Trump’s Economic Policies

Candidates say a lot of things during the campaign that they know they have no intention of following through on.  We should hope that is true with Trump.  The President-elect starts out as a lame-duck; he can’t run again.  With his immense ego, he will be concerned about his legacy, which I think is a good thing.  He made a lot of statements about more tax cuts, high tariffs, etc.  A lot of those policies, if enacted, would raise inflation and cause other economic distress.  We have an immense deficit and debt.  If inflation and interest rates are to decline, the deficit has to pretty much disappear.  So I hope Trump will really focus on federal spending and find ways to substantially reduce it.  An easy target is the federal workforce, which is massive and incompetent.  A harder, but far more necessary target is entitlement programs.  Trump indicated he would leave those alone, but the reality is you can’t get the deficit where it needs to be without reforms to those programs.  Raising the eligibility age and making the wealthy pay the full cost for themselves would be a good start.

If Trump doesn’t take steps to fix the deficit, inflation and high interest rates aren’t going away.  He knows he won on inflation concerns, so I assume he will in the end take the steps necessary to avoid inflation.  High tariffs sound appealing, but they do little to bring jobs back to the US and they at least in the short run cause higher prices, contributing to inflation.  They also lead to retaliation against US exports, which certainly doesn’t help domestic employment.  As usual, Trump is negotiating.  He will talk about high tariffs, and use them as a stick to get some better terms on trade.

The real focus, in terms of economic growth, more jobs, reducing inflation and making life easier for business, should be on regulatory reform–really eliminating all the bureaucracy, permits and rules that make investment impossible.  Regulation is what drives jobs overseas more than lower labor costs, which typically are a small part of business costs.  This is the real winner for Trump, force those regulatory changes immediately, especially in permitting and use federal pre-emption powers to prevent states from enforcing their own bureaucratic regimes.   So I will be most closely watching what actually happens with regulations; that will tell us if we can see a better economy.