Trump’s Economic Siren Song

The words “Trump” and “plan” should really never be used in the same sentence. Witness the speech to the Detroit Economic Club.  Here’s what the Reuters News Service gleaned from Trump’s speech:

“Republican presidential nominee Donald Trump on Monday proposed tax breaks for working families and for corporations as he outlined economic plans in an effort to regain momentum lost during a damaging spate of controversies.

Trump said his plan would include imposing a temporary moratorium on new federal regulations and a reduction to the tax burden on working parents with childcare costs.

He proposed cutting the number of federal income tax brackets from seven to three and reducing the top rate to 33 percent from 39.6 percent. He had previously said he would drop that rate to 25 percent, an idea many tax experts said would dramatically reduce government income and balloon deficits.”

First, notice in the second line of the article quoted above that Mr. Trump “outlined economic plans,” NOT offered any specifics —  those will come later, just as every other suggestion made by the Republican nominee will come later, if at all.  If ever.

The Rich Get Richer and 88.7% Get Nothing

Secondly, those “tax breaks for working families” aren’t for all working families just some of them – even the Wall Street Journal noticed:

“It wasn’t clear how such a tax break might be structured and whether it would be available to tens of millions of families that don’t pay income taxes because they have lower incomes. Making child-care expenses fully deductible would provide much larger benefits to the wealthiest families that have larger tax bills.”

Nice.  However, we can clarify this to some extent.  The Tax Policy Center offers this information about working families, tax bills, and who needs the help the most:

“Only 11.3 percent of households in the bottom income quintile will pay federal income tax in 2015. In contrast, 59.3 percent of households in the lowest income quintile will owe payroll taxes. Combined, 60.3 percent of households in the lowest income quintile will owe federal income or payroll taxes.

In many cases, low-income households owe no income tax. That’s because, in 2015, a married couple with two children can exempt $28,600 from income using the standard deduction and personal and dependent exemptions. Generally, smaller amounts can be exempted from smaller households and larger amounts from larger households.”

The arithmetic is simple. Only a bit over 11% of households in the bottom income quintile owe federal income taxes – and these are the ones which would benefit from Trump’s “deduction.”  What the other 88.7% of the families in that quintile get from Mr. Trump’s “plan” is nothing.

Deregulation

We’ve heard this song before.  More specifically, a campaign aide told the Wall Street Journal, this means Trump wants to slash EPA regulation on carbon pollution, and halt the preservation of wetlands and waterways.  Nothing new here.  It’s the same GOP rhetoric of old, conflating all regulation with EPA and conservation rules.  This, while 1/3rd of the residents of California still lived in areas as of 2014 which did not meet Clean Air standards. [LA Times]

Reporters slid by deregulation of the financial sector (read: Wall Street Casino) However, this past May the Republican candidate called for dismantling the Consumer Finance Protection Bureau, and reversing the regulations in the Dodd Frank Act.  [Fortune]  There’s nothing new here either, just more generalized GOP talking points.

Jolly Little Trade Wars?

“At the same time, Mr. Trump has promised to aggressively use executive power to renegotiate trade agreements, to label foreign countries as currency manipulators and to apply tariffs and other penalties to trading partners.”  [WSJ]

Lovely.  First, China is our Number One import partner.  Mexico is second, and Canada third.  [Census FT]  We’ve imported $212.2 billion worth of stuff from China thus far this year; $145.2 from Mexico; and, $137 billion from Canada.  Not surprisingly these three are also our top three export partners, in order: Canada, Mexico, and China. [Census FT] Is Mr. Trump truly suggesting that we get into economic battles with our top three economic partners?  Are we really going to benefit from practicing Hoover-ian Protectionism in relation to our top three partners?

Trump said:

“At the center of my plan is trade enforcement with China. This alone could return millions of jobs into our economy.

China is responsible for nearly half of our entire trade deficit. They break the rules in every way imaginable. China engages in illegal export subsidies, prohibited currency manipulation, and rampant theft of intellectual property. (65 66) They also have no real environmental or labor protections, further undercutting American workers.”

[…] Trade has big benefits, and I am in favor of trade. But I want great trade deals for our country that create more jobs and higher wages for American workers. Isolation is not an option, only great and well- crafted trade deals are.” [Time]

Yes, Chinese manufacturing policies are heinous.  However, what Mr. Trump has on offer IS protectionism and isolation; no matter how politely it’s phrased.   Or how vaguely it’s expressed, as on Trump’s website explanation.  Missing from the Detroit address and the website mentions are the 35% tariffs Mr. Trump proposed last May. [National Review]

Further, Mr. Trump appears to be operating on the happy delusion that simply declaring China to be a currency manipulator will force them to re-negotiate our trade deals.  Not. So. Fast.  Manipulation is in the eye of the beholder.

“Reasonable people can and do disagree about how countries conduct their monetary policies: what price should the central bank fix, or at what pace should that fix evolve. But to label as manipulation the conduct of monetary policy itself betrays a fundamental confusion about the operation and goals of central banks. If Zhou Xiaochuan,governor of the People’s Bank of China, is a currency manipulator, then Janet Yellen is an interest-rate manipulator.” [WSJ]

As is becoming all too noticeable, Mr. Trump’s understanding of the monetary policies involved is essentially shallow. The Wall Street Journal continues:

“Movements in the nominal yuan exchange rate have almost no long-term impact on global flows of exports and imports or on broader considerations such as average wages. The exchange rate that matters for trade flows is the real exchange rate, i.e., the nominal exchange rate adjusted for local-currency prices in both countries.

The real exchange rate, in turn, reflects the deep forces of comparative advantage such as technology and endowments of labor and capital. These forces drive trade regardless of monetary policy.”

Sorry, Mr. Trump, it seems as though a bit more sophisticated understanding of exchange rates is necessary – and, no, merely declaring China a “currency manipulator” isn’t likely to do much, and certainly not much in terms of wages for American workers.  It really would do Mr. Trump some good if he’d check out the article by the Dean of the Tuck School of Business at Dartmouth in the WSJ. [ Also WPO Blog, CFR, and then of course there are the Federalists]  Little wonder Republican economists are jumping ship.

Bottom Line Towards the Bottom of the Barrel

It isn’t hard to summarize Trump’s “Economic Plan,” – first, it’s not a plan.  It is an aspirational outline of economic ideas, none of which are anything new. Romney suggested declaring China a “currency manipulator” during his campaign, and the anti-regulation rhetoric goes back to the 1971 Powell Memo. It’s rather more a laundry list of Republican wishes – deregulate, repeal the Affordable Care Act, bash China, and ‘act strong.’   In this, Mr. Trump seems to be unable to differentiate between acting and posturing.  The speech was all pose in bad prose.

The Media Was Warned: Trump Campaign is one giant Gish Gallop

“Trump’s incessant barrage of outrageous pronouncements is reminiscent of the Gish Gallop strategy of argumentation: keeping your opponent on their heels and unable to debate effectively by throwing out so many false and misleading statements that it becomes too difficult to address any single one of them or make your own case. It’s a common creationist tactic, and a common tool of hucksters and swindlers everywhere.” [Washington Monthly, November 22, 2015

Three ways to spot a swindle:

Number One:  High pressure sales pitch.  Those who would have you part with the contents of your wallet will tell you that “time is short!” “Act now.” “This is a limited time offer!”  Hogwash. In order for me to pull off a swindle on you it is necessary for you to feel the “urgency” of my pitch.  If I were trying to pitch an investment swindle, I’d tell you that the economy is in terrible shape (it isn’t) and if you don’t act now to protect your retirement fund (which is probably fairly safe where it is) you’ll be in Dire, I say DIRE straits down the line. Notice I didn’t tell you where that line was drawn.

Trump’s pitch, and it’s more Pitch than a stump speech, is that voting for him is necessary to Save The Country; Yes, Save It Immediately – from what?  The leading economic indicators forecast a modest growth rate in the early part of 2016. [MarketWatch]

What part of this chart indicates to any sentient person that there’s a horrible unemployment rate problem in this country?

The President noticed the Gish Gallop from Trump quarters in a recent speech:

“But he largely defended his record and sought to tell voters about the stakes in this November’s election.

Improved economic numbers don’t mean “folks aren’t struggling in some circumstances, and one of the things I’ve emphasized is that there’s some long-term trends in the economy we have to tackle,” Obama said in the PBS town hall. “So we’re going to have to make sure we make some good decisions going forward.”

“The notion that somehow America is in decline is just not borne out by the facts,” Obama said. “But it resonates. It resonate with aggrieved people who are voting in big numbers for Donald Trump.” [NBC]

No, we’re not “in decline,” and NO we don’t need to make America great again, it’s already the strongest nation on this planet.  But that isn’t going to impress the devotees of the Gish Galloping Trump; they are listening for the second element of the perfect swindle pitch.

Number Two: It’s too good to be true.  Again, if I were to launch a swindle in your direction I’d promise outcomes like a 25% increase in your investment, in some ridiculously short amount of time.  And, should you hesitate I’d shower you with misinformation, disinformation, and pure south bound product of a north bound bull, all the time pointing to the Bright Blue Sky (to which MY bank account is headed if I can only get you to play along).

If, IF, you will invest with me all your troubles will be long ago and far away.  I’ll “build a wall,” I’ll “get a better deal,” I’ll “get you a better job,” I’ll “fight the Chinese currency manipulators,” I’ll “turn the water on.”…..

This will work, if you don’t do two things: Check my facts, and do some Critical Thinking.  If I can get you to avoid these two activities, then I can effectively initiate the third element of a good swindle pitch.

Number Three: Downplay the risks.  Galloping right along… Here’s Mr. Trump with a classic example: “We have been too afraid to protect and advance American interests and to challenge China to live up to its obligations. We need smart negotiators who will serve the interests of American workers – not Wall Street insiders that want to move U.S. manufacturing and investment offshore.”

Unfortunately, for those who know how to use the Google, downplaying the risk of getting into a trade kerfuffle with the Chinese is a matter of taking on the wrong target for the wrong reasons.  

The Chinese “currency manipulation” charge is a set piece of conservative attacks on our trade policy.  First, let’s agree that setting nominal interest rates is something that central banks DO.  The U.S. Federal Reserve sets its sites on the federal funds rate; the European Central Bank focuses on the marginal lending facility, and the Chinese central bank fixed the yuan-US dollar rate along with a “basket” of other currencies. [Wall St Journal]  Message to Mr. Trump: “Currency devaluation of revaluation is a common exercise of sovereign monetary policy.”

With this understood we can get down into the weeds, and again look closely at what the Wall Street Journal had to say about focusing on the “currency manipulating:”

“Movements in the nominal yuan exchange rate have almost no long-term impact on global flows of exports and imports or on broader considerations such as average wages. The exchange rate that matters for trade flows is the real exchange rate, i.e., the nominal exchange rate adjusted for local-currency prices in both countries.

The real exchange rate, in turn, reflects the deep forces of comparative advantage such as technology and endowments of labor and capital. These forces drive trade regardless of monetary policy.”

[…] Today more companies operate in global supply networks—in which trade and investment link different stages of production across different countries. Because these networked companies incur both revenues and costs in many currencies, their trade competitiveness tends to vary little with the movement of any one currency.” [emphasis added]

Thus, NO, Mr. Trump, waving the “Currency Manipulation” banner like some kind of red flag obscuring the more complex nature of international trade forces and trends, doesn’t come anywhere near explaining the issues involved in international trade and the related currency valuations thereof.  What Mr. Trump is saying is a rather vapid “I’ll get a better deal.” Without, obviously, introducing any of the real factors associated with international trade policy.  However, in Trump’s campaign, waving this banner is just one more piece of the continuing Gish Gallop.

Before the third element of the perfect swindle pitch is successful, it’s time to remind ourselves of H.L. Mencken’s famous line:”

“There is always an easy solution to every problem – neat, plausible, and wrong.”

It isn’t like the Trump Gish Gallop hasn’t been spotted already – Blue Virginia caught it back in March 2016, the Democratic Underground wrote of it in January 2016 – proposing to call it the “Trump Trot,” and the media was warned, as noted previously, by the Washington Monthly in November 2015.

Those still confused by the combination of Gish Gallop and Word Salad emanating from the Trump Campaign may note with some trepidation that Mr. Trump can lie faster than the fact-checkers can keep up.  Prevaricate he will, as he pours forth his high pressure sales pitch, promising that which is too good to be true, and downplaying the risks of his preposterous proposals.