Brief Comments on the Economic & Political-Economic State of the Trump
I did a short interview with the BBC. Cleaned-up transcript. And my talking points. None of which I got to use...
I did a short interview with the BBC. Cleaned-up transcript. And my talking points. None of which I got to use...
Cleaned-Up Transcript:
Let's talk about inflation first then. What's your, your take on how things stand?
Well, I think Trump told a big lie about inflation. This was not the worst episode of inflation that the United States has had. I can think of at least seven previous ones that were bigger. And that was just one of many lies: America has spent nowhere close to $350 billion on Ukraine. Robert F. Kennedy Jr. is not going to cure autism. We do not have millions of dead people more than a hundred years old receiving Social Security checks.
The tariffs that Trump are proposing—they are not going to make the America stronger. Think of it as the equivalent of a Brexit. Boris Johnson, Nigel Farage, and company inflicted Brexit on the United Kingdom in the 2010s and shrunk the British productivity by between five and 10%. Donald Trump appears to be gung-ho on doing that to the United States. The only blinking he has done so far has been that after being told that his 25% tariffs on Mexico and Canada will bankrupt General Motors within nine months, he has “paused” auto tariffs. Otherwise, he is raring to go to make the United States a poorer as a country by breaking a good deal of our international division of labor.
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There can often be a disconnect from what we see from what President Trump says and what we sort of see happening in, in reality. Whe these tariffs do start to bite, it's gonna become quite apparent to the American people, aren't they? That tariffs have increased their cost of living?
Well, it ought to. On the other hand, Starmer is not proposing to reverse Brexit. That would seem to be very close to a no brainer—especially since very few of the original Brexit campaigners actually wanted to win. They wanted to demonstrate they were standing up for England against the Eurocrats. They wanted to lose and go down boldly. They then wanted to use that to gain power within the Tory party. And when they won, they had absolutely no idea what to do.
Now the Tories are out and Labour is in. Yet Brexit stands tall.
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With Donald Trump and what's happening in the US, you see that same sort of situation playing out?
It could well. The cowardice of the Remainer Tories after the passage of Brexit seems to be matched by the extraordinary cowardice of a Republican power structure that sees hugging Donald Trump's core voters as the only way they survive primaries.
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Moving on quickly, I want to get your thoughts on, on the government cuts and tax cuts that we are seeing that were he laid out in his speech. What do you think the implications of that will be?
They don't add up. He promised to balance the budget, too? It's not at all clear what is coming down the pike. It does seem clear there will be substantial cuts to the Medicaid program. They will be sold as we're getting rid of waste, fraud and abuse. But there's little waste fraud and abuse in Medicaid to cut. So what healthcare sector muscle and bone will be cut? We will see.
Tax cuts for the rich are always welcome for the rich. But the spending cuts, aside from, perhaps, Medicaid appear small in magnitude, but large in destructive effect. Breaking the medical research system, which has enormous downstream biotech benefits that we really need as we move into the Attention Info-Bio Tech Economy will be very expensive in terms of economic growth for very little savings. Eliminating USAID—we are eliminating programs that have enormously high benefit-cost ratios and that massively more than repay themselves in global American credibility and influence.
Talking Points:
What were my expectations for Trump’s address to congress? That he would say that he is great. That he is making America great. That the Democrats are awful, and I'll expect he'll go off script and riff about how extraordinarily unfairly he's been treated by all kinds of people…
Bessent would, I thought, try to get him to focus on not scaring markets. I think he's unlikely to succeed. Afterwards there would be a frantic attempt to do what comic books writers called “retroactive continuity”—to say that we did not see and hear what we in fact saw and heard…
As best as I can see, there is no non-crazy faction within the Trump Administration that wants the tariffs. The few that may are like those who maintain to this day that Brexit in the United Kingdom was a great success rather than a catastrophic policy disaster that has cost them perhaps 10% of their national wealth…
As you know, I am a Hamiltonian. I think there is a strong argument for smart tariffs as one of the many tools for building your communities of engineering practice, and you do want to build your communities of engineering practice because they bring with them strong externalities. If your government has sufficient state capacity to make your tariffs genuinely smart, genuinely Pigovian, go for it. But that is not what Trump's tariffs are. Trump’s tariffs are random. They are going to pull apart the North American and global division of labor to the United States' substantial detriment…
Other countries now have a very difficult task. Donald Trump's word is not good. Canada and Mexico tstruck a deal with Trump in the USMCTA. And now Trump has torn it up. So everyone now has to set up the game board by building reserve capabilities, so that when Trump breaks the agreement, he'll wind up being significantly less his word—which he will—they are OK and Trump is not. Immediate sanctions need to be built into everything…
Scott Bessent says that Donald Trump thinks the value of the stock market is the way he keeps the way the US economy is valued. Thus that policies that push the stock market down will be very quickly reversed. That is what the Bessent affinity is telling everyone. Maybe. Maybe not. Bessent does not know any better than we do…
James Madison and Alexander Hamilton wrote, back in 1787, that there had been significant improvements in the science of government since the times of the classical Greeks. Those improvements, they claimed, meant that in modern times democracies no longer inescapably vibrated between tyranny and anarchy. Madison may have believed that. He probably did. I do not know a Hamilton scholar who thinks Hamilton believed it. Hamilton wanted a constitutional monarchy. He backed the republican constitution of 1787 because Washington backed it, and Hamilton was Washington’s creature. He was talking his book…
"Tax cuts for the rich are always welcome for the rich. But the spending cuts, aside from, perhaps, Medicaid appear small in magnitude ..."
One point not explicitly made either in the interview or in your talking points is that the cuts will not be large enough to fund the proposed tax cut; it would have to be funded by borrowing. Who will do the lending? To the extent that tariffs reduce imports, foreigners will have fewer US dollars with which to buy US debt. Issuing more debt into less demand will raise interest rates. Higher rates will increase the cost of servicing all debt as it matures ...
Hamilton was great at economic policy and no mean political theorist, if not up to Madison's standard. But was a fool in practical politics. I'm happy that Washington kept Hamilton's worst instincts in check. Hamilton, for instance, wanted to hang the Whiskey Rebellion leaders. Washington preferred to make the Whiskey Rebellion go away.