A Donald Trump Presidency May Have Unpredictable Economic Outcomes
Trumponomics – Pragmatic Populism in the National Interest
After defeating Ted Cruz and John Kasich in Indiana last week, Donald Trump is the Republican Party’s presumptive nominee for President of the United States. Mr. Trump achieved this status by challenging the establishment, promising to build a wall along the Mexican border and railing against political correctness.
What Considerations Would Guide A President Trump’s Economic Policies?
Mr. Trump’s views on economics, monetary and fiscal policies are a mixture of populism, business pragmatism, and nationalism that are always seemingly subject to change.
As a businessman, Mr. Trump did not espouse any particular economic philosophy and did what he could to build his business, whether donating to politicians who may have in turn returned favors or borrowing money at ultra-low interest rates to fund projects. Taking advantage of the system as it was does not mean that Trump believes in the system as it is, but he knows how it works and how to work it. His economic policies will probably be a compromised deal between economic populism, business pragmatism and nationalism.
We can see how Donald Trump the business pragmatist, Donald Trump the populist and Donald Trump the Nationalist have taken different views on some economic issues. For example:
Raising The Minimum Wage – For and Against
Most business owners oppose the minimum wage because it takes away their ability to pay what they deem an appropriate wage. That doesn’t mean all business owners are against paying higher wages, it means that they don’t want the government to set wages, they want the market to set them. Populists believe that workers should be paid a “living wage” and business owners will do what they can not to pay it. They believe that only government setting a minimum wages can ensure that employers pay a fair wage.
Early in the campaign, candidate and business owner Donald Trump spoke out against raising the minimum wage, saying “Having a low minimum wage is not a bad thing for this country”. Last week the populist candidate Donald Trump in an interview with Wolf Blitzer on CNN said he would be “willing to do something” about raising the minimum wage, but wanted to create an economy where people would get paid more than just minimum wages. Democratic candidate and populist Bernie Sanders is also a strong advocate for the minimum wage.
Monetary Policy, Interest Rates and the Federal Reserve
Businessman Donald Trump has taken advantage of borrowing at low interest rates to build his real estate empire. Indeed, last week he called himself “the king of debt”. Donald Trump is uncertain, however, where he stands on interest rates. The populist Donald Trump has expressed concerns over artificially low interest rates and supports an audit of the Federal Reserve. The nationalist Mr. Trump has also expressed concern that not manipulating rates lower and allowing them to rise would cause the dollar to rise and put the United States at a trade disadvantage with China.
Mr. Trump has been consistent in his populist position that the Federal Reserve should be audited, a position shared with Democratic candidate Bernie Sanders. This position squares with business pragmatism as well- after all, what businessman wouldn’t want to review his own financial statements?
Mr. Trump has said he probably would not reappoint current Federal Reserve Chair Ms. Yellen because she, like him, is “a low interest rate person” and unlike him, “not a Republican.”
Gold and the Gold Standard
Donald Trump is an owner of physical gold bullion according to his disclosure statement with the Federal Election Commission. The gold most likely is the bullion he received as a security deposit for a lease at one of his New York City offices from a precious metals dealer in 2011.
Mr. Trump in a television interview with Pittsburgh Action News said this regarding the gold standard:
“In some ways I like the gold standard and there is something very nice about the gold standard… We used to have a very solid country because it was based on a gold standard and we do not have that anymore…It would be very, very hard to do at this point and one of the problems is we do not have the gold – other places have the gold.”
A dollar backed by gold would most likely cause the dollar to soar which, Mr. Trump the Nationalist might like as a matter of pride, but dislike as a practical matter as it would make U.S. exports less competitive and outweigh any incentive to examine reinstituting a gold standard in the United States.
Businessmen hate taxes. Taxes eat into profits and filing tax returns is an expensive and time consuming process. In one of the Republican Party primary debates, Donald Trump expressed his dismay at the annual IRS audits his businesses undergo. When businessman Mr. Trump announced his tax plan last summer that included tax cuts across the board, including cuts for those in “the one percent” he said “I fight like hell to pay as little as possible.”
Last week, populist Donald Trump backed away from his tax-cuts-for-everybody plan saying it would serve as the basis for negotiation and intimated that taxes may go up for everyone telling CNBC: “and during a negotiation, I could see that going up. I don’t want middle to go up at all. But I could see that going up. And I think that will happen, because it’s a cut for everybody.”
For Donald Trump everything is a deal, subject to negotiation. Mr. Trump believes he is among the best deal makers and will get the best deal for the American people and the country. He will take this approach in dealing with economic issues like the deficit (he hasn’t ruled out renegotiating U.S. bond payments with creditors), social security (he has promised to keep benefits by negotiating government programs elsewhere) or how to pay for infrastructure projects like his proposed wall along U.S. border with Mexico.
Political ideology and the U.S. Constitution will probably not guide Mr. Trump’s economic decisions. Rather, Mr. Trump will rely on his desire to strike deals that he thinks would work and be approved by a majority of the American people.