The Coming Trump Recession

If I were to commit a particular crime – say rob a store – there is a fairly good chance I would get away with it if the caper were well planned and an isolated incident. Life is very forgiving in that an isolated mistake often goes unpunished. Ever driven home after a wee bit too much to drink? If you make a habit of it you are bound to get into a serious if not fatal accident and/or get arrested. Economic mistakes are much the same and Trump continues to make them. Let’s explore.

I can’t tell you exactly where we will cross over from a pretty good economy into the danger zone, but I feel it coming. In 2006 and 2007 I was still working in an industry that paid pretty much a flat compensation rate but had a mix of high and modestly priced goods. Around that time I noticed that the high priced goods were getting much more difficult to sell because most middle and working class people were starting to get squeezed and were tightening their belts.

Consumer demand constitutes 70% of the demand in the American economy and has for decades through good times and bad. It simply stands to reason that when Joe Lunchbucket has a few more discretionary disposable dollars (DDI) the economy will do better. Despite some rhetoric to the contrary Trump’s policies will hurt Joe Lunchbucket by lowering his DDI.

I expected the initial Trump Bump we have seen. That is attributable to several factors. Among them is the myth that Republicans are good for the economy. History has proven that to be a myth without scientific basis. As proof I offer the Great Depression and Great Recession; both the direct result of Republican policies. Nonetheless the myth endures.

Trump also has a significant portion of the population convinced that he has been an incredibly successful businessman. Remember the, “I alone,” line in his acceptance speech? Getting a $41 million head start from daddy made a difference. Stiffing a plethora of subcontractors helped lower his cost of doing business. There are credible allegations of cocaine financing and international money laundering, both of which are highly illegal and certainly unethical. I’m sure I missed a few other things but you get the picture. Nonetheless that myth also remained.

I was among the many critics of the slow pace and relative joblessness of the Obama recovery but it was real. Initially Trump basically left it alone and rode its coattails claiming credit along the way.

From the beginning Trump began providing a return on investment for his financiers by deregulating wherever possible. (Another false myth is that he self-financed the 2016 campaign.) He also gutted the enforcement capabilities (and in some cases authority) of several regulatory agencies. A speed limit is less likely to be obeyed if it isn’t enforced. Most regulations are in place for a reason which is generally protecting the safety and/or health of Americans. Some costs are immediate and easily identifiable; say the victims of a train derailment. Others, like the detrimental effects of pollution, won’t show up for years or decades. In either event this is a classic case of privatizing the profits and socializing the losses.

Trump’s lone legislative “achievement” is the Trump Tower Tax Cut which is heavily skewed to the ultra-wealthy. A significant portion of the working and middle classes get a relatively modest tax break for a few years (if they live in a low tax state). However their tax breaks sunset whereas the breaks given to the ultra-wealthy and the corporations that they primarily own are permanent. If you live in a high taxed state like California or New Jersey (they are almost all blue states) your limited state and local tax exemption will actually raise your total tax liability so you never see a break under the Trump Tower Tax Cut. In simple language this means you have less money to spend at the local store which is bad for the economy.

Now we come to tariffs and trade wars. Boiled down to its core, isolationist policies will not be successful in an increasingly global economy. Many major American “nameplates” like Apple, Nike and Chevrolet get components or do part of their manufacturing outside of the United States. Besides, tariffs are paid by the final purchaser, which means a tariff on country X is paid for by Joe Lunchbucket and it raises his cost of living.

My low regard for the Dow-Jones as an economic indicator is well known. I basically regard the stock market as a rich boys’ casino. However it cannot be totally dismissed. Recently the volatility in the market appears to be beyond normal movement and adjustments. Even gamblers react to news of inane decisions.

While I fully realize a Goldman Sachs alum like Gary Cohn doesn’t exactly think about Joe Lunchbucket first and foremost; can anyone actually prefer a failed economist/TV talking head with a terrible track record like Larry Kudlow as Trump’s chief economic advisor?

Soon we will have an economically ignorant President who is beholden to his financiers, while trying to personally profit from his office and being advised by someone with a record of being repeatedly incorrect. I can’t tell you exactly when it will happen but since Trump won’t be out of office until at least well into 2019 a Trump Recession appears inevitable. (By the way, if Mike Pence replaces Trump don’t expect any of Trump’s actions to be rescinded.)

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