Friday, December 16, 2016

Edward Harrison — Supply-side economics likely to dominate Trump’s economic agenda


Same old trickle down.
Overall though, I see Trump as having been elected due to voters angry about declining income growth and job security, particularly in the rust belt states that had voted for Obama in 2008 and 2012. That means Trump needs to appeal to this group in some discernible way to be successful. He even said so himself on election night, talking of having only two years to make his mark. He might be able to appeal to them on cultural grounds the way Republicans have done in the past. I don’t see that being effective though given the angst still evident after seven years of recovery. But supply side isn’t going to do it either unless Trump can create enough growth that it reaches deep into the rust belt where all the manufacturing jobs have been lost. His interventions against individual companies like Carrier can only go so far. At the end of the day, he has to deliver jobs and income.
Credit Writedowns
Supply-side economics likely to dominate Trump’s economic agenda
Edward Harrison

6 comments:

Penguin pop said...

Trumped up double down trickle down. The more things change, the more things stay the same.

Matthew Franko said...

Two differences in conditions:

1. Rates increasing

2. Trump working to reduce external deficit via tariffs if necessary...

its not a continuum in time domain...

Noah Way said...

Trump won, he doesn't have to appeal to anybody. Except maybe the Deep State.

The Rombach Report said...
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The Rombach Report said...
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The Rombach Report said...

Supply Side author and former senior editor of the Wall Street Journal, Robert Bartley, described in his book, 'The Seven Fat Years', two economic policy levers that worked well together in the 1980s; expansionary fiscal policy coupled with relatively tight monetary policy. Large budget deficits owing to the collapse of tax revenue from the 1982 recession, Reagan tax cuts and defense spending fueled robust growth. Despite persistent large budget deficits during the 1980s, the U.S. dollar appreciated sharply, reflecting demand for the currency as the after tax return on capital went up. Interestingly enough, falling nominal interest rates went hand in hand with rising real interest rates, supporting the view that the lower tax burden incentivized entrepreneurs to take risk, which created demand for the currency.

Something similar seems to be happening now. Trump's policy agenda would garner large budget deficits by way of infrastructure spending, tax cuts and defense spending. Strong gains in the U.S. dollar since the election appears to be a by-product of sharply higher nominal interest rates since the election. This in turn is a function of the robust fiscal expansion envisioned in Trumponomics. In other words, the Fed has far greater scope to raise interest rates now, than it did when Quantitative Easing was the only game in town.