(1) crash America or continue its economic stagnation, and accelerate its catastrophic decline under neoliberalism (because Trump will impose an extreme form of neoliberalism, albeit maybe with some trade or labour protectionism) or(2) will make Trumponomics nothing more than Reaganomics Mark II.
(2) turn America around and actually impose big Keynesian stimulus, and trade and labour market protectionism.
Why? We know why. It’s the dirty little secret about Reagan: Reagan was a big spending Keynesian, albeit a military Keynesian. He was also a protectionist who imposed tariffs and non-tariff barriers to protect American manufacturing, primarily against the Japanese.
If we turn to Trump, his economic policies are frustratingly murky. And then there is the question of his credibility. He poses as a populist, and perhaps is just saying whatever he needs to say to win votes. Moreover, if he gets into office, it may well be back to business as usual: more neoliberal poison.
One of Trump’s major economic policy proposals is a plan for tax cuts. The tax cut plan is shamelessly regressive, with tax cuts on the wealthy and big business, although there are some cuts for the middle and working classes. But remember: this is just a like Reagan’s supply-side economics! The supply-siders pushed through a regressive plan of tax cuts, and once the Reagan administration abandoned Paul Volcker’s disastrous experiment with monetarism, Reagan pushed through big discretionary spending increases, which drove the budget into deep deficits (here and here).
The million dollar question: what will Trump’s fiscal policy be? Could it be that when he gets into office he will cut taxes but massively increase government spending, perhaps justifying the increases as military spending or rebuilding America’s infrastructure? He would then crush all opposition by smearing his opponents as unpatriotic haters of America and betrayers of the military.
The second element of Trump’s proposals relevant to economics is his immigration policy. Trump wants to do what very few establishment Republicans and no Democrat would ever do: build a huge wall and seal off the border with Mexico and deport illegal migrants. Tons of illegal immigrants.
The fact that Trump wants a huge wall and deportation of illegal aliens, possibly in the millions, will actually help American workers at the bottom of society if he managed to implement these things (though that is uncertain), because it will impose a new degree of labour market protectionism, even ultra-protectionism for workers. You think that won’t be popular? Well, corporate America is screaming with horror at this plan because they understand well what it means: that businesses must raise wages to attract domestic workers.
Trust me, your average American Joe will positively love President Trump if he does this and combined with large fiscal stimulus, because too many lower-class Americans suffer from having to compete with illegal immigrants for very low wages.
Real wages under President Trump might rise too. Democrats claim to be in favour of the working class, but none of them would have the balls to do what Trump is advocating in terms of labour market protectionism. For example, Bernie Sanders says he is vehemently against open borders, but what could he ever realistically do to stop the flow of illegal immigrants? Sanders shuns any kind of mass deportations. He’s too nice and too compassionate a man.
The third point: Trump seems to want a large degree of trade protectionism by confronting the aggressive mercantilist China and changing free trade deals. In the video below, he says something quite stunning: despite his (amusing) protestations to the contrary, possibly there is no free trade agreement that the US has signed he can think of that he likes. None. That is a brutal rejection of the mainstream US political orthodoxy on free trade. Only Bernie Sanders is this hostile to free trade.
Bernie Sanders and Trump also seem to agree on the need to put an end to the unfair trade practices of China, e.g., the de facto protectionism by undervaluing of the Chinese currency, and the off-shoring of US jobs.
Trump may well drive a huge steamroller right over the World Trade Organisation and tear up various free trade agreements. That will be bad for other countries but good for America in the long run because it will tend to encourage re-shoring and rebuilding of American manufacturing.
So again, to return to the million dollar question: will a President Trump crash the economy or turn out to be a huge deficit-spending Keynesian?
In the latter case, Trump has the capacity to be – let’s be honest – a hero president who appeals to a lot of angry working and middle class voters, if he does not succumb to austerity and budget balancing. His America-first economic nationalism might bring back some manufacturing jobs. A wall with Mexico and huge deportations of illegal immigrants will actually help the job prospects of unskilled and semi-skilled US workers.
If he is really smart, Trump will crush all opposition, cut taxes, but then ram through a huge increase in discretionary spending and run huge deficits, so that he will preside over Reaganomics Mark II.