Tag Archives: economy

Prologue to a Diary of the Second Addams Administration 8.

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Then there’s the money-bags people.  Trump has promised an economic policy based on cutting taxes, cutting regulations, increasing domestic energy production, and imposing high tariffs on all and sundry.  He has said that he will do all this without unleashing a new round of inflation or causing interest rates to rise.  That’s not an easy combination to make.  Trump has nominated Scott Bessent for Secretary of the Treasury.[1]  He’s a billionaire hedge-fund manager.  So Wall Street is greatly relieved.  They see him as the adult in the room.[2]

Bessent appears to be a late-adapter of tariffs.  Sort of the threshold cost of entry for an econ job with the Addams administration.  The Trump-Biden tariff war against China has had an effect.  By 2023, imports from China had fallen to 14 percent of total imports.  That is the lowest level in almost twenty years.  Conversely, imports from Mexico[3] rose to 15.4 percent and imports from Canada hit 13.6 percent of the total.[4]  Yet Trump has been threatening high tariffs on Mexican and Canadian imports.  These will push up consumer prices, complicating Bessent’s job.  Bessent is said to hope that the mere threat of more tariffs will compel foreign countries to adjust their policies to America’s advantage. 

Bessent is going to have some competition for the control of economic policy.  For one thing, Howard Lutnick wanted that job, but had to settle for Secretary of Commerce.  That still gives him a voice in economic policy.  He may—or may not—resent Bessent getting the job.  People don’t climb to the heights of Wall Street without having sharp elbows. 

Then Russell Vought, head of the Office of Management and Budget (OMB) in the first Addams administration, got a second bite at the apple.  Trump has described him as “an aggressive cost cutter and deregulator.”  Media critics agreed, reporting that Vought had called for cutting $2 trillion from Medicaid, and $400 billion from food stamps.  Elon Musk and Vivek Ramaswamy are going to be running a non-governmental, purely advisory “Department of Government Efficiency” (DOGE).[5]  It looks like OMB will be the place where the recommendations go for implementation. 

Another tool in the kit for the administration may be “impoundment.”[6]  This idea arose during the Nixon administration.  Basically, just because the Legislative Branch appropriates money for some purpose doesn’t mean that the Executive Branch has to spend it.  In 1974, Congress passed a law saying the President couldn’t “impound” funds.  Trump says the law is unconstitutional.  He may have the Supreme Court to back him up. 

            Finally, Trump nominated Congresswoman Lori Chavez-DeRemer to lead the Department of Labor.  She’s pro-union and Teamsters President Sean O’Brien had recommended her for the slot.  He nomination alarmed the Wall Street Journal, perhaps because it suggested that Trump’s support for the working-class voter isn’t purely rhetorical.  Better that the administration should “spur economic growth and a robust job market” in hopes that some of the money will reach workers. 

[1] “Treasury: Bessent choice reassures Wall Street,” The Week, 6 December 2024, p. 32. 

[2] See: H.R. McMaster, John Bolton, Bill Barr, etc., etc. 

[3] Possibly from China by way of Mexico. 

[4] “The bottom line,” The Week, 6 December 2024, p. 32. 

[5] At least until Musk quits in disgust or he runs off Ramaswamy because Musk doesn’t play well with others. 

[6] “What next?” The Week, 6 December 2024, p. 4. 

“The System Is Blinking Red” 1.

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            The Congressional Budget Office (CBO) is required to report on the state of public finances.[1]  The CBO offers credible long-term projections.  They project an average annual growth of 2 percent.[2] 

            In 2001, U.S. government debt held by the public was $3.3 trillion dollars, amounting to 33 percent of Gross Domestic Product (GDP).  Adjusted for inflation, that would be $5.93 trillion in 2024 dollars.

            In 2024, U.S. government debt held by the public is $28 trillion, amounting to 99 percent of GDP.  So the debt has multiplied almost five-fold in real terms, while it has tripled as a share of GDP.  The national debt is growing faster than is the American economy.   

            In 2035, U.S. government debt held by the public is projected to surpass $50 trillion, amounting to 122 percent of GDP.  By 2054, U.S. government debt held by the public is projected to surpass $50 trillion, amounting to 166 percent of GDP.  To further complicate matters, the “reserves” of Social Security are forecast to run out by 2033; the “reserves” of Medicare are forecast to run out by 2036.  Then the federal government will assume responsibility for making up any difference between assets and obligations. 

            From the mid-Seventies to today, interest payments on the national debt averaged 2.1 percent of GDP.  In 2024 it is 3.1 percent of GDP.  In 2033 it will hit 4.1 percent of GDP.  This latter figure is highly optimistic because it assumes that the Trump administration tax cuts of 2017 will expire in 2025.  There is virtually no chance that this will happen.  The interest payment on the debt is growing as a share of GDP. 

            Why does this ballooning debt matter?  The United States government has been cutting taxes and increasing spending for a long time now.  Nothing bad has happened.  Yet.  Many people may assume that creditors will go on lending the government of the United States whatever it needs to fill the deficit.  This is not necessarily so.  While vast, the pool of global savings available to be borrowed by the United States is not infinite.  As the debt grows in tandem with America’s unwillingness to accept fiscal discipline, lenders may conclude that there is a mounting risk of at least partial default.  Rather than stopping lending at all, they may demand a “risk premium” in the form of higher interest rates.[3]  The point of the higher interest rates is for the investor to recover as much of his/her capital as possible before anything goes wrong.  Higher interest payments will crowd-out other spending categories from the budget. 

            This began as problem-solving or vote-buying in an earlier time.  People in both parties now are used to the government giving them things without any immediate cost.  Politicians who argue for austerity—lower spending, higher taxes—will lose elections.  Many people think that this is pathological.  Hard to be puritanical when Puritanism is culturally discredited. 

[1] William A. Galston, “A U.S. National Debt Crisis Is Coming,” WSJ, 18 September 2024.  Sources: Part 1 of Answers to Questions for the Record Following a Hearing on An Update to the Budget and Economic Outlook: 2024 to 2034 (cbo.gov) and Part 2 of Answers to Questions for the Record Following a Hearing on An Update to the Budget and Economic Outlook: 2024 to 2034 (cbo.gov)

[2] By my own calculation, the American GDP grew by 58 percent between 2001 and 2023.  That averages at 2.5 percent per year.  However, the turn against globalization could slow growth everywhere.  GDP (constant 2015 US$) – United States | Data (worldbank.org) 

[3] See: Risk premium – Wikipedia