Tuesday, July 2, 2019

Trump's View Of The World May Be Skewed By His Past

Trump Has A Distinct View Of The World
There is an old sales adage that says “sell the sizzle, not the steak.” With this in mind, we should remember Trump excels at promoting. Trump appears to not see himself as the smartest man in the room but at times acts as if he is the smartest man on the planet. As we have come to know more about him we can see he is very comfortable with economic manipulation. One commentator recently said again, and again, it seems Trump creates a crisis then pulls back at the last second. After pulling back he then claims victory and that he has resolved the issue.

This article is not written as an attack on Trump but to point out the President has a distinct view of the world which spills into the financial system. Trump appears to embrace MMT and often seems more worried about today than the future. His "damn tomorrow" attitude is reflected in deficit spending and calling for lower interest rates. His delusion that his stock market can go straight up forever is not based on years of stock trading but rather his years in real estate where inflation treated him well as prices rose ever higher. Within the sector of the economy where Trump made his fortune, world spending, debt, and lower interest rates are the key driver of expansion. Securing a low-interest rate loan and waiting for real estate values to rise has been a big winner.

While I tend to get annoyed when so-called experts state exactly what Trump is thinking, I feel an article originally appearing on NYPost.com. sheds some light on his views. The article delves into the remarks of Presidential Medal of Freedom recipient Arthur Laffer, an economist who served as an adviser to President Donald Trump’s 2016 campaign. Laffer jabbed at embattled Federal Reserve chairman Powell and questioned the body’s autonomy. He stated, “The Fed shouldn’t be independent of the administration. Never should be. None of those people were elected. They were appointed. And there’s no reason for them being appointed. It’s a policy tool that should be in the hands of the Congress and the President to make our country better,”

Trump, frustrated by the Fed’s interest rate hikes has pushed Powell hard to lower rates. Following in Trump's footsteps, Laffer encouraged Powell to be a “professional” and lower interest rates. 
Laffer, an adviser to President Ronald Reagan, is given recognition for his contributions to Republican economic theory. Much of this is centered around, the idea of “trickle down economics” and how lower tax rates trickle down to benefit the overall economy. It often appears that Trumps sees a higher stock market as proof he is on the proper track but is blind to how distorted markets have become.

Still, the ugly truth is American companies have little reason to bring jobs home. The logic that lowering corporate income tax will create a massive flow of jobs to our shore is flawed. The tax bill does little to level the playing field when it comes to issues such as healthcare cost and over-regulation. Simply put, the structural issues that haunt America's competitiveness far outweigh the benefits of lower taxes and remain as barriers to doing business in America. Hopefully, a positive, yet unintended consequence of this, coupled will the trade war currently raging, will be that companies build more production facilities here in America. This, of course, would have to do with the fact labor has become a much smaller part of overall production cost than in the past.

Circling back to the crux of this article, I contend that while Trump touts a fondness and respect for hard-working Americans his policies will continue to create more inequality. Low interest rates have several hidden costs. They include increasing speculation, distorting prices, and allowing boondoggles to be built while reducing income to savers. This money flows to big business and Wall Street first and less so to small local merchants. In short, they fuel a false economy. As for the economic concept of  “trickle down economics,” the problem is that those at the bottom share only a few drops of the benefits while those at the top swim in a pool.

Footnote; Below is the link to a recent article which argues the Federal Reserve has become the great enabler responsible for allowing the world to embark on a huge and rapid expansion of debt and credit. It warns that Trump’s desire to manipulate the dollar lower to boost exports would take the world down a very dangerous path.

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