Wednesday, November 9, 2016

Brian Romanchuk — The Macro Implications Of The Trump Presidency

As a result, Trump would not want to let the economy remain on its current pathetic growth path that leaves large parts of the electorate under-employed, as that would make him an easy target for such a populist. Therefore, a "dash for growth" looks like the best bet, but it will certainly be biased towards tax cuts and "tax expenditures" (achieving the same objective as spending by creating targeted tax credits). It seems likely that the Republicans will rely on "trickle down" economics, but we could also see some "infrastructure Keynesianism" (possibly packaged as "public-private partnerships"). As in the 1960s and 1970s, such non-targeted fiscal stimulus would probably raise inflation before it reduces underemployment.
The obvious objection to my scenario is that the Republican Party contains a great number of balanced budget advocates. My view is that the Republicans are greatly in favour of balanced budget amendments when the President is a Democrat, not so much during Republican administrations.…
Bond Economics
The Macro Implications Of The Trump Presidency
Brian Romanchuk

20 comments:

Matt Franko said...

"As in the 1960s and 1970s, such non-targeted fiscal stimulus would probably raise inflation before it reduces underemployment."

Yes... imo risk is to upside... and once the Fed smells "inflation!" they are going to come in too and throw gasoline on the fire with their higher rates... risk is of a moonshot "inflation!" blow off...

Then the morons are going to say "we predicted this!...."

Matt Franko said...

""dash for growth" looks like the best bet"

Not enough trained people available right away after 8 years of atrophy... so could start a bidding war for qualified labor... which then Fed will go ape shit even more....

Then the older people will finally start getting some decent interest on their savings and really retire and withdraw from the labor force for real and compound the labor shortages... Fed will go double ape shit....

Andrew Anderson said...

Then the older people will finally start getting some decent interest on their savings Franko

1) Interest from one's fellow countrymen is indecent according to Scripture. See Deuteronomy 23:19-20 for example.
2) Even if such interest were allowed, the artificial manipulating of interest rates down or up via welfare for the rich (the most so-called worthy of what is, in essence, the PUBLIC'S credit and those most able to buy inherently risk-free sovereign debt) is contrary to Scripture too since it constitutes oppression of the poor.

Ryan Harris said...

When scriptures were written they didn't have Goldman Sachs, They didn't have a Fed, student loans, or fannie mae and they didn't Jamie Dimon.

MRW said...

"Then the older people will finally start getting some decent interest on their savings and really retire." (Matt)

Easier and better to raise Social security payments to a decent amount. There's no way the 2nd largest generation (Boomers) will be able to afford to consume the output of the largest generation (Gen-Xers) without an increase in pay. Result? More Gen-Xers unemployed. Seniors in increasing poverty.

And it's no skin off the government's back to do it. Ditto the fabled federal taxpayer. There's some scripture for you, Andrew, that has some teeth. Some action that has some Christian compassion, not the hauteur you deign to weigh in with.

Andrew Anderson said...

Easier and better to raise Social security payments to a decent amount.

I agree and have said for a long time that we should have generous welfare, but proportional to need, not wealth.

My pride? I hope not since the Lord resists the proud but gives grace to the humble (James 4:6, for example).

Matt Franko said...

No chance of any of that happening fellows sorry....

Everyone but Trump thinks we are on the verge of insolvency and may go bankrupt and have to abide by the Sequestration Agreement the Peterson people put in front of them and they signed....

The only scripture they are reading is written by the Peterson morons....

Calgacus said...

As in the 1960s and 1970s, such non-targeted fiscal stimulus would probably raise inflation before it reduces underemployment.

(?) That isn't what happened in the 1960s & 1970s & there is much less danger of inflation from any infrastructure oriented stimulus now.

lastgreek said...

Trump: I will eliminate U.S. debt in 8 years.

http://thehill.com/blogs/ballot-box/presidential-races/275003-trump-i-will-eliminate-us-debt-in-8-years

Btw, anyone here long construction stocks?

Stocks of companies that might build Trump’s border wall scale record heights

What about the merchants of death?

Shares in British arms giant SOAR amid expectations that US president-elect Donald Trump will ramp up military spending

Because, you know, "We're going to build a great, great wall," and "[US] military is a disaster."

http://www.marketwatch.com/story/stocks-of-companies-that-might-build-trumps-border-wall-scale-record-highs-2016-11-09

http://www.dailymail.co.uk/news/article-3920668/Shares-British-arms-giant-SOAR-amid-expectations-president-elect-Donald-Trump-ramp-military-spending.html#ixzz4PZUGWN95



MRW said...

As in the 1960s and 1970s, such non-targeted fiscal stimulus would probably raise inflation before it reduces underemployment.

I agree with Calgucus.

There are only two kinds of inflation. A demand-pull and a cost-push.

We haven’t had demand-pull inflation since WWII. That’s when there are too few dollars chasing too few goods—people are earning more than enough to cause shortages of what’s available—and prices and inflation rise as a result. [We should be so lucky.] US workers’ savings accounts swelled during the war as a result of almost total employment because everything they wanted to buy was rationed (metal for refrigerators and washing machines, for example, lead and porcelain for the old-style bathtubs) and unavailable for consumer consumption. What happened first, of course, was full employment (a reduction in unemployment) to create that situation.

Cost-push inflation, OTOH, happened in the 70s when the oil embargo shot the price of oil from $3/barrel to $30/barrel in seven years—10X. It drove the price of oil up like a tornado. That raised the cost of creating and transporting food, heating and cooling houses, shipping, aviation, getting to work, public transportation, and so many necessities of life, sky-high all at once. Cost-plus inflation is when there is pressure on the supply side, like the price of oil or essential industrial commodities.

(And that’s not including what Volker did as Fed Chairman in the 70s, a regular ordinary commercial banker who had zero clue, I mean ZERO understanding, of how Federal Reserve transactions worked. Volker moved the official Fed HQ from the DC Fed to the New York Fed—bad move—and he thought if he restricted the amount of money that the Fed could loan to banks to handle the nation’s payment system and interbank transactions, he could control the inflation—caused by the price of oil, but he didn’t understand that mechanism. Nor does it include the 1970s automated CPI wage-increases baked into union contracts mid-decade that bankrupted many small and medium-sized businesses and drove them to offshore their labor, further increasing domestic unemployment. The CPI (Consumer Price Index) went up with every increase in oil. Under Clinton, I remember businesses got Clinton to agree that US companies could add their offshore employees into their domestic employment figures, hiding the effective employment reduction in US jobs, and raising their profits through cost-reduction. Then the Bush admin made it IRS official in 2001.)

MRW said...

Calgacus. Sorry.

Brian Romanchuk said...

Inflation was rising in the 1960s, ahead of the oil price spike. Admittedly, it was lower than in the 1970s, but it was noticeable by the standards of earlier eras. The oil spike hit fertile ground for a wage-price spiral.

We've had a few oil price spikes since the 1990s, with no wage-price spiral.

MRW said...

We've had a few oil price spikes since the 1990s, with no wage-price spiral.

That may be true, but I dont think you got my point. It was the combination of oil price rise (10 times in seven years) that forced the automated CPI trigger built into the new union healthy wage contracts crafted to automate increased lifestyle costs in the mid-70s over the next 30-50 years. Instead, the CPI was triggering wage increaases every time the price of oil jumped. The unions refused to renegotiate. This started in the Chicago area (with rail workers, I think, but dont hold me to it) and spread across the country. Many unionized companies couldn't pay these wage hikes at the speed with which they were occurring, and borrowing became impossible or unjustifiable to make up the shortfall when Volker hiked the overnight interest rate to 19% or 20%.

Even though the price of oil has risen from $10 in 1990 to $100, then $150 briefly, in 2008 that's over an 18-year period, two and a half times the seven-year period of the 70s. And unions have been all but dead except for the culinary, aviation, federal, teaching, and automative sectors throughout the same time period, a Reagan holdover from the time he cracked the air traffic controllers' union in 1985 (?). Companies in the late 70s, early 80s, sought to rid themselves of the national unions, and the best way they could swing it was to go offshore. In the meantime, Reagan was deregulating like crazy. In the middle of that time period, China foresaw its advantage and declared in 1980 that it was going to take America's manufacturing prowess and hegemoney and destroy it as part of their 25-year plan. And that they did.

John said...

That's the answer to the question I was asking yesterday: will an all-powerful GOP enforce a balanced budget now that they control the House, Senate and Presidency, or will they vote through Trump's massive spending plans and run up huge deficits and add to the debt? What will the GOP say when that stupid debt clock goes ballistic?

Looks like they're more likely to agree to massive spending plans. While this is certainly what the economy needs, the hypocritical sadism is not only staggering but now out in the open. Working class Americans have had to suffer unemployment, repossession, and everything else that goes with a bad economy because the GOP is tribal to the point of lunacy.

What this will mean for the GOP is open to question. Hypocritical sadism laid bare, especially to its own voters, and empowering Trump, the human wrecking ball aimed at the GOP establishment. Perhaps now, with the end of Killary, the Dems will move to more New Deal-style policies, more social democratic, more in touch with inequality and jobs. If Trump does half the things he claims, he'll have done more damage than he can ever know to the two traditional parties of government!

Matt Franko said...

He is going to have to go to Ryan and say cancel the sequestration... then that opens up fiscal for whatever Trump wants to do...

If Ryan says "sorry cant do that, I signed this document that was handed to me by the unelected Peterson people and cant do it..." Then Trump has to cut his balls off....

Trump probably sees it as win-win (Art of the Deal): Trump gets sequestration cancelled and Ryan gets to keep his Speakership... ie win-win...

This might be the first situation where we will get to see how Trump reacts when one of his deals (ie a deal that he thinks is good for the other side too....) is rejected by the other side if Ryan wont take the deal....

My hunch is he wont react passively....

Matt Franko said...

Trump principle #1: "Get even".... "I'm a counter-puncher", etc..

If Ryan wont take the deal, Trump will look at it personally as Ryan is f-ing him over...

John said...

Matt, but will Trump eating Ryan alive and then spitting him out change anything if the GOP simply replace Ryan with a replica, or perhaps someone even more fiscally conservative? As you well know, the GOP has done a swell job at getting people paranoid about the debt. You yourself talk about it all the time as one of the biggest problems, perhaps even the biggest problem, the country faces. Trump wants to spend trillions on infrastructure. It's a damn fine proposal, but will Congress sign off on it? Don't they control the money?

Trump's Art of the Deal egoistic and narcissistic philosophy may work if you're a billionaire developer who can use his muscle to make life intolerable. Rich and powerful people have been doing that for millennia. It's hardly a philosophy. Trump is now dealing with forces many orders of magnitude more powerful than him: the Congress and all the moneyed interests. What's he going to do if Congress doesn't want to repeal or replace NAFTA or other treaties? And the same goes for many, many other matters that require Congress to sign off on. I can't see the Congress (Dems and Reps) changing its neoliberal thinking. Trump can moan as much as he wants, but what is he going to do? Very little, I should think. Congress won't budge, especially with humiliated Dems and a hostile GOP out for revenge.

If anyone is going to "Get Even", it'll be the Congress and all the moneyed interests who either hate or fear Trump. If big money hates or fears you, governing will be difficult at best, impossible at worst. Obama was hamstrung by a hostile Congress. Trump faces a hostile congress and a hostile Wall Street and a hostile corporate elite. If he can beat this wall of power, he shouldn't be president. He should be made King of the Universe.


Tom Hickey said...

If Ryan says "sorry cant do that, I signed this document that was handed to me by the unelected Peterson people and cant do it..." Then Trump has to cut his balls off....

Right. This is shaping up into a battle with the Peterson apparatus, which is already being cited for why the establishment is arguing that Trumponomics is off the wall.

I'm betting on Trump.

Andrew Anderson said...

Trump principle #1: "Get even".... "I'm a counter-puncher", etc.. Franko

I.e., all defense is no defense.

Calgacus said...

Brian Romanchuk: Inflation was rising in the 1960s, ahead of the oil price spike.

Sure, but not very much. The oil shocks hit a system with something of inflationary bias, but they were by far the most important cause of the inflation of the 70s. But the inflation lagged rather than led the prosperity of the 60s caused in part by "non-targeted fiscal stimulus". What happened in the 60s & 70s was not what you said.