Mon, Nov 21, 2016 page7

• Trumpists’ quick gains to come at the price of long-term pain

  • By Paul Krugman / NY Times News Service
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  Let us be clear: Installing Donald Trump in the White House is an epic mistake. In the long run, its consequences might well be apocalyptic, if only because we have probably lost our last, best chance to rein in runaway climate change.

  However, will the extent of the disaster become apparent right away? It is natural and, one must admit, tempting to predict a quick comeuppance — and I myself gave in to that temptation, briefly, on that horrible election night, suggesting that a global recession was imminent. However, I quickly retracted that call. Trumpism will have dire effects, but they will take time to become manifest.

  In fact, do not be surprised if economic growth actually accelerates for a couple of years.

  Why am I, on reflection, relatively sanguine about the short-term effects of putting such a terrible man, with such a terrible team, in power? The answer is a mix of general principles and the specifics of our current economic situation.

  First, the general principles: There is always a disconnect between what is good for society, or even the economy, in the long run and what is good for economic performance over the next few quarters. Failure to take action on climate might doom civilization, but it is not clear why it should depress next year’s consumer spending.

  Or take the signature Trump issue of trade policy. A return to protectionism and trade wars would make the world economy poorer over time, and would in particular cripple poorer nations that desperately need open markets for their products.

  However, predictions that Trumpist tariffs would cause a recession never made sense: Yes, the US will export less, but it will also import less and the overall effect on jobs will be more or less a wash.

  The US already had a sort of dress rehearsal for this disconnect in the case of Brexit, Britain’s vote to leave the EU. Brexit will make Britain poorer in the long run, but widespread predictions that it would cause a recession were, as some pointed out at the time, not really based on careful economic thinking. And sure enough, the Brexit recession does not seem to be happening.

  Beyond these general principles, the specifics of the US’ economic situation mean that for a time, at least, a Trump administration might actually end up doing the right thing for the wrong reasons.

  Eight years ago, as the world was plunging into financial crisis, I argued that the US had entered an economic realm in which “virtue is vice, caution is risky and prudence is folly.” Specifically, the US had stumbled into a situation in which bigger deficits and higher inflation were good things, not bad. And the US is still in that situation — not as strongly as it was, but the US could still very much use more deficit spending.

  Many economists have known this all along, but they have been ignored, partly because much of the political establishment has been obsessed with the evils of debt, partly because US Republicans have been against anything the administration of US President Barack Obama proposes.

  However, power has now fallen into the hands of a man who definitely does not suffer from an excess of either virtue or prudence. Trump is not proposing huge, budget-busting tax cuts for the wealthy and corporations because he understands macroeconomics. However, those tax cuts would add US$4.5 trillion to US debt over the next decade — about five times as much as the stimulus of the early Obama years.

  True, handing out windfalls to rich people and companies that will probably sit on a lot of the money is a bad, low-bang-for-the-buck way to boost the economy, and I have my doubts about whether the promised surge in infrastructure spending will really happen. However, an accidental, badly designed stimulus would still, in the short run, be better than no stimulus at all.

  In short, do not expect an immediate Trump slump.

  In the longer run Trumpism will be a very bad thing for the US economy, in a couple of ways.

  For one thing, even if the US does not face a recession right now, stuff happens, and a lot depends on the effectiveness of the policy response. Yet we are about to see a major degradation in both the quality and the independence of public servants. If the US faces a new economic crisis — perhaps as a result of the dismantling of financial reform — it is hard to think of people less prepared to deal with it.

  And Trumpist policies will, in particular, hurt, not help, the US’ working class. Eventually, promises to bring back the good old days — yes, to make America great again — will be revealed as the cruel joke they are.

  However, all of this will probably take time; the consequences of the new regime’s awfulness will not be apparent right away. Opponents of that regime need to be prepared for the real possibility that good things will happen to bad people, at least for a while.
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