Note well what Trump says here:
“Sometimes you have to fuel the well in order to really get the economy going.”
I sense huge deficits are on the way, even if Trump makes some politically-motivated cuts here and there to government spending. And just as I predicted here, the way to sell it to the public is by saying that it’s all about rebuilding the military and patriotism.
We all know that the Republicans have a fetish for balanced budgets and deficit hawk hysteria. They cannot return to that loser program now.
As Trump seems to be slyly indicting here, America is about to be driven into huge deficits by tax cuts and massive increases in infrastructure and military spending. Military spending, by the way, has always acted as a type of crafty and covert industrial policy in the United States, and part of the way in which the government funds scientific and technological R&D to some degree.
When an effective protectionist policy and immigration restriction have been implemented, a huge stimulus will do wonders for the US economy and reshoring of manufacturing (the most serious threat to this, incidentally, is if the infrastructure spending is “privatised” in public–private partnerships, which is not a good idea).
Yes, protectionism means higher prices at first. But, in the long run, it means more employment, more industry, more income, falling trade deficits, and rising real wages.
But you can bet all these liberal New Keynesian hacks and (I am afraid) many heterodox Keynesians won’t give President Trump credit, if and when he implements these policies and starts to drive America back to the prosperous shores of rebuilding manufacturing and full employment by Keynesian economics.
A final issue: Trump’s “America First” trade policy will inevitably mean that the Trump administration will push trade deals on other countries and even some of the more odious US corporate vulture-style capitalism, such as opening up, or pushing privatisation, of nationalised industries and the public sector in other nations, with predatory US capitalism.
The answer to this: the rest of the world – particularly the Western world – must learn its own protectionism, guard public sectors, and rebuilt its own gutted manufacturing. The rest of the world needs to grow some balls and learn some economic nationalism of its own.
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