Before it disappears into the memory hole I wanted to comment on this editorial in the Wall Street Journal. The article is about the record on inflation,taxation, and economic growth.
I agree with this:
Some of the $3 trillion in Covid spending during 2020 no doubt contributed to inflation, especially the $900 billion that December when the economy had nearly rebounded to pre-pandemic levels. That bill was a bipartisan mistake.
Said another way Donald Trump shares some of the blame for the inflation that ensued early in the Biden Administration. But we need to understand this:
Then in March 2021, Democrats stoked consumption even more with their $1.9 trillion American Rescue Plan Act, even as states were lifting lockdowns and vaccines rolled out.
The bill was largely composed of transfer payments, including $1,400 checks per person, $3,600 per child tax credits, an extra $300 a week in unemployment benefits, a 15% increase in food stamps, rental assistance and more. Such handouts discouraged unemployed Americans from returning to work since they could earn as much not working.
President Biden further loosened the spending spigot with executive actions, sweetening food stamps and waiving monthly student loan payments. A Congressional Budget Office report this week noted that the 2021 food-stamp boost likely reduced the labor supply since people received fewer benefits the more income they earned.
This unprecedented helicopter drop of money, aided by the Federal Reserve, kicked off the highest inflation in 40 years.
I think it’s actually arguable that the ensuing inflation was actually worse than it had been 40 years ago—how inflation is calculated has changed considerably since then.
This is a bone of contention:
Mr. Trump’s tariffs would be anti-growth, but by themselves they won’t cause inflation, which is an increase in the general price level. Tariffs increase relative prices in specific goods or industries. Mr. Trump’s first-term tariff blitz hurt economic growth but it didn’t lead to broad inflation.
I can’t actually adjudicate it. It sounds about right to me.
I agree with this, too:
Ms. Harris’s economists fret that Mr. Trump’s restrictionist immigration policies will create labor shortages that will drive up wages and prices. But even with Mr. Trump’s tougher border policies in his first term, the U.S. added 1.7 million immigrants, most of whom entered legally. His deportations didn’t make a dent in the labor force.
I challenge those who claim that the United States has a large and growing demand for unskilled or low-skilled workers to produce evidence of it.
I disagree with this:
As for Mr. Trump’s tax reform, it slightly reduced revenue as a share of GDP in 2018 and 2019. But it spurred business investment that boosted the supply-side of the economy and helped keep down inflation.
Let’s look at the record:
It looks pretty much like trend to me. There might have been an extremely small change in the curve relative to trend but it’s extremely small. I would speculate that any increase in investment was produced by the larger share of disposable income of the highest income earners unrelated to taxation than it was to changes in the marginal tax rates.
I also question this:
Today’s Keynesian economists underestimate the growth dividend, and overestimate the deficit impact, of tax cuts.
Don’t blame Keynesians or even neo-Keynesians. They understand how aggregate product limits the ability of deficit spending to produce economic growth. Blame “folk Keynesians” who believe that federal spending always stimulates the economy or modern monetary theorists who provided the theoretical foundation for them. Even the MMT-ers understand the role of aggregate product. Where they err is in thinking that fine-tuning is possible.
The fact that deindustrialization of the US is continuing is not even being discussed shows just how silly economists have become. A service economy cannot replace manufacturing, mining, and other wealth-producing activities, it is the dead husk that is left when the real economy dies.
The fact that the US is losing ground even against Russia ought to sober people up. BRICS+ already has a larger share of the world economy than the G7, and that advantage is about to take a very large step upwards when yet another 30 or 40 (or 100?) countries join it. BRICS+ is poised to replace the UNO as the leading international organization
There is a lot of continuity in the Trump-Biden regime. Trump wanted another round of large checks to stimulate the economy before the elections, but was thwarted, and Biden also wanted a large stimulus package in his first 100 days but didn’t face meaningful checks and balances. Had Biden made a deal with Romney for a more modest package, it may not have contributed to inflation as much, and certainly would not have been worn by the Democrats alone who had the “last clear chance.”
Biden kept most of the Trump tariffs in place and hiked tariff rates on certain Chinese goods from to 25% to 100%. These involve semiconductors, steel and aluminum products, electric vehicles, batteries and battery parts, natural graphite and other critical materials, medical goods, magnets, cranes, and solar cells.
The main difference is immigration and Harris will continue Biden’s policies, which I guess is do nothing until it threatens re-election.
Dear Shaw,
Isn’t this an argument that Deep State/Permanent Civil Service is the real government, and that presidents are the illusion?
*I challenge those who claim that the United States has a large and growing demand for unskilled or low-skilled workers to produce evidence of it.*
All you have to do is look around you, at least in my town with a population of 430,000. Nearly every roofing company, many of the handymen, house cleaning services, and nearly all of the fast food workers employ Latinx workers. I don’t know how many of those have legal or illegal status. All I know is that if there was a major deportation of illegal immigrants, many of those industries would be really desperate for workers, and it would cause a lot of chaos, and as you say, labor shortages that would drive up wages and prices.
First let’s fix the immigration system, not deport people who are are currently gainfully employed and contributing members of society. And let’s give gainfully employed people a path to legal status.
I think they are correct that the tariffs are anti-growth but they are being cagey about the inflation aspect. The tariffs mean that imports will cost more, including the inputs used by our existing industries. However, tariffs are an industrial policy assuming that American companies will be formed and tariffs will protect them, however, they are going to be producing their products at the protected rates ie prices are going to increase.
You also cant ignore his plans for mass deportation. For example, just in recent reports 50% of construction in Texas and 90% of dairy work in Wisconsin is done by illegals. If those people suddenly get deported what happens? At worst the industries cut way back, greatly increasing prices. At best, those industries relent and offer much higher wages to lure in native Americans, greatly increasing prices.
Steve
“I challenge those who claim that the United States has a large and growing demand for unskilled or low-skilled workers to produce evidence of it.”
I understand Susan and steves concerns, but it simply is a fact that we didn’t used to be reliant on illegal immigrants. But we did create a problem by eroding the wage structure of low skill US citizens. Its not sufficient to now we complain that we can’t fix the created problem. That is classic government apologist thinking. Further, don’t tell me that a byproduct of current immigration policy isn’t crime, rape, human trafficking a lower wage structure for US citizens….. To ignore this is a) cruel, b) selfish and c) shows one to not be a serious thinker. There is more to the issue than price.
Similarly we have tarriffs. You don’t care about your neighbor and his lost manufacturing job so you can pay less for your toaster? Yes, no doubt we have created a transition problem if we move back to deindustrialization. But as Bob points out, we have hollowed out our country. Thats dangerous in the long haul.
I know its popular here to pearl clutch over the growth of financial services. But its a red herring. Its not the growth in financial services that is the problem, its the lack of growth in manufacturing. The two can coexist quite well.
And I’m here to tell you – I have lived it – US manufacturers can adapt and do just fine if not constantly having to walk through the mindfields of regulation, environmentalism and mercantilism.
I didn’t even touch the issue of social cohesion, but go to Miami, people. Its almost like you are not in the US.
I agree. But capital investment in financial instruments can also crowd out capital investment in domestic manufacturing and I believe that’s what’s happening now. It makes sense. It’s less risky. In a long bull market buying and selling stocks can come to be seen as having zero risk.