In Part I, I covered the “very good indeed” parts of President Donald Trump’s economic policies: the 2017 tax cut and the deregulation and slowing of new regulation. Here I turn to the “horrid:” his attacks on free trade, his hostility to immigration, and his failure to do anything to rein in federal spending. As in Part I, I wear two hats in judging him: (1) as a believer in economic freedom and (2) as an economist who cares about people’s economic wellbeing.
This is the opening paragraph of David R. Henderson, “Trump’s Economic Policies: An Assessment, Part II,” Defining Ideas, October 30, 2019.
Another excerpt:
What did Trump have in mind when he said that “people or countries come in to raid the great wealth of our Nation?” He didn’t specify in that tweet, but if we go by his past statements, he sees low-price imports as a raid on our wealth.
If we apply the same reasoning to a trip to Costco, he would see Costco selling delicious Kirkland bacon to me as a raid on David Henderson’s wealth. Of course, it isn’t. The lower the price I pay for a given product, the better off I am. Low prices enhance my wealth rather than destroy it. Virtually everyone understands that in a domestic context. The reasoning doesn’t magically change when the goods we buy cross a border.
And an excerpt on immigration:
I noted above that Trump’s actions have probably discouraged immigration. One check of the data bears that out. According to U.S. Census data collected every year, the number of foreign-born people in the United States increased between 2011 and 2017 by an average of 691,000 and during that time the smallest increase was 446,798 in 2012. But between 2017 and 2018, the number dropped to an astoundingly low 202,866.
That means that not only will we do without workers in the low-wage occupations like agriculture but also that we will likely miss out on budding entrepreneurs. Arnobio Morelix, an analyst at the Kauffman Foundation, found that immigrants “are about twice as likely as natives to start a new business.”
Read the whole thing here.
READER COMMENTS
Thaomas
Nov 2 2019 at 9:06pm
I still challenge you to defend the deficits created by the “Tax Cuts for the Rich and Deficits Act of 2017.” Maybe in your utility function it is OK to redistribute hundreds of billions of dollars in income to the richest portion of the income distribution. De gustibus non disputandum est. But how do you defend not having raised other taxes to prevent the redistribution from producing growth inhibiting deficits when the economy was near full employment?
The others are just populist gestures — costly wealth destroying gestures — by someone who has no interest in promoting growth.
David Henderson
Nov 2 2019 at 9:50pm
You wrote:
Maybe in your utility function it is OK to redistribute hundreds of billions of dollars in income to the richest portion of the income distribution.
No, it’s not OK. I’m against forced redistribution. That’s one of many reasons I liked the tax cut. It reduced redistribution. What you’re doing is taking as given the amount of redistribution due to previous taxes and then seeing a reduction of that amount as redistribution. That’s incorrect.
You wrote:
But how do you defend not having raised other taxes to prevent the redistribution from producing growth inhibiting deficits when the economy was near full employment?
I don’t accept your premise that the deficits induced by tax cut inhibited growth. In fact, the standard estimates are that the tax cut helped growth.
You wrote:
The others are just populist gestures — costly wealth destroying gestures — by someone who has no interest in promoting growth.
They did and do destroy wealth. But I disagree with you about whether Trump “has no interest in promoting growth.” I think he’s quite interested in growth but is profoundly ignorant of the effects of trade and immigration restrictions. He’s quite sure of himself and he shouldn’t be.
Phil H
Nov 3 2019 at 12:12am
“I think he’s quite interested in growth but is profoundly ignorant…”
I have to agree with Thaomas on this one. If you were to offer Trump a choice between growth or X, where X is almost any other good, I’m not convinced he’d take growth. For example, higher employment, reelection, some good press, a “win” against China…
I think growth for him is like the financial markets: merely an abstract talking point, to big up when they support him and trash talk when they don’t.
Thaomas
Nov 3 2019 at 9:21am
I don’t understand your position: an income transfer is an income transfer. You can be for or against.
Do you claim that the possible “Keynesian” bump in 2018 growth reduced deficit even in 2018, much less the projected deficits? Or do you dispute that an increase in the deficit is a drag on growth (because on the margin the sum of the transfers are all saved?) Would you similarly defend the GWB tax and deficits policies?
Perhaps I misstated my perception of the President’s utility function. I do not claim he dislikes growth, just that (except for his own income) it has a very low weight. I do not think that his anti-immigration, anti-environment, and and anti-trade polices are just misguided attempts to raise the incomes of people in his base but would persist even if his trade advisers explained carefully the economic harm of these policies.
David Henderson
Nov 3 2019 at 6:53pm
You write:
I agree with your statement that A is A. I get that you don’t understand my position.
You write:
I say that the increase in the deficit was not a drag on growth and that in fact the tax cuts were very supply-side oriented, especially the corporate tax cut, and, therefore, enhanced growth. Your statement is based on a Keynesian view that I don’t share.
Thaomas
Nov 7 2019 at 11:13am
OK so explain to me why transferring income to high income people is better than transferring it to lo income people.
No, I was asking YOU if your model for how the increased deficit increased growth was Keynesian. [I actually think that that does make some sense for the 2017 deficit when the Fed was not being stimulative enough, but not the deficits in all the other years.]
You say that your model is supply side. My criticism of the borrow and transfer is supply side: the higher deficit means lower saving and investment (100% after any Keynesian bump). So where are the efficiency gains you identify to offset the lower investment? Can it really be from the slightly lower distortion in intra-firm investment incentives stemming from the lower marginal tax rate? Increased foreign investment due to the higher returns to corporate investment? What?
Thomas Sewell
Nov 6 2019 at 8:41pm
How do you justify the position the tax cuts are responsible for the deficit when tax receipts have continued to increase each year? Yet you conspicuously continue to not mention spending, which have increased more than the revenue increases.
Is there room in your philosophy of life for the government to ever not spend more and more?
Thaomas
Nov 7 2019 at 11:19am
I was just asking a question about one specific ceteris paribus feature of the tax bill, the transfers that produced higher deficits. Yes the lower tax collections could have been offset by lower spending, but they were not. That looks like an anti-growth policy to me, just like the additional trade and immigration restrictions.
Jon Murphy
Nov 2 2019 at 9:19pm
Good stuff. I think the point you raise about ICE raids on places of employment is especially important. If the issue really is illegal immigration and draining the welfare state, raiding employment decreases the incentives of both employers and immigrants to work.
David Henderson
Nov 2 2019 at 9:50pm
Thanks, Jon.
Comments are closed.