One would hope that business guru President Donald Trump, as a graduate of the University of Pennsylvania with a degree in economics, would have a strategic approach to fixing our ailing economy.
Indeed, he went to university in the mid-60’s and may have forgotten, or is not up to date with, current graphs of the labor markets. But most of what you learn in an economics classroom is how to think, which hopefully has stuck with him as he goes into his seventies.
What is apparently flawed with Trump’s economic strategy is the complex issue of how trade both benefits and hurts the United States. Trump has stated repeatedly that he wants to bring jobs back to the country, pointing fingers at a few industry leaders for assembling factories outside our borders.
Although placing high tariffs on foreign goods coming into the United States sounds like a decent plan, it may just be a bullish strategy that naively assumes companies will operate similarly in the United States as they would in the original country they set out to build their factories in.
However, with steeper labor costs, higher taxes and more regulations, many firms may fail to meet their original goals. That could lead to either cutting employees, or producing less. Both moves hurt the American worker. Cutting supply always leads to higher prices, as companies attempt to maximize their profits, diminishing the spending power of every American’s paycheck.
Additionally, this hurts the value gained from specialization of labor between foreign markets. By exploiting economies that have different resources, including labor as a resource, companies and industries operate by maximizing gains where they see fit. This allows products to be produced cheaper and companies can, therefore, grow larger through profit, creating an economy of scale effect, further benefiting the American consumer.
Despite the shortcomings of Trump’s strategy, some big names in the industrial world have been praised through tweets by the president by following his orders. It’s unclear as to whether or not these companies are scared of tariffs or if they believe in the American dream effect of bringing jobs back to the United States, but it has been remarkable to see the change in attitude from an economic perspective.
What is clear is that the average American worker, who Trump campaigned for, is getting valued higher than before. That can’t be a bad thing for our economy.
Furthermore, Trump signed an executive order which says that for each new regulation opposed on the markets, two current regulations have to go. Now, that’s a neat little trick he did there. Not only does it allow for the evolution of regulation, something we desperately need as we learn more and more about our insanely complex and ill-defined economy, but it also forces the process of government shrinkage, a favorite philosophy among conservatives.
After deregulation during the Reagan years, we saw an economy grow steadily for decades. With businesses free from government harassment, they operate at a more efficient level, resulting in value creation that leads to GDP growth.
Some argue that the deregulation allowed the terrible folks on Wall Street to scam the American people into purchasing despicable security portfolios, which it did, but that has more to do with the gross attitudes of those financial engineers on Wall Street than the principle of the legislature.
Luckily, we learned a tremendous amount from the horrors of the housing crisis, and, with a strong conservative body in Congress, we can hopefully put in place some more economically logical regulations, while removing some of the garbage created during the panicked times following the crash.
Big government doesn’t work, so many of those regulations should be thrown away, albeit learned from. Hopefully, we can see a new era of a hands-off but still tough-loving government. It’s obvious that criminal minded Wall Street executives still are in command so some regulation is as important as it is logical.
With this in mind, we have already begun to see some happy financial news. The Dow Jones industrial average closed at 20,000 for the first time in history, meaning the market is excited.
One can sit back and condemn the president as an idiot all they want, but the market doesn’t lie. It will be fascinating to see how the economists at the federal level respond to this by setting higher interest rates to steer the ship. An economy can’t grow too fast, or inflation will hurt wallets everywhere.
Trump needs to capitalize on taking over as the economy improves. His policies foreshadow growth and that can’t be bad for him and his all-important legacy.
