Don Goldstein and Thomas Michl: Three Trump myths about the economy
Don Goldstein and Thomas Michl / Special to the Post-Gazette
In this Presidential campaign, one of the great disappointments for us as economists has been the inability of the Democrats to counter the myth that Trump and the Republicans deserve to be trusted with economic policy, though myths plural would be more like it.
Wrong about responsibility
The first myth is that the Biden-Harris Administration caused the inflation that emerged after the Covid epidemic. The consensus among economists is that the Covid inflation was caused by global supply shocks, not the “excessive government spending” that Republicans complain about.
Covid shifted spending by consumers from services like hotel stays to goods like exercise equipment, creating bottlenecks (think of the cargo ships backed up in Los Angeles harbor) that allowed companies to jack up prices. Then the war in Ukraine put pressure on food and energy prices with the same effect.
If Biden’s policies had caused all that we would see large gaps between U.S. inflation rates and those in Europe or Japan. Those gaps simply don’t exist.
The second myth is that the Trump Administration was responsible for the relatively good economic conditions before Covid tanked the economy. In fact, the major policy initiative they pursued was a tax cut that benefited billionaires and gave very little to working families. Tax cuts for billionaires just further our staggering inequality of wealth without creating many jobs, since the rich save most of their tax breaks. (One of the basic principles of macroeconomic theory is that there is no direct causal relationship between saving and investment spending.)
In point of fact, Trump caught a wave of economic recovery that rolled along despite his policies, not because of them. If anyone deserves credit it would be the Federal Reserve for maintaining a low interest rate environment.
If Trump had followed up on his campaign promise to invest in infrastructure (bridges, rail, airports, etc.), he might have a case. But that was a promise unkept. A running joke during his administration was that every week was infrastructure week, yet nothing got done.
The historical myth
Finally, the mother of all these myths is that historically Republicans have been better economic managers of the nation’s affairs than Democrats. A recent study by the Economic Policy Institute shows that this one finds no support in the historical record.
Democratic administrations since WWII have seen job growth of 2.5%, compared to only 1.1% for their Republican rivals. Other measures like GDP show a similar gap.
Why this gap exists is not clear. It could be that Democrats are just more willing to use the fiscal powers of the government to generate jobs and bring the economy as close to full employment as they can so that workers can reap some of the benefits of economic progress. It could also be that Republicans are suckers for nutty economic theories as long as they line the pockets of the financial elites.
For example, many of Trump’s current policy proposals (he might say “concepts”) are widely regarded by economists as inflationary job killers. Take his idea that we need a high tariff on all imports, and an even higher tariff on Chinese imports, so we can cut or eliminate income taxes. He says this will make China pay, which makes no sense since tariffs are basically sales taxes paid by U.S. consumers.
The winners will be the wealthy who will enjoy lower income taxes. The losers will be workers who pay higher prices on imports every time they visit their local shopping center, if they are lucky enough to keep their jobs when the disruption from such an ill-advised policy slows or reverses economic growth.
The bottom line is that the Harris program stands a good chance of improving life for working people. Policies to encourage home construction and purchasing, for example, will create jobs and make homeownership affordable for a change.
Trump’s policy ideas stand zero chance. In fact, they are likely to destroy jobs and erode the purchasing power of U.S. workers’ wages.
Pressure needed from below
It would be naïve to think that a Harris administration will produce some kind of miracle without pressure from below. In the 1930s Roosevelt was pushed by an upsurge of rank-and-file working people to remove barriers to unionization and create Social Security, unemployment insurance, minimum wages and other pro-worker policies that we now take for granted.
These policies created a vaunted blue-collar middle class that is now almost extinct. Let us hope for a Harris-Walz victory that will create the opportunity for working people in this country to prosper once again.
Don Goldstein is emeritus professor of economics at Allegheny College and Thomas Michl is emeritus professor of economics at Colgate University.