Trump's budget will wreak havoc on the American economy - CNN

Economy

Trump's budget will wreak havoc on the American economy – CNN

Published

4 years ago

February 20, 2020

Harry Miller

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To start with, President Trump proposes massive immediate cuts to the kinds of public services, protections and health care that help propel short-term economic growth by supporting demand for goods and services. In fact, according to the Brookings Institution’s Hutchins Center Fiscal Impact Measure, which measures the effect that government is directly having on overall gross domestic product, government investment has been directly supporting overall economic growth for most of the last two years. That means that, just last quarter, the government was contributing the most to GDP than at any other point since the end of the Great Recession. President Trump’s budget would reverse that, withdrawing critical support at a time when growth has already slowed.

The cuts are so deep, so massive and so poorly targeted that they could be large enough to even push us to the brink of a recession. Recall that, right now, overall economic activity grew by only 2.1% over the last year. Well, Trump’s budget includes roughly $958 billion in total cuts in the first four years. That amounts to about 1% shaved off of total gross domestic product right there. And some of these cuts would produce outsized effects that drag down growth. Some public spending is especially good at bouncing all around in local economies, supporting local businesses and generating additional dollars for everyone.

Programs like Medicaid, food stamps, and tax credits for low-income families tend to permeate throughout local economies most effectively, and those are exactly the resources that President Trump’s budget envisions cutting, to the tune of about $335 billion in the next four years. These cuts could reduce overall economic activity by another .3% to .4%. Put it all together, and Trump’s plan would slash the overall economic growth rate down to well under 1% over the next few years, putting us right on the edge of outright economic contraction.

But in some ways, it’s the long-term economic damage that President Trump’s budget will cause that should concern us the most. Over the medium and long term, the key to economic prosperity is improving the prospects of everyday people. Workers and consumers are what drive growth and prosperity. When workers have the support and investment they need to do their best work, they innovate, create and do more with less time and fewer resources. When consumers have money in their pockets, they drive demand for goods and services and induce businesses to invest in the future. They all need public support and strong foundations to ensure that private concentrations of wealth and power don’t distort the economy to the advantage of the ultra-wealthy, and to broaden the economic base by bringing more people into full participation.

Trump’s budget slashes at those very foundations: education, health care, research and development. The result would be both a less productive workforce and less consumer demand, producing a weaker economy overall, with the already-rich capturing most of the gains.

Making matters worse, Trump’s budget would worsen economic disparities by race. He proposes cuts to nutrition assistance when black families are more than twice as likely to be food-insecure than white families. He proposes cuts to after-school programs, to student aid and to federal funding for homeless students, all of which will fall disproportionately on young black people. Black Americans already face systemic barriers to economic advancement, barriers that both diminish individual opportunity and hurt our economy overall.

Finally, Donald Trump’s budget would drive overall inequality even higher than it is now, exacerbating the negative economic effects that stem from concentrated income and wealth. His budget includes an extension of his signature tax cuts, which disproportionately benefited the rich. If extended, the richest 0.1% of Americans would get an additional tax cut of approximately $100,000 a year. This, paired with draconian cuts to public services that provide assistance to struggling families, would result in a significant increase in inequality. That’s appalling from a moral standpoint, of course, but it’s also bad economics. Extreme inequality is a drag on the overall economy in numerous ways. It distorts and narrows consumer demand, undermines the foundations for worker productivity and impedes strategic investment. And at a very basic level, higher inequality is associated with slower overall growth and deeper recessions.

Given the various ways that the policies within President Trump’s plan would damage the economy and hurt everyday people, there is a deep irony that the budget also assumes economic growth rates of 3% for the next five years that are well above what any other independent forecaster (such as the Congressional Budget Office’s 1.5% to 1.9%) assumes. In all likelihood, Trump’s budget would yield just the opposite: a much worse economy.

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Economy

IMF Boss Says ‘All Eyes’ on US Amid Risks to Global Economy – BNN Bloomberg

Published

2 hours ago

April 18, 2024

Harry Miller

(Bloomberg) — The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.

“All eyes are on the US,” Kristalina Georgieva said in an interview on Bloomberg’s Surveillance on Thursday.

The two biggest issues, she said, are “what is going to happen with inflation and interest rates” and “how is the US going to navigate this world of more intrusive government policies.”

The sustained strength of the US dollar is “concerning” for other currencies, particularly the lack of clarity on how long that may last.

“That’s what I hear from countries,” said the leader of the fund, which has about 190 members. “How long will the Fed be stuck with higher interest rates?”

Georgieva was speaking on the sidelines of the IMF and World Bank’s spring meetings in Washington, where policymakers have been debating the impacts of Washington and Beijing’s policies and their geopolitical rivalry.

Read More: A Resilient Global Economy Masks Growing Debt and Inequality

Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.

“The Fed is not yet prepared, and rightly so, to cut,” she said. “How fast? I don’t think we should gear up for a rapid decline in interest rates.”

The IMF chief also repeated her concerns about China devoting too much capital and labor toward export-oriented manufacturing, causing other countries, including the US, to retaliate with protectionist policies.

China Overcapacity

“If China builds overcapacity and pushes exports that create reciprocity of action, then we are in a world of more fragmentation not less, and that ultimately is not good for China,” Georgieva said.

“What I want to see China doing is get serious about reforms, get serious about demand and consumption,” she added.

A number of countries have recently criticized China for what they see as excessive state subsidies for manufacturers, particularly in clean energy sectors, that might flood global markets with cheap goods and threaten competing firms.

US Treasury Secretary Janet Yellen hammered at the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy toward stimulating domestic demand.

Chinese officials have acknowledged the risk of overcapacity in some areas, but have largely portrayed the criticism as overblown and hypocritical, coming from countries that are also ramping up clean energy subsidies.

(Updates with additional Georgieva comments from eighth paragraph.)

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Economy

IMF Boss Says 'All Eyes' on US Amid Risks to Global Economy – Financial Post

Published

4 hours ago

April 18, 2024

Harry Miller

The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.

Bloomberg News

Jonathan Ferro and Christopher Condon

Published Apr 18, 2024 • 2 minute read

Kristalina Georgieva Photo by Hollie Adams /Bloomberg

“All eyes are on the US,” Kristalina Georgieva said in an interview on Bloomberg’s Surveillance on Thursday.

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The two biggest issues, she said, are “what is going to happen with inflation and interest rates” and “how is the US going to navigate this world of more intrusive government policies.”

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The sustained strength of the US dollar is “concerning” for other currencies, particularly the lack of clarity on how long that may last.

“That’s what I hear from countries,” said the leader of the fund, which has about 190 members. “How long will the Fed be stuck with higher interest rates?”

Read More: A Resilient Global Economy Masks Growing Debt and Inequality

Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.

“The Fed is not yet prepared, and rightly so, to cut,” she said. “How fast? I don’t think we should gear up for a rapid decline in interest rates.”

China Overcapacity

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Article content

“What I want to see China doing is get serious about reforms, get serious about demand and consumption,” she added.

US Treasury Secretary Janet Yellen hammered at the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy toward stimulating domestic demand.

(Updates with additional Georgieva comments from eighth paragraph.)

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