Thread: The bizarre optimism in Donald Trump’s theory of the economy

The bizarre optimism in Donald Trump’s theory of the economy
By Jim Tankersley April 2 at 8:47 PM

There is a theory on the fringes of economics and finance that the United States is riding another bubble, which is about to burst and plunge the economy into a deep recession. It is not a housing bubble, like the one that triggered the last recession, but a stock bubble, puffed up by years of monetary easing from the Federal Reserve. Few professional economic forecasters subscribe to that theory, but a few finance pundits do, and so, too, does Republican presidential front-runner Donald Trump.

Trump made that embrace clear in his interview with The Post's Bob Woodward and Robert Costa released today, which included a long back-and-forth on economic issues. From the transcript emerges a three-legged Trump theory of what ails the American economy and how to heal it, starring a stock bubble, bad trade deals and a massive tax cut.

Those legs do not form an argument that most economists would call coherent.

Instead, Trump appears to blend economic conspiracy theories with magical-thinking accounting: Stocks are a bubble inflated by "easy money"; government regulators have taken control of banks and choked off lending to everyone but the rich; the "real" unemployment rate is closer to 20 percent than 5 percent, and his crowd sizes prove it; cutting taxes and renegotiating the terms of trade will reinvigorate the economy and the middle class and somehow pay off the federal debt within eight years.

Trump often complains that the press misrepresents his statements. So here, in his own words, condensed from the interview, is his theory of the economy:

"I think we’re sitting on an economic bubble. A financial bubble... We’re not at 5 percent unemployment. We’re at a number that’s probably into the 20s if you look at the real number. That was a number that was devised, statistically devised to make politicians – and in particular presidents – look good. And I wouldn’t be getting the kind of massive crowds that I’m getting if the number was a real number."

"I’m talking about a bubble where you go into a very massive recession. Hopefully not worse than that, but a very massive recession. Look, we have money that’s so cheap right now. And if I want to borrow money, I can borrow all the money I want. But I’m rich... If somebody is a great, wonderful person, going to employ lots of people, a really talented businessperson, wants to borrow money, but they’re not rich? They have no chance...

Is it a good time to invest now? "Oh, I think it’s a terrible time right now... because the dollar's so strong... You have – think of it – you have cheap money that nobody can get unless you’re rich. You have the regulators are running the banks. Not the guys that are being paid $50 million a year to run the banks. I mean, when you look at many of your friends that are running banks that are being paid $40 and $50 million, yeah, they’re not running the banks. The regulators are running the banks. You have a situation where you have an inflated stock market. It started to deflate, but then it went back up again. Usually that’s a bad sign. That’s a sign of things to come."

"Part of the reason it’s precarious is because we are being ripped so badly by other countries. We are being ripped so badly by China. It just never ends. Nobody’s ever going to stop it. And the reason they’re not going to stop it is one of two. They’re either living in a world of the make-believe, or they’re totally controlled by their lobbyists and their special interests. Meaning people that want it to continue. Because what China, what Mexico, what Japan – I don’t want to name too many countries, because I actually do business in a lot of these countries – but what these countries are doing to us is unbelievable. They are draining our jobs. They are draining our money."

"I can fix it. I can fix it pretty quickly...I would do a tax cut. You have to do a tax cut. Because we’re the highest-taxed nation in the world. But I would start...I would immediately start renegotiating our trade deals with Mexico, China, Japan and all of these countries that are just absolutely destroying us. "

"We’re not a rich country. We’re a debtor nation. We’ve got to get rid of – I talked about bubble. We’ve got to get rid of the $19 trillion in debt." How long would that take? "Well, I would say over a period of eight years."

Taken together, those statements are a good collection of talking points that sell well with the voters who form the base of Trump's support. They sometimes hint at concerns that many economists have raised about the U.S. economy, including the idea that expanded trade with China has cost America millions of jobs and evidence that the recovery from the Great Recession has gone much better for the very rich than for the bulk of workers.

Many of his points, though, are contradicted by economic evidence. Stocks appear to be somewhat overvalued relative to historical norms, but not by nearly as much as they were in the tech bubble of the 1990s. There is some evidence that small businesses have struggled in the recovery to get loans, but there's no evidence of a freeze in borrowing to the non-rich. Commercial lending is growing as fast today as it was in the mid-90s.

Even by the broadest definition possible from the Labor Department, unemployment is under 10 percent today, and nowhere near the 20s.

His debt claims do not survive basic mathematics. In order to pay off the national debt within eight years, the federal government would need to more than double the $2 trillion in annual income tax revenues it brought in last year. Even if Trump were able to eliminate somehow turn the nation's entire trade deficit into tax dollars – which he could not; it doesn't work that way – he would still be more than three-quarters short of his goal.

And that is before factoring in his tax plan. The Tax Foundation – an organization that typically provides optimistic assessments of how much additional economic growth would be sparked by tax cuts – estimates that Trump's tax proposals would increase the debt by more than $1 trillion a year over the next decade, even after accounting for growth effects.

Trump could pass his tax cut, monetize the entire trade deficit as additional revenues, somehow eliminate all federal spending except Social Security (which he has said he will protect) and still not pay off $19 trillion of debt in eight years.

Near the end of the economic exchange in the interview, Woodward asks Trump his economic message lacks the optimism of Ronald Reagan's "Morning in America" theme. "I have great optimism," Trump replies. Of all of the possible threads that could bind his economic rhetoric, that would appear to be the strongest: Optimism, not for the economy on its current path, but for the one he and his deal-makers can deliver.

https://www.washingtonpost.com/news/...f-the-economy/

Those legs do not form an argument that most economists would call coherent.

You mean the "most economists" who have advised and counseled US into $21 trillion of debt and 94 million adults out of the work force?

His debt claims do not survive basic mathematics. In order to pay off the national debt within eight years, the federal government would need to more than double the $2 trillion in annual income tax revenues it brought in last year. Even if Trump were able to eliminate somehow turn the nation's entire trade deficit into tax dollars – which he could not; it doesn't work that way – he would still be more than three-quarters short of his goal.

You don't understand the multiplier effect of solving the trade deficit. Most of the trade deficit is manufacturing dollars. When that comes back home, you multiply those jobs and those dollars by 6. If you have a goods trade deficit not counting services, of $500 billion a year, that's manufactured goods. Multiply the $500 billion by 6, now you have $3 trillion a year in new business in the United States, that will virtually eliminate poverty in the United States which reduces welfare spending by hundreds of billions a year in addition to collecting almost $1 trillion in new taxes from the real economic growth. That's before you stream-line government as Trump plans to do. So, just take the $1.5 trillion a year in new revenue and reductions in welfare because people are working and don't need it any more, multiply it by 6 years, giving him 2 to get started and that's $9 trillion, half of the present debt just from that. Now add in defense stream-lining, waste fraud and abuse, no more spending on illegal aliens and unsustainable immigration, and so much more, and he'll definitely have the debt reduced by major amounts by the end of his second term.

There's nothing at all bizarre or magical about it. After all, it's just basic math which seems to escape most reporters and blows right over the heads of "most economists", probably because they've never paid an expense or created a dime of wealth and have no clue of their own what Trump is even talking about, which is clearly why we're in this disaster to begin with.

Republican front-runner and businessman Donald Trump, who owns hotels, has said U.S. wages in general are too low.

New amenity at L.A. hotels: a much higher minimum wage