed is unlikely to oblige, what else might Trump do? Officials have floated, then retracted, the idea of a cut in payroll taxes — that is, a tax break for ordinary workers, rather than the corporations and wealthy individuals who mainly benefited from the 2017 tax cut. But such action seems unlikely, among other things because top administration officials denounced this policy idea when Obama proposed it.
Trump has also suggested using executive authority to reduce taxes on capital gains (which are overwhelmingly paid by the wealthy). This move would have the distinction of being both ineffectual and illegal.
What about calling off the trade war that has been depressing business investment? This seems unlikely, because protectionism is right up there with racism as a core Trump value. And merely postponing tariffs might not help, since it wouldn’t resolve the uncertainty that may be the trade war’s biggest cost.
The truth is that Trump doesn’t have a Plan B, and probably can’t come up with one. On the other hand, he might not have to. Who needs competent policy when you’re the chosen one and the king of Israel?
Funny how the last GOP administration engaged in massive tax cuts and George W. left the country with the largest economic meltdown since the Great Depression.  The GOP truly never learns. 

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