As Trump is inaugurated today, it seems most people are feeling better about the economy. Even a more liberal analyst said yesterday in an interview that he thought Trump should raise the minimum wage to $15 to stimulate demand!
A Bernie Sanders, far-left strategy in a Republican Congress?
How delusional can you get?
The problem, as usual, is that economists, analysts and politicians don’t understand the real causes of our economic malaise since 2007, including Trump.
It’s not primarily business regulations, or higher taxes. Altogether, U.S. personal and business taxes combined are less than any major country in Europe, or Australia or Canada!
The problems are…
- Slowing demographic trends (a factor even more prevalent in Europe and East Asia);
- And unprecedented levels of debt and entitlements (here and everywhere else).
And there’s nothing near term President Trump can do about either of those things!
I think Trump is setting himself up for a massive disappointment in the year ahead.
Since we’re not in a supply-side crisis like we were in the late 1970s and early 1980s when Ronald Reagan came in, those solutions aren’t the answer. They worked then. They will NOT work now. And who are Trump’s chief economic advisors? Larry Kudlow, Stephen Moore, and Art Laffer – all zealous supply-siders.
Instead, we’re in a demand-side crisis like what we saw in the early 1930s with global oversupply. In such a situation, cutting taxes will only create even faster growing deficits and debt, not investment in new capacity and jobs.
Besides, does Trump really think a Republican Congress is going to just approve of massive tax cuts and infrastructure investments that raise our already out of control public debt, just as the debt ceiling has to be raised above $20 trillion?
It’s been doubling every eight years in Republican and Democratic administrations and, at this rate, will be nearing a cool $40 trillion just eight years from now.
Debt bubbles always create over-supply in business and falling demand from excessive consumption and debt burdens. They also create bubbles in financial assets that will always burst.
Donald himself said we have a big fat, ugly bubble… what is he thinking?!
He’s walking into a world of ever-increasing geopolitical conflicts, increasing threat of trade wars – especially created by him – declining demographic trends and crushing debt burdens.
And you’re going to fix that by cutting some regulations and reducing taxes? Reducing taxes just shifts the pie from government to business – and larger businesses more typically.
Of course not!
All that will do is make that top 0.1% and 1% even richer and do nothing for the average worker that elected Trump.
I recently wrote to you about the jobs market, which is a lagging indicator, not a leading one. We’ve simply been hiring back workers that lost their jobs massively in the great recession, and now we’re nearly done on that at 4.6% unemployment.
Do you know what the natural rate of workforce growth is once we hit full employment? NEGATIVE into 2023 and then only around 0.2% after that for decades.
Since older workers don’t get more productive, we have gone back to just 0.4% productivity rates. That’s nearly as low as at the bottom of our last long recession in the 1970s and early 1980s when the Bob Hope generation was retiring rapidly.
Baby boomers have been retiring predictably since 1998. With that has come declining workforce participation rates. It peaked at 67%. It’s now at 62%. It’s heading towards 58% by 2024 – over Trump’s potential two terms.
So how do you create 4% growth from a declining workforce, with declining productivity?
There’s no question in my mind that Trump’s promises will lead to the biggest economic disappointment this side of the Great Depression.
The only questions I DO have is how long it will take the markets to figure out this out for themselves…
Anytime now, Italy and southern Europe could default.
China’s massive bubble could blow – maybe even triggered by Trump tightening their trade with the U.S.
Or, what if we suddenly saw job growth drop from that 150,000 to 200,000 each month to just 100,000 or even much less? (Never mind that payroll tax data already suggests job growth is lower than reported.)
President Trump was inaugurated today. I sincerely wish him the best of luck. But I have serious doubts that he’ll last his first year without a major debacle and backlash.
At this point I would give the Trump rally through about July and then we could see one of those first, devastating bubble crashes that sees the markets down 30% to 40% in a few months.
I’ll reserve judgement on that until I see some divergences build in the markets, and small caps are likely to be where that happens because they’ve rallied the most irrationally since the election.
But I just don’t buy all the Trump euphoria. And am surprised at how many intelligent people do.
God bless America… or maybe that should be, God help America.
Follow me on Twitter @harrydentjr