Trump’s year of chaos: a massive deficit, immigration politics and the stoking of racism. Where will it end?
- Joseph E. Stiglitz says that, in 2018, we saw the fruits of Trumpism: victimisation of immigrants, a US$1 trillion deficit, and prejudice and nationalism unleashed. What will 2019 hold for us?
As a result of the legislation, the US Department of the Treasury is now forecasting a US$1 trillion deficit for 2018 – the largest single-year non-recessionary peacetime deficit in any country ever. And if that were not bad enough, the promised increase in investment has not materialised. After giving a few pittances to workers, corporations have funnelled most of the money into stock buy-backs and dividends. But this isn’t particularly surprising. Whereas investment benefits from certainty, Trump thrives on chaos.
Moreover, because the tax bill was rushed through, it is filled with mistakes, inconsistencies and special-interest loopholes that were smuggled in when no one was looking. The legislation’s lack of broad popular support all but ensures that much of it will be reversed when the political winds change, and this has not been lost on business owners.
As many of us noted at the time, the tax bill, along with a temporary increase in military spending, was not designed to give a sustained boost to the economy, but rather to provide the equivalent of a short-lived sugar high. Accelerated capital depreciation allows for higher after-tax profits now, but lower after-tax profits later. And because the legislation actually cut back on the deductibility of interest payments, it will ultimately increase the after-tax cost of capital, thus discouraging investment, much of which is financed by debt.
Likewise, Trump’s anti-immigrant policies are encouraging companies that depend on engineers and other high-skilled workers to move their research labs and production facilities abroad. It is only a matter of time before we start seeing worker shortages elsewhere in the US.
Still, policymakers certainly could have managed these changes better to ensure that the growth of national income accrued to the many, rather than the few. Business leaders and financiers have been blinded by their own greed, and the Republican Party, in particular, has been happy to give them whatever they want. As a result, real (inflation-adjusted) wages have stagnated, and those displaced by automation and globalisation have been abandoned.
There is no way to know the answer to such questions. Much will depend on how the current political moment unfolds. If the supporters of today’s populist leaders grow disillusioned with the inevitable failure of their economic policies, they could veer even further towards the neo-fascist right. More optimistically, they could be brought back into the liberal-democratic fold, or at least become demobilised by their disappointment.
This much we do know: economic and political outcomes are intertwined and mutually reinforcing. In 2019, the consequences of the bad policies and worse politics of the past two years will come more fully into view.
Joseph E. Stiglitz is the winner of the 2001 Nobel Memorial Prize in Economic Sciences. His most recent book is Globalisation and its Discontents Revisited: Anti-Globalization in the Era of Trump. Copyright: Project Syndicate