It was one of Bill Clinton’s advisers who coined the slogan, “It’s the Economy Stupid!” But this has been Donald Trump’s recipe for getting re-elected.
“Trumponomics” had two main planks. The first was sharply cutting taxes on corporations and the wealthy in the hope that this would boost investment. The second was trade protectionism directed mainly at China and to a lesser extent the European Union.
This was designed to reduce the US’s balance of payments deficit and encourage the “reshoring” of industrial jobs back to rust belt Midwestern states.
The tax cuts were a form of what Martin Wolf of the Financial Times newspaper calls “regressive Keynesianism”. Economist Maynard Keynes thought the state should cut taxes and increase spending to boost consumption and investment, and thereby achieve full employment.
But—even though Trump almost halved the effective tax on profits—investment hasn’t risen much. Corporations used the extra cash mainly to buy back shares and boost share prices.
The trade war with China hasn’t significantly reduced the deficit and little “reshoring” has taken place.
Nevertheless, unemployment fell last year to its lowest level since 1969 and the stock market soared. Trump banked on this getting him re-elected.
Then came the pandemic, and the worst recession for nearly 100 years. The unemployment rate jumped by ten percentage points in April.
The Marxist blogger Michael Roberts wrote, “Trumponomics is really a combination of Keynesianism and neoliberalism.” Despite initial Republican support for direct payments to households to combat the economic collapse, neoliberalism won out in 2020.
Trump joined the Republicans in congress in resisting the Democrats’ demands for the federal government to keep spending to sustain jobs and incomes. Instead he counted on rapidly ending the initial lockdowns to get the economy moving again. This has badly rebounded on him.
New daily Covid-19 infections in the US reached a record 83,010 on Friday last week.
Contrary to what both Republicans and Tories claim, there is no “trade-off” between sustaining the economy and combating the pandemic.
Those economies whose governments took vigorous measures to protect lives have suffered smaller contractions. Deloitte predicts that the US economy will either stagnate or shrink in the final quarter of 2020.
Joe Biden, Trump’s Democratic rival, has made a point of taking Covid-19 seriously. But he too would turn on the spending tap.
He is promising £5.6 trillion worth of new programmes over ten years. Although he rejects the Green New Deal advocated by left wing Democrats such as Alexandria Ocasio-Cortez, Biden says he would spend nearly £1.5 trillion on combating climate change.
The Financial Times pointed out in an editorial headlined “Bidenomics Can Preserve Support for Capitalism” that these policies put Biden significantly to the left of both Clinton and Barack Obama.
But rather than scream foul, as it did with Jeremy Corbyn, it concluded that this is a good thing.
“An unchecked capitalism would not survive the electorate’s judgment,” it said. “Sure enough, there have been times since the 2008 crash when popular resentment of inequality, especially among the young, has threatened to spill over into demands for total systemic change.
“If implemented, Bidenomics would make life more burdensome for business and for high-earners. But it might also avert a larger reckoning further down the line.”
This is an interesting illustration of how scared the mainstream neoliberal establishment is.
It realises that Trump rode to office on the anger generated by the global financial crisis of 2007-9 and imagines that what the Financial Times calls “mildly social-democratic” policies can soak up the discontent.
This is a vain hope, for two reasons. First, as Roberts shows, the US, like the other advanced economies, continues to struggle with a low level of profitability. This is why investment stagnates. Increased government spending offers at best a short-term boost.
Second, popular bitterness in the US is much deeper and more widespread than the establishment understands. Trump took the lid off. Even if he loses it will be hard to replace it.