European incomprehension of President Trump has now been stretched to reluctant acknowledgement of the success of his economic policies with dire warnings of the approach of doom-laden clouds. There was a representative illustration of this view in the normally sober Daily Telegraph on February 1 by Jeremy Warner. The desired though nonsensical conclusion is incongruously pasted upon the inconvenient facts. Warner acknowledges that the US economy is ”going through something of a boom” (i.e., it is booming). And, implicitly surprisingly, Trump’s “own policies – which combined extreme physical loosening with sweeping deregulation – are part of the explanation”. It is hardly to be wondered that the President who in addition to deregulation has also cut taxes, closed the border to illegal migrants and deported nearly three million of them, ended the green terror, imposed tariffs with practically no serious reprisals, drastically reducing the $1.2 trillion trade deficit, and arranged for more than $10 trillion of foreign investment to enter the country, would have played some role in “something of a boom”.
Warner goes so far as to write that the following assertion by Trump to the Davoisie last month was ”broadly correct”: “Growth is exploding, productivity is surging, investment is soaring, incomes are rising, inflation has been defeated, the United States is in the midst of the fastest and most dramatic economic turnaround in our country’s history.” He makes the obligatory quasi-demurral that “we can question the hyperbole”, but declines to identify the hyperbole, having accepted the accuracy of the claims.
Warner accepts that year-over-year economic growth is now running between five and six per cent and is likely to continue at that level throughout the current year. Yet he gratuitously opines that “Trump will keep juicing the economy for as long as he thinks necessary to secure his position in Congress.” The growth grudgingly referred to is the result of the reversal of the unsound practices of his predecessor and their replacement by intelligent policy in economically related areas and it has never been easy in the American system to synchronize economic pump-priming with satisfactory midterm Congressional election results.
Despite the pretensions of economists to the contrary, economics remains essentially a combination of elementary school arithmetic and mass psychology. Warner acknowledges that in the United States business confidence is high and that some of this could “rub off” even on the United Kingdom. But the serried masses of British and European Trump-hate, horror, incomprehension, and general revulsion may take comfort from Warner’s reassurance that, “there is inevitably a coming bust,” and it is already visible.
Warner warns of a growing private credit bubble, the impact on employment of artificial intelligence, “explosive growth” in sovereign debt, and the sharp rise in the price of gold, which he correctly attributes to financial and geopolitical uncertainty. He also sees “dollar debasement” in the promotion of foreign investment and American exports. Statistics can always be found to prove anything in something as complicated as the $32 trillion US economy (60 per cent larger than the Chinese economy which was supposed to surpass the United States a decade ago, and it has more dramatically outpaced the economy of the EU).
Concern about private credit is mitigated by the admission that it is “still but a pinprick” compared to the fixed income debt market. He is correct that the higher yield fund managers and the higher risk investors run a greater chance of a financial setback, but there has never in recorded economic history been an absence of those who are prepared to risk more to gain more. And there’s no reason to believe that there is any bubble at the moment which, if pierced, would shake the economic rafters. There may be an exaggerated investment in the AI sector, a bit like the dot-coms in their time, but we are talking about less than $50 billion, not all of which will evaporate, which is one-sixth of one per cent of American GDP.
Warner admits that corporate household debt has declined steeply as a percentage of GDP, but he fails completely to acknowledge that Trump has reduced the federal deficit in this year by 27 per cent, and the trade deficit by approximately 75 per cent, and that the Republican leaders in the Congress, working with the administration, have layered reductions in the projected deficit over the next ten years of more than 50 per cent, and they have not finished. There has been no such precedent since the Clinton administration in serious work to eliminate federal overspending, and Warner’s jeremiads about the gold price are somewhat stale-dated. It appears to move in response chiefly to events in Gaza and Ukraine and for some weeks has been moving sideways.
All economies fluctuate but it requires unfeasible intellectual gymnastics and pyrotechnics for even the most febrile Trump-sceptic to construe five to six per cent economic growth, gently declining inflation, sharp fiscal and trade deficit reductions, while trillions of investment dollars pour into the United States from abroad as a quivering bubble about to burst and drench America and the world in the cold rain of Dickensian economics. Envious and biased critics squatting in the economic inertia and decline of Europe and the UK should heal themselves, which will require a good deal of imitation of what Jeremy Warner grudgingly acknowledges to be occurring in the United States.
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