Sweetheart deals for corporations won't end well for anyone
Image: Gage Skidmore
When the US elected Donald Trump earlier this month as their President-elect, the economic policy that the US would follow was, quite rightly, secondary to the issue of the moral incompatibility of the man with the position of President.
We are now getting a clearer vision of the economic policy, and we see the emerging of a new, frightening, combination of populism and conservative free-market thinking.
For the populism part, we see the clearest echoes from the 1930s when the new movements of fascism rescinded the traditional right’s austerity to use deficit-fueled government spending on infrastructure to make [Insert Country Name] great again.
(The German autobahns motorways were a flagship policy of the incoming ‘elected’ Adolf Hilter in 1933/34.) Fascist economic philosophy was where the government exerted strong directive influence over investment, but also is in favour of corporatism.
This strengthening of the mother country through spending was complemented, then as now, by the proposed mass deporting of unwanted minorities and tagging of religious groups seen as a threat to the nation. The rescinding of trade deals and new trade deals with only ‘acceptable’ countries was also seen as another necessary step in bringing economic glory days back.
Donald Trump’s plan to push through a programme of spending a trillion dollars on infrastructure despite the most fiscally constraining Republican House and Senate in history shows how secure his leadership has become over traditional Republican thinking.
However, it is when we look at the composition of this ‘expenditure’ and the complementary laws that will be enacted at the same time, we see why it has become an unholy hybrid of fascist and free market economics.
On the composition of the expenditure, the problem lies, as ever, where the one trillion will go and who will ultimately benefit.
The spending plans of Donald Trump were devised by Peter Navarro, a Professor at the University of California, and Wilbur Ross, a billionaire investor. First, the investment will be not ‘government spending’ per se, but provides business 82 per cent tax credits for the work to private companies: As Paul Krugman, the noble prize winning economist, put it succinctly:
“For example, imagine a private consortium building a toll road for $1 billion. Under the Trump plan, the consortium might borrow $800 million while putting up $200 million in equity — but it would get a tax credit of 82 percent of that sum, so that its actual outlays would only be $36 million. And any future revenue from tolls would go to the people who put up that $36 million.”
So this programme will be built on the adage we hoped was dead after the 2007/8 Great Financial Crash, that business will happily make the profit while the taxpayer takes all the downside risk. Pure free-market madness.
Even more troubling, however, are the laws that will accompany the infrastructure programme; cutting corporation tax by more than half, to 15 per cent, a massive tax cut for the richest one per cent, while workers will be facing sweeping changes to labour law that will be in favour of employers.
What would be the result of such diametrically opposed policies? The answer is obvious and requires not economics, but common sense to explain.
By increasing government debt by a trillion and also cutting taxes that the independent Tax Policy Centers stated would by themselves cost $7.2 trillion dollars in lost tax receipts in the first decade.
The US would be spending and cutting revenue at the same time in an unprecedented way; this would lead to US government debt becoming something unrecognisable, even by today’s standards – something the US bond market is already jittery about.
By providing government infrastructure spending directly as a business credit, cutting corporation tax, making the benefit of tax cuts the top one per cent and lowering the pay bargaining power and rights of wage earners, of course, inequality will increase to new, unheard of levels.
Let us make no mistake, a one-trillion dollar infrastructure expenditure, almost twice the size of the Obama boost post the financial crisis, will boost the home economy and create jobs for workers in the short run – how could it not?
Perhaps even for the four years that would be needed to throw President Trump into a second term. The deportation of millions will also provide a nice fillet for the right wing media to feed on – textbook fascist thinking.
However, these policies will create a more split and unequal society. A country that breaks ties with the world, while vilifying immigrants, will become more hostile and out of step with the world. A US government with such wonky economics and isolationist attitude will have its position as the central cog of the global economy questioned.
Which leads to the truly, truly, frightening last lesson of history. What does a hate filled, narcissistic, populist leader of a country whose polices of blaming immigrants, elites, other countries, do when there is no one left to blame?
On Friday, January 20, 2017 Donald Trump will be taking on as well as President the title of Commander in Chief, of the most powerful armed forces ever to have existed. ‘Those who do not learn history are doomed to repeat it’ has never been more relevant.
Ranjit Sidhu is is the founder of SiD, Statistics into Decisions. Follow him on Twitter.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.