Donald Trump and the poisoned chalice of the US economy

The ironic thing about the (narrow) victory of Donald Trump in the US presidential election is that their ‘safe’ candidate has lost it for the Democrats, Wall Street and the strategists of capital.  Now they are lumbered with a loose cannon that they must try to rope in.

Trump has won because a (just) sufficient number of people are fed up with the status quo.  Apparently 60% of voters asked at the polling booths reckon that the country “is on the wrong track” and two-thirds were fed up and angry with the Washington government – something Clinton personifies.

Like the vote of the Brits for Brexit, against all expectations, a sufficient number of voters in America (mainly white, older and in small businesses or working in failing industries in smaller central US states) have overcome the vote of the youth, the more educated and better-off in the big cities.  But remember hardly more than 50% or so of eligible voters turned out to vote.  A huge swathe of people never vote in American elections and they constitute a sizeable part of the working class.

Most significant, the most important issue (52%) for voters, when asked at the booths, was the state of the US economy, with terrorism next (but well down at 18%) and immigration (the Trump card) even lower.  Trump won because he claimed he could improve the conditions of those ‘who have been left behind’ by globalisation, failing domestic industries and crushed small businesses.  Of course, Trump is a billionaire and has no real interest or idea about improving the lot of the majority.  But anger at the establishment was sufficient (just) for this egoistic, misogynist, sexual predator, rich man’s son to win.

But it is still the economy, stupid.  Trump has been handed a poisoned chalice that he will have to drink from: the state of the US economy.   The US economy is the largest and most important capitalist economy.  It has performed the best of the largest economies since the end of the Great Recession in 2009. But its economic performance has still been dismal. Real GDP growth per person has been only 1.4% a year, well below levels before the global financial crash in 2008. It’s a story of the weakest economic recovery after a slump since the 1930s.

The IMF now expects the US economy to expand at only 1.6% this year.  And the US Federal Reserve bank economists are now forecasting just 1.8% a year expansion for the foreseeable future.   And all this assumes no new economic recession.

The majority view of economists is that a US recession is unlikely and that the economy will pick up again next year.   Indeed, US Federal Reserve chair Janet Yellen (whose job is now in jeopardy), reckons that the US economy “is on a path of sustainable improvement.”  The argument goes that the cost of borrowing is near zero, the American consumer is still spending robustly, the housing market is picking up and retail sales are still motoring.

But what is important for the health of a modern capitalist economy is not the ease or cost of borrowing, it is the level and direction of the profitability of capital, total business profits and the impact on business investment.  When profitability falls, eventually total corporate profits fall and then some time later, business investment will contract.  When that happens, an economic recession soon follows. In the post-war period, a sustained fall in business investment has led the economy into slump on every occasion, while personal consumption stays more or less stable, the latter only falling once the slump is underway.

And US corporate profits are falling.  According to economists at investment bank JP Morgan, US corporate profits declined 7% over year-ago levels.  On that basis, they reckon, “the probability of a recession starting within three years at a startling 92%, and the probability within two years at 67%”.  Moreover, the Federal Reserve is planning to hike its policy interest rate right after the election, because it claims the economy is returning to ‘normal’, increasing the risk of triggering a slump – although a Trump victory will put that off as stock markets plunge.

What is Trump’s solution to all this?  His economic proposals boil down to cutting taxes, reducing government spending and taxing imports to ‘protect’ American jobs.  The main beneficiaries of his tax cuts would be the very rich.  Under Trump, most people would see their income tax bill reduced by about 7%, but savings for the top 1% would be 19% of their income.  To balance the federal budget, government spending would have to be cut by about 20%, hitting welfare, education and health.  Raising tariffs on foreign goods and imposing punitive sanctions on China and Mexico, America’s two largest trading partners, would drive up prices and provoke retaliation.

In one way, the next US president faces a worse situation than Obama did in 2009 at the depth of the global financial crash.  This time there is no way to avoid a slump by printing money or cutting interest rates; or by increasing government spending when public sector debt has already doubled to 100% of GDP.  Those economic policy tools have been used up.  The chalice will have to be sipped.

17 Responses to “Donald Trump and the poisoned chalice of the US economy”

  1. Wal Buchenberg Says:

    The first trained actor in the White House was Ronald Reagan. Donald Trump was the main actor of a reality show for 11 years. This experience brought him the election success.
    Hillary Clinton had promised a “continue as before” and was punished for it.

    Donald Trump had promised little to nothing and played only the strong man. He was elected for this.

    In Karl Marx, we can read: “the masses always expect a sudden disappearance of their social evils during a change of government.”

    The Trump voters will soon discover that the new president has no magic power.

    Wal Buchenberg,

  2. Henry Says:

    Wal makes a good point. Trump isn’t just the product of economic stagnation or racism, though he is both those things. In a lot of ways Trump represents modernity, in that he is a celebrity and a star of 24 rolling news.

    One in the face for cultural Marxism!

  3. Nigel Behan - Transport Development Says:

    I think he wrote part of this before the result!

  4. sartesian Says:

    White man’s revenge. Period.

  5. semyorka Says:

    Robert, once you said that the first sector to feel a recession is the construction sector. I think in you last graph that the construction sector shows that right now it is in recession (I might be wrong, because I am colorblind). Is this assessment true?

  6. Charles A. Says:

    An explanation from political economy of The Disintegration of Bourgeois Democracy in the U.S.

  7. ucanbpolitical Says:

    I have just published my analysis of the US rate of profit and surplus value on my website – theplanningmotive.com as well as a commentary on Trump. It will be interesting even amusing to see how this charlatan handles the poisoned chalice. It is also tragic that a billionaire should be the repository of the anger that has built up over two generations in the working class in the absence of a socialist alternative helped in part by the undemocratic democratic party. Yes the US construction industry is in recession because of the collapse in high end condominiums and the fall in infrastructural spending by state and local governments.

  8. Claus Jensen Says:

    ”But anger at the establishment was sufficient (just) for this egoistic, misogynist, sexual predator, rich man’s son to win.”

    That and an alternative who is a dictator-loving, war-mongering, scandal-ridden corporate whore.

    • Dave Says:

      Trump is the far greater evil, Mr. Claus. He hates even basic bourgeois freedoms.

      The destruction of civil liberties, with the coming of religious tests, making it difficult for POC to vote, the repeal of all environmental legislation, an assault on reproductive rights, a more than 50% reduction in corporate taxes. I would have much preferred another commonplace corporate “whore” (How apt!).

      • Claus Jensen Says:

        Mr. Dave, but at least he is an obvious evil, who won’t be able to sneak those things in under cover of being black, liberal or a woman.

  9. nomadron Says:

    Sorry! just a thought: the next president will be Ryanna: she is female like Hilary Clinton, black like Obama and miliionaire like Trump!! and both are the perverse effects of the entertaining industrie! it not only possible, it is probable to be so. God forgive us!

  10. Arilando Says:

    Is it a common thing for mraxist economists to not understand that countries with a sovereign currency (a fiat currency that government itself controls) aren’t budget constrained? I’ve seen a similar lack of understanding from other marxist economists.

    • matt Says:

      Yes, don’t be surprised if we don’t get a huuuge financial bubble blowout to mask the onset of the next “recession”. The borrow and spend republicans are in command!

  11. Wagner Says:

    Dear, Roberts,
    Roberts, what is the JP Morgan study you quote?

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