8/30/2015 Why Trump Would Cause Another Great Depression

In the 1928 Presidential cycle we elected an economic hero to the White House.

He was a businessman who cared for the common people, and had proven it in the economic crisis that engulfed Europe in the aftermath of the First World War.  So successful was this hero that Harry Truman used this same giant to be the architect of the Marshall Plan after the Second World War.

He saved Europe from two disasters, and designed the core features of the New Deal for the United States in the onset of the Great Depression.

That man was Herbert Hoover.

In Keynesian economic theory Hoover made one mistake, he raised tariffs instead of devaluing the dollar – but aren’t these two sides of the same coin?  Making other countries less competitive seems little different from making your own country more competitive. The question for us today is if that difference could indeed trigger a new global depression.

Being a run of the mill Reagan-Keynesian, I believe it would indeed trigger a new depression, and the man promising to do just that is Donald Trump.

Trump isn’t alone, philosophically. He errs in a way very common to politicians of both parties: they believe that the way to get more of what you want is to create less of what you don’t want.

They are wrong. Humanity abhors a vacuum, but they are too lazy to automatically fill it. Therefore, the way to get less of what you don’t want is to make more of what you do.

In other words, if you want less abortions, then you want more support for distressed pregnant women and greater understanding of non-lethal forms of birth control.

If you want less carbon intensive sources of power, then you create more of the cheaper kinds of replacements: most notably nuclear power.

The reason for this is that nothing is ever truly a zero-sum game. Less of one thing does not equate to exactly the same amount more of another. More of one thing does not equate to exactly the same amount less of another.

Less money for the super-rich is not exactly the same amount more for the poor.

Less money for China is not exactly the same amount more for the United States.

Even worse – beyond a certain level LESS for China will translate into less for the United States too!

This is similar to what I have written about the Laffer Curve in the past.

Some careful readers are still jarred at a hybrid term I used a few lines back: “Reagan-Keynesian”. At first glance it looks like a contradiction in terms, but Reagan merely used the mirror image of the standard approach.

The standard approach increases taxes in bullish years and increases spending in bearish years.

The Reagan approach decreases spending in bullish years and decreases taxes in bearish years.

The Keynesian model is not just “taxes and spending” but rather a RATIO of the two. The ratio of taxes / spending should be greater in bullish years and smaller in bearish ones. Go too high OR too low and you have less ability to manipulate that ratio. This is why I have argued for the greatest possible amount of taxation, which mathematically and historically is 35% GDP. In our Federal system that would be 20% Federal, 10% State, and 5% Local. Any higher OR lower than these optimal points and you have less total revenue, and therefore less ability to spend or pay down the national debt.

Ultimately Franklin Roosevelt went too high with a maximum tax rate of 94%, and Ronald Reagan went too low with a maximum tax rate of 28%.

How does this relate to trade and tariffs?

It relates conceptually, because a tariff is an attempted tax on a foreign trade partner. We humans are perfectly happy to tax someone else, while ignoring that this might hurt us in the process.

Too high taxes on “the rich” means less jobs for “the poor” – making them even poorer.

Too high taxes on “the foreigners” means less jobs for “American workers” – making them even poorer.

And while we are at it, we have the same issue with immigration.  I’ve pointed out in the past that 50 million aborted babies have created a demographic hole in our economy. The ages of these murdered Americans since 1973 would range from 42 to 0, for an average of 21 years old: just the age of people entering the workforce. If you murder people who would be ENTERING the workforce just as baby boomers are RETIRING from the workforce, then you have a huge gap of people able to PAY for those retirees.

The original great depression was caused by the demographic hole of the First World War and the Spanish Flu epidemic. It was exacerbated by a DECELERATION in economic activity by the Smoot-Hawley tariff disaster.

We are facing a similar economic hole in this country, caused by Roe vs. Wade and solved by human replacements – that is, all of those immigrants (legal and illegal).  We NEED those immigrants to make us more competitive and we NEED lower trade barriers to allow that force of available workers to make us more prosperous as a nation.

On both counts, Trump is the exact opposite of what we need. Is he a successful businessman?  Yes.  So was Herbert Hoover.

Tim