In this interview yesterday, I noted that there are “external” risks to the economy, most notably the spillover effect of a potential economic implosion in China or a fiscal crisis in Italy.
But many of the risks are homegrown, such as Trump’s self-destructive protectionism and the Federal Reserve’s easy money.
Regarding trade, Trump is hurting himself as well as the economy. He simply doesn’t understand that trade is good for prosperity and that trade deficits are largely irrelevant.
Regarding monetary policy, I obviously don’t blame Trump for the Fed’s easy money policy during the Obama years, though I wish that he wouldn’t bash the central bank and instead displayed Reagan’s fortitude about accepting the need to unwind such mistakes.
The interview wasn’t that long, but I had a chance to pontificate on additional topics.
- Economists are lousy forecasters.
- On trade, I’m especially worried about Trump pulling America out of the WTO and/or imposing big trade taxes on the auto sector.
- The reduction in the corporate tax rate is the crowing achievement
of the Trump presidency. - Trump’s track record on government spending is very anemic.
- Trump says a border wall is needed for national security, yet he’s weaker on spending than Franklin Roosevelt and Harry Truman.
- The Trump tax plan does reduce revenue in the short run, but we could still quickly balance the budget with modest spending restraint.
- Government spending is not “juice” for the economy. Federal outlays merely divert resources from the productive sector.
The bottom line is that Trump has a very mixed record on the economy. But I fear the good policies are becoming less important and the bad policies are becoming more prominent.
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