Advertisement

Simon English: Donald Trump plan’s looking good, but is he heading for a cliff?

Simon English: It does slightly feel that Donald Trump is mortgaging the future to pay for growth now: AFP/Getty Images
Simon English: It does slightly feel that Donald Trump is mortgaging the future to pay for growth now: AFP/Getty Images

Some headlines on the US economy from the past few days: Retail and Factories Drive Growth, Consumer Spending Lifts Retailers, Cost of Imports Eased by Strong Dollar, Confidence is High, Stocks Rebound as Fears Recede, Profits soar as Economy Advances.

Those are all from the Wall Street Journal, which might be accused of focusing only on the positive side of the US economy, but the paper is hardly inventing the numbers behind the stories.

The figures are so relentlessly upbeat they make it hard for those who hate Donald Trump and all he stands for to make a case that he’s failing, at least on what matters most electorally — money.

The WSJ noted on its editorial page “a severe nationwide shortage of truck drivers” which will presumably lead to rising wages for a core Trump constituency.

Other news sees US family-run farms finally winning against giant agribusinesses that for so long have dominated. Small farmers have complained for decades that the market is skewed in favour of big firms that can make big political donations. It’s quite something for their predicament to be eased.

At this rate, the President is going to win again, perhaps easily.

The New York Times and CNN may not like this idea very much, but as the WSJ says, the public is “smart enough to know a better economy when they see one”.

The strike against Trump is that economic growth of more than 3% is juiced by tax cuts that have led to increased deficits. Once the effect of the cuts wears off, say critics, growth will fall back to a more Obama-like 2% a year and America will have to deal with another massive pile of debt.

One warning comes from former Fed chairman Ben Bernanke, who said recently that fiscal stimulus is “going to hit the economy in a big way this year and next year and then in 2020, Wile E Coyote is going to go off the cliff”.

Presumably, this will be shortly after Trump has won re-election. His economic team argues that the present $1 trillion deficit will fall by 2022. This assumes that economic growth continues at its current rate though, which is far from a certainty.

In the background, and to Trump’s irritation, the Federal Reserve is putting interest rates up, making it harder for the US to service those debts it is piling on.

Generally, fears about American indebtedness are overblown. It’s the richest country in history, it can raise more or less as much debt as it likes and as long as the economy grows, the deficit staying as it is may not matter that much.

But it does slightly feel that Trump is mortgaging the future to pay for growth now. If these really are the good old days, deficits should surely be coming down. Also going up is inflation, rising at 2.9% a year according to July’s figures, which hardly encourages the Fed to ease off on rate rises.

An episode of the Simpsons from 2000 had Lisa installed as President to rescue an America bankrupted by President Trump, a flight of fancy that even the creators thought preposterous at the time.

Trump has referred to himself many times as the king of debt, extolling the virtues of borrowing big to take bets on properties. There’s no doubt he’s skilled at getting and using other people’s money to pursue projects.

One of his advisers George Ross once described Trump’s attitude to debt as simply to “borrow as much as you can for as long as you can”.

When his empire crumbled in the Nineties, Trump managed to avoid personal ruin just because he owed banks so much they realised it was in their interests to keep him afloat. They reckoned, correctly, that they’d get more back if the Trump brand wasn’t entirely tarnished.

Presumably, Trump isn’t planning to repeat this trick with the world’s largest economy, and isn’t planning to tell US lenders such as China that they aren’t going to be fully repaid.

Still, borrowing $1 trillion a year isn’t risk-free, even for America.