The View from Right Field

How Long Can We Continue With This Deficit and This Debt?

In last Tuesday’s Financial Times, Martin Wolf did an excellent job explaining how various global imbalances interact and how one country trying to address its imbalances may have consequences on others, perhaps especially the United States because its economy, and imbalances, are so big.¹

Among the biggest of these imbalances is the global savings surplus and the US federal deficit, which, at this point, rather balance each other off.  The question is, if the United States actually reduced its fiscal deficit, what would happen to those with savings surpluses.

If This is MAGA Tax Policy, I Don’t Want It.

The 2017 tax bill passed by the Republican Congress and signed by Donald Trump was pretty good.  It really was a reform bill.  For businesses, it lowered the tax rate from 35% to 21% and got rid of a lot of special interest deductions.  That is the definition of a good tax bill: Broadening the base and lowering the rate.

The provisions for individuals weren’t as good, but there were good changes.  The standard deduction was doubled, and deductions for state and local taxes were limited to $10,000.  The result was a boon for lots of taxpayers: The increase in the standard deduction meant they didn’t have to worry about itemizing their deductions, making filing their tax return simpler and easier.

The one thing to remember about the 2017 bill is that it was the result of years and years of work by people like Representative and House Speaker Paul Ryan, Senator Pat Toomey, and many others.  President Trump signed it, but it was a real Republican bill, not his bill.

Bringing Back Manufacturing or Bringing Back Manufacturing Jobs? Manufacturing Will Cost Money. The Jobs Won’t Be Brought Back.

I am not certain what Donald Trump is trying to do with his tariffs.¹  Is he trying to get manufacturing jobs back or is he worried about the United States not having the manufacturing capabilities it needs for national security purposes?  Does he think that having more manufacturing jobs will make us richer?²  Or is it just a matter of him thinking we have been getting ripped off by China and the EU (among others) and he wants to “get even”?

Whatever the reason, President Trump apparently thinks tariffs are answer.  I’m not sure whether his idea is to leave the tariffs in place, thereby making products from other countries more expensive, so companies will make them here and we will get richer (because we’ll have more jobs or we’ll make stuff or something else).  Or he is using the tariffs as a club to get other countries to buy more stuff from us (by lowering whatever barriers to trade they have or just agreeing to buy more stuff from us so we will remove/lower the tariffs)?³  Or maybe it’s just about the deal.⁴

Federal Government Money Isn't Free Money

The Chicago Tribune reports that the Trump administration is cutting funds for the Institute of Museum and Library Services, cuts that could hit interlibrary loan programs throughout Illinois (“Libraries’ book sharing threatened by federal cuts,” April 28).  The article quotes numerous local and state library officials who decry the cuts and warn of dire consequences.

But it seems like there is a simple solution: If the federal government won’t use the money it gets from taxpayers to help fund this program, why can’t local libraries use money they get from taxpayers to jointly fund the program?  Alternatively, if the program is so important to Illinois, maybe the State could use money it gets from taxpayers to fund the program. 

Instinct, Not Strategy

Not that we didn’t know this, but Donald Trump has explained how he would be making decisions on tariffs, and probably other things, in the coming weeks:

“Instinctively, more than anything else.  You almost can’t take a pencil to paper, it’s really more of an instinct than anything else.”

That is just not going to work.  Maybe instinct works in real estate deals and in politics, but it doesn’t work in government – and certainly doesn’t work in foreign affairs and international economics. 

Republicans Embrace the “Nanny State”. Will Democrats Channel Their Inner Milton Friedman?

As part of Robert F. Kennedy’s “Make America Healthy Again” crusade, the Trump administration is fast-tracking state requests to exclude pop and candy from the food stamp program.  Even non-sugared pop will be excluded by Arkansas.  The idea is that even diet pop isn’t healthy, and the government wants everybody to be healthy, so people shouldn’t be able to use food stamps, i.e., SNAP account money, to buy it.  The federal government knows what is best for you, and they’re not going to let you buy stuff, or at least use food stamps to buy stuff that they think you shouldn’t eat.  In other words, the “Nanny State.”

Which sounds like something Democrats would normally support.  After all, Democrats like telling us what to do.  But, will the fact this is now being done by the Trump administration mean that Democrats will start saying that people should be “free to choose” what they use their SNAP monies to buy?

A Few Random Thoughts on Donald Trump – And Others

• Perhaps the thing that most explains the difference between how Donald Trump views the world, the economy, etc., and how I view them, is that President Trump thinks of pretty much everything as a zero sum game.  In every deal, maybe even in every interaction, there is a winner and a loser; and the amount the winner gains is pretty much equal to what the other side loses.  I don’t believe that.  President Trump does.
• If you are in a fight, it’s nice to have friends.  The United States no longer has as many friends it can count on in a fight – because if they can’t count on us, we can’t count on them.  We used to have lots of those kinds of friends, and we were safer because of it.  Now we don’t, so in order to have even close to the same level of safety, we are going to have to spend more money on defense, and we still may not be as safe.
• To the extent Americans, and some of our leaders, think (and have thought) we have been getting taken advantage of because we were spending a lot of money on defense, which allowed other countries to not spend their fair share on defense, some part of the blame for that rests on those other countries and their leaders for not spending on their own defense.  Here’s looking, for example, at you, Angela Merkel.¹  Even Barack Obama, the U.S. president that Chancellor Merkel liked the most, thought allies were free-riding on America and American defense expenditures.  Germany was happy to rely on America for defense and not spend much itself.  That has not worked out well for either of us.
  Germany was also willing to rely on Vladimir Putin not being Vladimir Putin.  That has not worked out well, either.
• Tariffs are a bad idea.  But then so are other trade barriers.  If we would all get rid of trade barriers, we would all be richer.  Unfortunately, American leaders have not believed in getting rid of trade barriers, i.e., free trade, for a long time.  It is a bipartisan problem.  But President Trump is making it worse.  Wars are bad; so are trade wars.
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  ¹ There are lots of others, too.

The Problems With Trump: #1 – The Economy

I left on a two-week vacation on January 23.  It was hard to miss what President Trump was doing even while gone, and since we’ve been back, it’s been impossible – even with pitchers and catchers reporting.  So, I will be posting a few thoughts on Trump 2.0 in the next couple of weeks.  First, the economy.

Donald Trump got elected, in part, because some voters thought Joe Biden and the Democrats weren’t doing a good job on the economy.  The question is whether President Trump is going to do any better.  Which brings up one of my favorite quotes about the role of government and the economy.  It’s from Sir Bill English, then Finance Minister of New Zealand.  In 2014, he said: “Governments need to create an environment of stability and good incentives for [businesses] to grow the economy.  Businesses need confidence the rules will not shift and the Government is not one of the risks they have to manage.”

What’s More Important: The US Presidential Election or the Internal Contradictions in China?

While we have a presidential election in the United States today, I wonder whether what is going on in China might be more important.  I thought much same thing in 2020 when Jack Ma’s IPO for Ant Group was cancelled by Xi Jinping on the same day as the United States presidential election.  And even with everything that happened after that election, I think the cancellation of Ant Group IPO, and all that followed it, may have been more consequential. 

The contradictions of what is going on in China are shown in two articles in yesterday’s Financial Times.  On page 4, there is an article with the headline “China debates details of largest fiscal stimulus since pandemic”.  The article begins:

My Hope for Election Night: Gridlock

Our country has a lot of issues that need to be addressed. The problem is that neither presidential candidate nor their parties have any idea to fix them.  In fact, if either candidate and their party won control of both the White House and Congress, their proposals, if enacted, would probably make the situation even worse.

Therefore, what we need from this election is: Gridlock.  While gridlock and doing nothing would be bad, it would probably be less bad than the proposals of either candidate and his/her party.  So, if we can’t make things better and if we can’t even keep them the same, then let’s make them worse as slowly as possible.  And the way to do that is through gridlock: the Republicans will stop the Democrats from enacting their bad programs and the Democrats will stop the Republicans from enacting their bad ideas.