American Economics......Donald style.

 

Sorry, this is just another cathartic rant.

So, Trump and Musk call themselves businessmen, but anyone as supposedly intelligent as their egos are telling them that they are, should surely be able to see the difference between business and government.  It may be OK to cut costs to the bone if you are trying to sell a product at a competitive price and still make a profit, but that doesn’t necessarily work when in government.

Think of where government money comes from, i.e. taxes.  Let’s assume a simplistic example where a government department employs a number of people, each earns $1000 at 20% income tax (this is basic stuff from John Maynard Keynes, BTW).  Before these employees even leave the building, the government gets their 20% income tax back, so their employees have really only cost $800 each. 

Then, each one goes out and buys the things they need to survive, like housing, food, clothes, transport etc.  Notice that I didn’t mention saving here, because saving in this context is bad.  Their spending stimulates the economy, leading to the employment of yet more people, each of which also pays their 20% tax so if you can get money flowing through the economy sufficiently well, the government will eventually make all, or at least most, of the money that they paid their original employee back in tax.  Of course, the fact that their voters have employment and can buy the things that they want also helps the government get re-elected again too.  Win/ win.

So, Musk spent the first period of this government sacking the governments employees (83,000 of them according to Bernie Saunders).  While this might immediately look good because Trump et al can point to the money they are supposed to save with their cuts, the long-term effect is obviously the opposite of the process described above, and shuts down spending, causing decreased levels of government income by taxation, which ripples throughout the whole economy in time.  And this will make for disgruntled voters, unless they are on the seriously lunatic MAGA fringe, who will stand by Trump until they all invade congress again, (because the failure of Trump’s genius policies could not possibly be his fault, so must be sabotage).  The thinking of all those billionaires in Donny's government must be that they will have to pay less tax.  But of course, if they pay less, they aren't going to spend much of it, because their basic needs were met by their income long, long ago, so the money will go out of circulation, and into some form of savings like shares, property etc.  Out of circulation money is a problem for governments, leading either to government borrowing to fill the void, or to economic collapse.  You can bet your life that Donny isn't going to borrow in those circumstances!

Then came the wonderful tariffs of the last few days.  Even Musk and a number of other Trump supporters seem to have baulked at these for some strange reason, and now Musk has run back to the relative safety of his business empire, although precisely how safe it is in the face of Donny’s tariffs remains to be seen!  If you can remember the election, you will have seen that the mid-west was one of Donny’s strongholds.  There is a lot of soya grown in the mid-west, so let’s use that as an example.  Google tells me that Donny’s favourite country, China, (you can do Donny’s excruciating ‘chiNe-a’ pronunciation here if it pleases you), imported $11 billion of soya from the US in 2024.  That’s about half of total US exports, but with Brazil the largest soya producer I’m sure that China can buy from other sources.  That must leave a lot of those mid-west farmers, most of who supported Donny, with a huge problem.  A grossly overstocked market will lead to a price crash, debt problems, repossessions, and all the rest.  Way to go Donny.  You really know how to look after your supporters!

I know he managed somehow to get a book out called ‘The Art of the Deal’, (note that even the ghost writer has said it should have been classified under fiction, and that he personally would be happy to see it withdrawn), but Donny’s deal making seems to be like a violin with only one string rather than a full artistic orchestra.  First you crash in with some preposterous, bullying  weapon like a 50% tariff.  This gets the countries you imposed this on talk to you on inferior terms.  Next you insult them, as if they were somehow inferior, before eventually agreeing a deal of some sort.  Why not cut out the bullying and just talk to the other nations that you were supposedly on friendly terms with anyway.  The only advantage to Donny’s method, it seems to me is that he gets to think that he is somehow greater than everyone else, including his own countrymen.  It’s all about his ego.

And let’s presume that Donny got what he supposedly wants.  Let’s say that American firms brought their manufacturing back to the US.  Has Boeing been a shining example of safe, quality production during the last 10 years or so?  How many failed spaceships, planes with poor software, or parts that fall off does it take?  Go back to the fall of American and British car makers in the 1970’s.  That didn’t happen because the design and quality of their cars was good.  Competition forces businesses to be competitive. Give business a protected market and they will stagnate. 

One other small point is planning.  Donny dumped this tariff shocker on the world as if he were Mary Poppins, just click your fingers and everything happens by magic.  But building factories, creating supply chains and distribution networks, recruiting and training staff, etc. etc all take time, probably years of time.  In the meantime US companies that had set up in other parts of the world probably got grants for doing so, and will be under contract to remain in those countries for a period of years.  Yeah; its going to be great Donny.  I believe you.

And then, even if Donny did bring all US manufacturing back to the states, capital has been globalised for years.  I read somewhere that the oil producing countries of the middle east own around 10% of the value of US firms.  Add other foreign ownership, and suddenly questions arise about exactly what constitutes a US company?  Of course, capital has flown out of the US too.  Many companies worldwide are owned by US ones.   The pharma company, Eli Lilly for example has made large investments here in Ireland, and given the development costs of new drugs, partnership working with other companies is commonplace in industries like this.  Would Trump really impose tariffs on US companies bringing goods into their home country?  And for things like pharma, can individual US citizens really afford the higher costs that would result?   Through share payments, money would still leave even a completely isolationist United States to foreign owners of the shares.  A closed economy does not exist, and Donny’s simplistic schemes cannot work.

No doubt, even by the time I publish this on the blog, Donny’s limited attention span will have moved him off in a completely new direction leaving someone else to clear up the mess he has left behind.  Perhaps he will actually leave tariffs at 10% for most of the world for the next 90 days as he has today promised.  Who knows.  Far from the super brain that he believes himself to be, every day he is in power reinforces my own belief that this man is merely a spoiled, egotistical idiot.