Blinder’s Take on Trumponomics

In recent days, Max Boot has been doing to Donald Trump’s foreign policy ideas and advisors what the Royal Air Force did to Hamburg on July 27th, 1943. Now Alan S. Blinder, Princeton professor and former vice chairman of the Federal Reserve, has taken on Trump’s economic ideas with equally devastating effect. As Blinder explains:

To be frank, the most horrifying aspects of Trumpism are not his economic policies. The worst he could do there would be to precipitate a global depression. It’s far scarier to contemplate an erratic, blustering demagogue taking command of the most powerful military force on earth. Or the foreign-policy calamities that might befall us. But I’m an economist, so I’ll stick with economics.

Blinder eviscerates Trump on the economic effects of his immigration policies and points out what Trump’s ideas on trade would do to the global economy:

If a trade deficit “costs American jobs,” how did the U.S. manage to have 4% unemployment in 2000 when the trade deficit was 3.7% of GDP—larger than today’s?

I suspect Trump is as ignorant of the Smoot-Hawley tariff and its disastrous economic consequences as he is of the nuclear triad.

Blinder’s attack on Trump’s tax policies, however, is less successful. He claims that “Huge tax cuts would balloon the federal budget deficit, just as they did after the Reagan and Bush tax cuts.”

That’s just not so. Federal revenues grew by 75.7 percent in the low-inflation Reagan years and soared after the deep recession of 1981 ended and the economy, stimulated by the tax cuts, took off in one of the great economic expansions in American history. Between 1984 and 1989, federal revenues increased almost fifty percent. But federal outlays in the Reagan years grew by 80 percent since he, wanting increased military spending to win the Cold War (which he did), had to give the Democrats increased domestic spending in exchange. Had the House — in Democratic hands throughout the Reagan years — exerted a little more self-restraint, the deficits would have been far lower. Had there been no tax cuts, the deficits would have been higher not lower.

As for the Bush tax cuts, after they were fully implemented, in 2003, the economy again took off, and deficits fell instead of rose. The deficit was $377 billion in 2003, $412 billion in 2004, $318 billion in 2005, $248 billion in 2006, and $162 billion in 2007 — only 40 percent of the 2004 deficit and with the GDP 25 percent higher than it had been only four years earlier.

Blinder is a Democrat and, for Democrats, every tax cut is a tax cut, in his word, for the “non-needy.” That implies, of course, that the money earned by the people belongs to the government, and the government is kind enough to allow the people to keep some of it. But the incontrovertible fact remains that every time federal tax rates have been substantially cut — in the 1920’s, the 1960’s, the 1980’s, and the 2000’s — the growth of the American economy substantially accelerated and substantially increased, not decreased, federal revenues. Compare that with the $850 billion stimulus bill of 2009 that did nothing to stimulate the economy and only benefit Democratic interest groups such as labor unions.