Donald Trump’s chances of becoming president are higher than I ever expected them to be, and there is a chance that he will be able to put his economic plans into place. He claims his economic policies will be good for the working class, but in reality his plans for high income tax cuts and deregulation adhere closely to standard Republican ideology that has favored the wealthy and powerful. Even his plans for international trade, an area where he claims populist support, would hurt far more people than it would help. Here are the four areas where Trump’s economic plans concern me the most:
Social Security and Medicare: In many ways, Donald Trump follows the Republican playbook on fiscal policy. He believes in low taxes for the wealthy, and he wants to scale back or eliminate social insurance programs such as Obamacare. But there are two programs he has indicated he will try to protect, Social Security and Medicare. The question is whether he is serious about insulating these programs from cuts or saying whatever is needed to get votes, and whether these programs can be protected if he implements his tax cut plans.
Donald Trump’s latest tax plan does not increase the national debt as much as his original plan, revenues will “only” fall between $4.4 trillion and $5.9 trillion over a decade instead of $9.5 trillion. Trump has claimed that all of the lost revenue will be made up through the plan’s impact on economic growth, cuts to nondefense appropriations (essentially everything except defense, Social Security, and Medicare), and deregulation.
However, his estimates of the additional growth we would get from cutting taxes and deregulating are wildly inflated, and the cuts to nondefense appropriations would amount to cuts of approximately 25 percent over 10 years which is not politically feasible. If his plan were implemented, the debt would likely go up by trillions leaving Republicans with just three choices, reverse the tax cuts, make cuts to programs such as Medicare and Social Security, or accept the higher debt numbers.
Republican members of Congress, who would almost surely be in control if Trump wins the election, will not reverse the tax cuts. But they have been eager to cut entitlement programs, only the threat of a veto from Obama stood in their way. Would Trump allow the debt to skyrocket, or would he, as I believe, end up signing legislation from Congress that includes large cuts to Social Security and Medicare? Despite his promises, two key programs the working class relies upon would be vulnerable with Trump as president.
Deregulation: I’ve already mentioned Trump’s plan to reduce regulation, to the point of calling for severe reductions in the budgets of agencies such as the EPA, the Education Department, food safety enforcement, and a reversal of Dodd-Frank and other financial regulation. Deregulation of the magnitude Trump is proposing would be a disaster waiting to happen.
There are obvious dangers to areas such as the environment and food safety, but sticking with economics it would also make the financial system, which needs more regulation not less, more likely to crash again. There would be more tolerance of monopoly power – a source of rising inequality, and less protection generally of workers and consumers from powerful business interests. Trump claims that deregulation will create economic growth, but that didn’t happen when Reagan and Bush deregulated and there’s no reason to think it will be different this time.
Federal Reserve Composition and Independence: Trump’s statements about the Fed have been inconsistent. In November he said that Janet Yellen hasn’t raised interest rates “because the Obama administration and the president doesn’t want her to.” But in May he said, "I'm not a person that thinks Janet Yellen is doing a bad job. I happen to be a low-interest rate person unless inflation rears its ugly head," which he added he doesn’t see happening anytime soon. But more recently he has gone back to a critical stance, saying that Fed Chair Yellen is “obviously political,” that “She’s doing what Obama wants her to do,” and that she “should be ashamed of herself.”
Trump has said he would replace Yellen if he is elected, and given his obvious lack of knowledge about monetary policy he would likely rely upon his advisors to select a new Fed Chair and make appointments to the Federal Reserve Board. That means we are likely to get a Chair and Board members who are hawkish on inflation, opposed to financial regulation, more likely to base policy on strict adherence to a Taylor rule (according to this framework, interest rates should have already been increased), and less likely to take aggressive action if the economy crashes (except perhaps to bail out cronies on Wall Street).
That would be bad enough, especially for the working class who would take a back seat to concerns about inflation and the interests of the financial sector, but my biggest worry is that Trump would compromise the independence of the Fed. Trump’s personality is such that he will want to be in control of policy, and he will likely appoint people who are willing to do his bidding. The Fed’s reputation with the public is has fallen in recent years, and Trump’s false accusation that the Fed is working to serve Obama’s political interests hasn’t helped. If he further politicizes the Fed by appointing Board members who will implement policy at his direction, it could do damage to the Fed as an institution that would be very difficult to reverse.
International Trade: Trump’s plans to renegotiate trade deals and impose tariffs on countries that will not bend to his will have been discussed at length, and most economists believe it would be very harmful for the economy. So let me just note that the most recent estimate of the consequences of his trade policy from the Peterson Institute is that his plan would cost the economy 4 million jobs, send us into a recession, and be “horribly destructive.” That’s just an estimate, the actual number could be larger or smaller, but whatever the actual number it would be very costly for workers.
There is little doubt that international trade has had a negative impact on workers in recent decades, but the loss of millions of jobs and a recession is not the solution to this problem. We need tax and transfer policies that ensure the gains from trade are widely shared, enhanced social protections for workers who lose their jobs, and a concerted effort to attract more businesses that offer decent employment opportunities. Trump’s plans do not address these important issues.
Many people struggling to make ends meet each month believe that it doesn’t matter much for their lives who is elected president; their lives will go on much the same. But that is not true. Despite Trump’s attempt to convince you otherwise, the working class has a lot to lose if he makes it to the White House.