So Much for the ‘Trump Boom’…

The more time we spend studying it, the more we become convinced that the whole thing is one gigantic swindle. While this insight might be applied to practically anything in public life, we’re talking, specifically, about federal finances and Stimulus Theory.

Many readers think Mr Trump’s tax cut stimulus has created a real boom.

This boom, they believe, will increase GDP, raise tax receipts, and ease the debt problem. (Mr Trump even claimed he would pay off the national debt in eight years!)

If true, it will mean that all our theories are defective…that we greatly underestimated the man in the White House…and, in short, that we don’t know shinola about economics!

Trump boom

So, let’s look. Are you on the edge of your seat? You should be…This is probably the most important question in modern finance: Does stimulus work?

Hmmm…first, let’s look at the GDP figures.

The latest estimate for GDP growth in the first quarter is 1.3%. Zilch, in other words.

But that’s just a quarter…and maybe it’s a fluke. So, we’ll average out the quarterly numbers for the whole time Trump has been POTUS. They come to 2.6%.

Better, but nothing to write home about. And now, we’ll compare them to the average quarterly growth rate when Obama was president to see if there has been any genuine improvement.

What do we get? Just 2.5%.

Does this mean that the only evidence for a Trump Boom is a paltry 0.1% — one-tenth of one percent — increase in growth…an amount which is laughably insignificant and statistically meaningless?

Important indicators

But wait. Let’s look at some other important indicators. Increasing business investment was a major goal of the Trump tax cut. If business investment increases, it suggests future bump ups in productivity, profits, and wages. Maybe.

Alas, the tax cut seems to have stimulated companies to buy their own stock, not invest in new plants, equipment, training, and technology.

Buybacks are at a record high — more than $1 trillion in 2018 — after hitting new records for each of the last four quarters. But capital investment is about where it was during those awful Obama years, at about 13% of GDP.

And how about wages? There’s been much talk about the working man finally getting a break. Maybe stimulus has worked for him.

But during the first two years of the Trump presidency, real weekly wage growth has actually dropped. It averaged 1.3% (close to nothing) in the last three years of Obama’s rule. Now, it’s even closer to nothing — less than 1%.

Binary approach

Politics encourage a simple, binary approach to understanding national problems: ‘us versus them’…conservatives versus liberals…Trump versus Hillary. But the calamity facing US finances goes way beyond the ‘us versus them’ analysis.

Both Republicans and Democrats now put their faith in stimulus. The Republicans aim to stimulate the economy with tax cuts, military spending, and low federal funds rates. The Democrats look to bigger deficits and more social spending to do the stimulus magic.

Here’s what the Trump stimulus actually has accomplished. The idea was to borrow an additional $180 billion to fund the tax cuts in 2018, alone.

This ‘stimulus’ was meant to light a fire under the economy. It was supposed to cause GDP to go up…along with tax receipts. We’ve seen that GDP did not go up…or at least, not yet…and we presume that tax receipts didn’t, either. Looking at the data, we see they fell — to a four-year low.

So far this fiscal year, tax receipts from individuals are down 3%. And corporations paid nearly 20% less. This brings the total tax take down to nearly 16% of GDP, or lower than it was when Ronald Reagan finished his famous tax cuts.

Here at the Diary, we’ve never met a tax cut we didn’t like. But a tax cut without spending cuts is a fraud…which we’ll describe more fully in a minute.

Rascally policies

Instead of cutting outlays to offset the tax cuts, the Trump administration increased them. Military and veteran outlays are rising at a 10% rate, interest costs are up 15%, and Social Security/Medicare expenses are up 5%.

And the Trump budget proposes further increases, which would add a total of more than $800 billion to federal outlays — or a 20% increase — over Obama’s last year.

As a percentage of GDP, tax receipts are near a record low for the modern era. Meanwhile, government spending as a percentage of GDP is the highest since the crisis of 2008-09.

Higher spending and lower revenues = bigger deficits.

That is exactly what has happened. In the month of February, more than half of every dollar the feds spent was borrowed. And since taking office, Trump has added more than $2 trillion to the national debt.

Is there any theory — or experience — that makes us think the stimulus policies now being pursued by the Trump Team will lead to growth and wealth in the years ahead?

Not that we know of.

Instead, what we see is a continuation of the rascally policies of the last 30 years, with more and more debt disguised as ‘stimulus.’

But ‘stimulus’ is a scam. It pretends to boost the economy. But it doesn’t. What it really does is transfer wealth from Main Street America to the Wall Street elite and groups favoured by the feds for political reasons.

That was what the tax cut did. It gave away money, mostly to corporate shareholders, and charged it to future consumers and taxpayers. It did not stimulate real growth.

At best, it simulated real growth — briefly giving the impression of a healthy economy as consumers spent their meagre tax savings and corporations bought their own shares.

Our guess is that this short, simulated growth spurt ended in the last quarter of last year. That’s why Mr Trump is calling for a cut in the fed funds rate — more stimulus! — now.

And that is why our Doom Index is giving off sparks.

Regards,

Bill Bonner


Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.


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