NEWS | Trump’s Triumph
The Economics of
TRUMPTOWN W
Daniel Evans assesses the impact Donald Trump will have on the financial world
hen it comes to explaining The Donald’s triumph in the US elections, you could
do worse than look at the popularity of a book sold by another of America’s billionaires, Jeff Bezos. Because one of Amazon’s best sellers in the last year has been a book by economic historian Robert J. Gordon – The Rise and Fall of American Growth – and even a quick flick through its pages will tell you the main problem Hillary Clinton & Co had to overcome. Put simply – and as Hillary’s husband Bill might have said – “It’s the economy, stupid!”. Essentially, Gordon’s argument is that the technological revolution the world is currently enjoying – exciting though it may be – is not having the same effect of boosting economic growth as did the great
inventions of the past, namely electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine and modern communication. It is just illogical to expect what are one-off innovations to keep on emerging. The buck has stopped bucking and Hillary has been thrown off the horse. In mathematical terms, it might read: Lower wages x less job security – We
don’t trust Hillary = Over to you, Donald Too many ordinary Americans have
felt ignored. Granted, they were no great fans of Hillary and the establishment elite but they were prepared to put up with them in exchange for a growing economy. (It’s certainly the case that the Trump victory bears comparison with the UK’s decision to leave the EU. On the eve of both elections, the establishment and the media called it wrong. They under-estimated how much out of
step the elite had become with the vast majority of people who lived and worked in the country). Eight years of unimpressive growth under Obama – his administration delivered only six quarters of good news out of the 31 that it presided
over – was too much for many Americans to bear and they turned out in their millions, many voting for the first time in years, to put Trump in The White House. So what kind of economic policy
will Trump follow and how will it affect the UK and world markets? His appointment of Reince Priebus as chief of staff suggests he knows he will need to work with Paul Ryan, speaker of the House, to get his policies through Congress though other appointments have caused more consternation, prompting Trump to tell his Twitter followers: “Very organized process taking place as I decide on Cabinet… I am the only one who knows who the finalists are!”
US ECONOMY Reflation is key here. Trump wants to get the economy growing at nearly 4% a year; it’s now running at half that. He would ignite that growth, he says, by cutting taxes by $6 trillion over 10 years, expanding oil and natural gas production and cutting federal regulations. Yet few analysts think the economy can expand much faster. An aging population means the workforce is adding fewer people, a recipe for tepid growth. And productivity is sluggish.
INFRASTRUCTURE Trump has promised to fix roads, bridges and airports, relying on tax credits to incentivise development. His advisers say that $140 billion in tax credits could generate $1 trillion more in infrastructure investments over 10 years.
TAXES Trump’s election could mean a big tax cut for wealthy Americans, particularly the top 1%, and a much smaller tax cut for
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