Summary: US stocks have risen since the election on expectations that Trump will bring massive debt-financed infrastructure spending and tax cuts for the rich (with droplets for everyone else). As we learned from the Reagan and Bush Jr. programs, we should beware the details. These articles warn what to expect, giving us time to fight back.
Donald Trump breaking ground for new hotel in Washington, 23 July 2014. Photo: Evan Vucci, STF/AP.
“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”
— Steve Bannon, Trump’s Chief Strategist, in The Hollywood Reporter.
This massive infrastructure plan sounds alluring, like debt-funded tax cuts. Ronald A. Klain warns us about the probably results: “Trump’s big infrastructure plan? It’s a trap.” To understand why, see the details in “Trump Versus Clinton On Infrastructure” by Peter Navarro (prof of economics and public policy at UC-Irwin) and Wilbur Ross (billionaire LBO entrepreneur) — both senior advisors to Trump. Paul Krugman gives the summary (read it in full).
“Trumpists are touting the idea of a big infrastructure build, and some Democrats are making conciliatory noises about working with the new regime on that front. But remember who you’re dealing with: if you invest anything with this guy, be it money or reputation, you are at great risk of being scammed. So, what do we know about the Trump infrastructure plan, such as it is?
“Crucially, it’s not a plan to borrow $1 trillion and spend it on much-needed projects — which would be the straightforward, obvious thing to do. It is, instead, supposed to involve having private investors do the work both of raising money and building the projects — with the aid of a huge tax credit that gives them back 82 percent of the equity they put in. To compensate for the small sliver of additional equity and the interest on their borrowing, the private investors then have to somehow make profits on the assets they end up owning.
“You should immediately ask three questions about all of this. … All of these questions could be avoided by doing things the straightforward way: if you think we should build more infrastructure, then build more infrastructure, and never mind the complicated private equity/tax credits stuff. You could try to come up with some justification for the complexity of the scheme, but one simple answer would be that it’s not about investment, it’s about ripping off taxpayers.
We have recent experience with this strip-mining of the public for private gain: the privatization of education, including the student loan business. Rana Foroohar reviews seven new books about this at the New York Review of Books.
“When the financial industry — banks, hedge funds, loan companies, private equity — gets too involved in any particular activity of the economy or society, it’s usually time to worry. The financial sector, which represents a mere 4% of jobs in this country but takes a quarter of all private sector profits, is like the proverbial Las Vegas casino — it always wins, and usually leaves a trail of losers behind.