Donald Trump: Master of Business and the Economy
NOTE: This is the first of four articles I intend to write about Trumpian economics. For most people, economics are just not as sexy as foreign policy, civil liberties, immigration, civil rights, or just about any policy.
However, I’d argue that taxing and spending is the mother of all policy. Talk is cheap; budgets are what matters.
At the end of this article, I’ll sum up the contents of the next three articles.
A Successful Businessman
A significant number of supporters said that although they did not agree with many of Trump’s statements, they voted for him because he was a successful billionaire businessman who understands economics. There are a number of problems with this calculus. To begin with, his actual wealth and income is shrouded because he will not honor his campaign promise to be transparent, as all other candidates did. He will not release his income taxes, divest his assets and conflicts of interest, reveal his foreign holdings, etc. Second, mere wealth does not imply economic genius. It’s not clear whether Trump’s wealth is primarily due to expertise or his celebrity status; after all, a significant portion of his income comes from licensing his name brand. Third, the ability to manage a business is not the same skillset needed to lead a country and manage its budget. It’s popular to claim that these skills are transferable, but do we really want a government that cares about profit more than service and accountability? If that were the case, we could just privatize everything and do away with government altogether. And Trump is definitely not a libertarian or anarchist.
This is my reason for writing this four-part series. Trump is no longer a candidate making fanciful campaign speeches. More than four trillion dollars of yearly spending is not a joke, and it’s not enough to laugh off his misstatements anymore.
As with all Trump statements, the apologists will claim that his mistakes or embarrassing commentaries don’t really matter. It’s the big picture that matters, they say. This is an astonishing admission, and one with which I highly disagree. If an airline pilot tells his passengers that he doesn’t need fuel to fly his airplane, or that he intends to fly it upside down, or that it’s impossible to crash it, or that he will let passengers try flying it, or if he childishly called his co-pilot and flight attendants degrading names, or if he joked about crashing the plane, or if he left the speaker on while he made crude comments… the passengers would rightly conclude that they were on a dangerous flight. They would wonder what these comments reveal about the pilot’s judgment and ability. They wouldn’t forgive it as inconsequential. Let’s look at four of President Trump’s revealing comments:
1. The Unemployment Rate
During his campaign, Trump labeled the official Bureau of Labor Statistics’ unemployment rate “phony,” masking the real rate of 18%, 20%, 28%, 29%, 35%, or 42%. However, as of March 10, according to Press Secretary Sean Spicer quoting Trump, the statistic is now accurate: “They may have been phony in the past, but not now.”
Spicer laughed off the inconsistency as if it were insignificant, as if this deception of millions of Trump voters was merely a playful joke. Spicer should now tell them what other jokes Mr. Trump played on them during the campaign. What other alternate facts need to be now corrected? His data about crime rates? Immigration? Terrorism? Obamacare? Tax rates? We are waiting, Mr. Spicer.
Reasonable people may and should always question the manner by which we gather statistics, because this determines our conclusions and policy-making. But the Bureau of Labor Statistics is careful to give us many other statistics that help clarify and differentiate, such as the amount of part-time workers, discouraged workers who have quit seeking employment, etc. Judge for yourself.
And what about the “underemployed,” those who seek but cannot find full-time work? That measure is now approximately almost half what it was in 2009.
Trump also claimed that 94 million Americans were unemployed. He’s right — but this includes the retired, those under 16 years old, the disabled, higher education students, prisoners, those staying at home to care for their children or parents, entrepreneurs, the wealthy, and others who choose not to work for whatever reasons. In fact, at the time of Trump’s inauguration, there were less than 6 million unemployed Americans who were actively seeking work or were “discouraged,” and about another 2 million who were not well-accounted for, equaling slightly less than 8 million total, for an unemployment rate of about 4.7–4.8%. (It’s now 4.4% as of April.)
It’s important to note that an unemployment rate of 0% is neither possible nor desirable, for many good reasons. The definition of full employment itself is variable and tied to other economic definitions, but historically has been calculated at about 3–5% in the United States. Some put it at 2–7%, but 7% would surely be politically unacceptable.
If President Trump wants to redefine the unemployment rate and absurdly insists that all 325 million Americans are a part of the workforce, then that means the employment rate would be 29% — not “42%” as he claimed was possible. Incidentally, don’t forget to tell your disabled 90-year old grandmother and your 3 year old son to get out there and get a job.
Many Americans who lost their manufacturing jobs voted for Mr. Trump because they thought that Trump was the only one who really appreciated the breadth and magnitude of unemployment. Most voters depend upon the honesty of their candidate and do not follow the machinations of the Bureau of Labor Statistics. So when the Trump administration redefines the unemployment rate, what are they to think? Definitions have consequences. If ketchup is a vegetable and strawberry candy is a fruit, cutbacks in the school lunch program are viable. A rate of 4.4% means unemployment is not the problem that candidate Trump said it was. It is surprising that there is not more outrage among Trump voters over such reversals. I’m afraid they are not even aware of such issues, content to know that Trump is Making America Great Again.
2. The Gross Domestic Product (GDP)
In May 2015, the Bureau of Economic Analysis predicted a growth rate of -0.7% for the first quarter of 2015 (i.e., a decline in the GDP of 0.7%). Shortly thereafter, Donald Trump, in his June 16, 2015 presidential campaign announcement speech, bemoaned: “Last quarter, it was just announced our gross domestic product — a sign of strength, right? But not for us. It was below zero. Whoever heard of this? It’s never below zero.”
Whaaaa…? By this comment, Trump was essentially saying that there was negative production in the United States, something that is impossible. Does he understand the concept of the GDP — the total of all produced goods and services in a country? And does he understand how it differs from the Gross National Product? Anyone want to bet on that?
Of course, Trump’s campaign rushed to correct him, and pundits and journalists assured us that he must have meant the decrease in the GDP. (By the way, the BEA later revised it upwards to -0.2%, 0.6%, and finally 2.0%, and in fact, the economy grew by about 2.6 % for the year.) But then, if Trump understood the GDP or listened to someone who did, he would have known that predictions are often revised later, and negative growth in one or more quarters is not unusual. It has happened 42 times (not “never” as Trump claimed, even allowing for what he allegedly meant to say) in the last 68 years of the post-WWII economy. It does not mean the country is in overall recession, as that definition is a yearly accounting, and the first quarter is often lower than average.
At any rate, a presidential candidate who does not understand what the GDP means is a bit like a chef who doesn’t understand what a menu is. And even if he simply misspoke and meant the rate of growth, and even if the first quarter’s rate really was negative… it still doesn’t wash. It would mean that he doesn’t understand the ups and downs of quarterly reports, and is not aware of previous recessions, not to mention the Great Depression!
3. Monthly Debt Reduction
On February 25 of this year, President Trump claimed the media was not covering the reduction of the national debt in his first month, implying that unlike Obama, he is shepherding debt reduction. This and other absurd claims reveal President Trump’s knowledge of the budget deficit and the national debt.
President Trump recently claimed that he “inherited a mess” from Obama. (Judge for yourself.) But if the actual numbers on the deficit, unemployment, growth, taxes, etc. themselves don’t fit the argument, he must invent something. Thus, the monthly debt reduction claim…
Yes, Mr. President, the media did not report that $12 billion reduction because it is merely a cash-flow issue. The federal government had a cash operating account balance of $382 billion on Inauguration Day, which is partially why it did not need to borrow as much that month. After one month it had declined to $228 billion (i.e., there was $154 billion less cash on hand).
Monthly, the debt goes up and down temporarily due to various schedules for spending and revenue collection, interest payments, and many other things. Overall, it will increase for the fiscal year, because we have a budget deficit. Does he realize this? What will he say upon learning that the debt will rise most months? Counting month-to-month shifts is largely irrelevant to the yearly deficit, and makes as much sense as weighing oneself before or after eating a big meal to prove weight loss or gain.
Even if monthly balances mattered, what the hell does he think he did that could have caused this? He is operating under Obama’s Fiscal Year 2017 (which ends September 30, 2017) budget and has done nothing to change it so far. Obama took office in 2009 during a severe economic recession, and with a record high deficit of $1.4 trillion. Today, unemployment has been cut in half and the deficit has been greatly reduced, especially compared to the size of the total economy. (The FY 2009 deficit was 9.8% of GDP; the FY 2015 deficit was about 2.4%.)
So, compared to Obama’s early stimulus spending plus the record high deficit Obama began with, yes, there’s a difference how much debt (much less) will be increased this year in Obama’s last budget.
I’m not sure which is more disturbing: Either there was nobody around to explain this to Mr. Trump or he was unwilling or unable to understand his advisors.
4. The Highest Tax Rate in the World
Given the importance of building on the momentum of the deficit reduction of the last eight years, the country’s ability to maintain its revenue stream is very important. We still have a half-trillion dollar deficit. Yet President Trump is anxious to cut taxes.
Donald Trump, October 14, 2016: “Our taxes — we just put in a plan the other day — we’re going to reduce taxes tremendously because we have the highest tax rate anywhere in the world and our middle class is being absolutely destroyed.”
In fact, the United States has one of the lower tax rates, especially compared to the world’s most economically developed countries. Yet based on Trump’s presumption, we are about to massively cut taxes.
According to the non-partisan Committee for a Responsible Federal Budget, Trump’s plan “…could cost $3 to $7 trillion over a decade– our base-case estimate is $5.5 trillion in revenue loss over a decade,” increasing our debt to “…111 percent of Gross Domestic Product (compared to 89 percent of GDP in CBO’s baseline) by 2027. That would be higher than any time in U.S. history, and no achievable amount of economic growth could finance it.”
The more liberal-leaning Tax Policy Center of the Urban Institute and Brookings Institution is even more pessimistic, projecting a $9.5 trillion loss over a decade, not accounting for additional debt due to interest and possible good and bad macroeconomic effects (to the economy).
According to the more conservative-leaning Tax Foundation: “Mr. Trump’s plan would cut taxes by $11.98 trillion over the next decade on a static basis. However, the plan would end up reducing tax revenues by $10.14 trillion over the next decade when accounting for economic growth from increases in the supply of labor and capital.”
In any case, it seems clear that President Trump’s tax plan — if enacted — will blow up the budget deficit, and add some $5–10 trillion to the national debt. After eight years of deficit reduction and holding for four years at about a half-trillion dollar deficit while the economy continues to grow… we are now about reverse course. I will return to this topic in my second article of this series.
Expert Advice
There’s an old joke: “How many economic opinions are there in a meeting of three economists? Six.”
Yes, economics is not purely mathematics, and yes, expert analysis can lead to different results. And no new president understands economics like his economics experts and advisors. However, although economists debate their policy conclusions, they rarely differ on the basic definitions of economic terms, no more than chemists debate the number of protons in an atom.
So if it were a matter of which expert advice the president was following, that would be one thing. But this president has told us “I don’t really listen to anybody” about economics because he has “a vast feeling for it.”
I wonder if that’s what he put on his tests at Wharton School of Business. No, I didn’t study, professor, but “I’m like a smart person” or in fact “really smart” because of my “good genes,” and I have a “vast feeling for it.”
I get that; I can’t speak Japanese, but I’ve seen WWII movies and have a vast feeling for it.
Wait a minute. I forgot that there was at least one time that President Trump sought economic advice. He called his former National Security Advisor Michael Flynn (yes, the man that retweeted conspiracy theories) at 3 a.m. to ask him whether a strong dollar was good or bad for the economy. Rather than ask the Council of Economic Advisors, the Chairman of the Federal Reserve Board, his Trade Representative, his Director of the Office of Management and Budget, or any number of other experts, he asks someone whose expertise is national security (and who was working as a foreign agent for Turkey and a paid analyst for the Russian government’s RT news organization).
This question itself is revealing, akin to asking whether rain is good or bad. A strong dollar is good in some ways and bad in others.
With all due respect to the Wharton School of Business, how did Donald Trump earn a B.S. in Economics there in 1968? What does B.S. stand for there?
Here’s the subjects of the next three articles in this series:
Part 2: In April 2016 Trump claimed he would eliminate the national debt in eight years. When confronted with reality, he made even more outrageous comments. It’s important to understand that the president was propagating an impossible fantasy.
Part 3: Trump’s opposition to NAFTA, the TPP, and free trade agreements in general was a cornerstone of his campaign. He claimed China, Mexico, and other countries are “killing us,” and repeatedly told us he “could negotiate a better deal.” But does he understand trade agreements, or is this another area where his ego is the real issue?
Part 4: Trump’s comments about the budget deficit and national debt reveal just how little he understands about the budget. He must now offer a real budget — not just rhetoric — and if he is allowed to create a fantasy budget using voodoo economics, he could do some very serious harm.
