The Great Game
Why the belief that the US President controls the economy leads to misguided voting decisions
The human brain is hardwired for simplicity. That’s why simple lies spread faster than complex truths. It’s why people are superstitious/religious. It’s why we think in black-and-white terms rather than comprehending the spectrum.
It’s why the vast majority of US voters regardless of whether they happen to vote Dem or Rep believe that the US President “controls” the US economy.
Let’s begin with a few basic facts.
First of all, nobody controls the economy. Exogenous factors have enormous influence. To see why, let’s look at a simple scenario. Imagine that the USA exports a lot of products and these exports create jobs and net income to the USA. Now let’s imagine that the countries that buy most US imports suddenly have a fiscal meltdown and can’t afford to import US products any more. Through no fault of its own, the US economy will begin to decline. No President can control this.
Now let’s look at another scenario. Imagine that a great many jobs reside within large corporations that for years have dominated their domestic markets. As a consequence these corporations are lethargic and resist innovation. Meanwhile another country has smaller and more innovative companies that within the space of a couple of years produce products that blow the US corporations’ products out of the water. This will lead to the loss of hundreds of thousands of US jobs and a decline in the US economy. No US President can control this.
Let’s look at a final scenario. Imagine that the US dollar loses its unique status as the world’s reserve currency. Oil and a variety of other commodities stop being priced in dollars. At the same time, because of this change, countries no longer seek to hold large dollar reserves as a refuge from local inflation and exchange-rate changes. The net consequence is that the USA will cease to be able to print money without creating massive inflation, and so US fiscal policy will become far more constrained. No US President can control this.
These three simple thought experiments (and there are literally dozens more we can perform) serve to show that the US President has in fact very limited power to impact the economy. Unfortunately, that power can yield far more negative effects than positive.
Obama inherited a financial meltdown that threatened to destroy hundreds of thousands of jobs. He could have stood back and let “creative destruction” occur, thus ensuring a lot of short-term pain in the hope of a longer-term more optimal outcome (more innovative US corporations making higher-quality products that consumers would want to buy) but he chose to save jobs in the present by implementing a variety of fiscal stimuli including buying shares in corporations so as to provide them with sufficient capital to ride out the storm without laying off huge numbers of workers. This strategy paid off in the short-to-medium term and was a genuine example of a President having some impact on the economy. While Obama was praised for saving jobs, the longer-term impact of preserving large moribund US corporations may turn out to be negative.
Trump has also had an impact, though his impact has been much more malign. Because a great many US voters have most of their wealth tied up in their homes and their 401k plans, an increase in asset prices appears to most people as an increase in personal wealth. Trump never fails to pretend that he’s responsible for “the greatest economy in the history of this and every other universe in the history of everywhere.”
In reality, most of Trump’s “success” is due to the policies implemented by the Federal Reserve and by Obama. But he has had some “success” of his own. Today, share prices are at a level most economists regard as seriously over-valued and house prices have risen as a side-effect of the various SARS-CoV2 restrictions that have left tens of millions of people trapped in their homes and thus looking for more spacious accommodation. US voters see these rising asset prices as “good.”
But let’s take a look at the details of Trump’s “success” with the economy.
Why have share prices risen even as the covid-stricken real economy has contracted sharply?
Trump and the GoP pushed through a package of massive tax cuts for corporations. This enabled corporations to post higher profits, which boosted their share prices and hence boosted the Dow Jones Industrial Average, which is what so many US voters are fixated on. But those tax cuts reduced the amount of tax revenue available to the federal government, so it has to borrow more in order to meet its massive obligations.
And that borrowed money will have to be repaid.
As the Republican tax breaks were almost exclusively of benefit to large corporations and the ultra-rich, this means that repayment will fall on the shoulders of tens of millions of ordinary US families. Our children and their children will be repaying the debts the Trump administration has created. The Republican Party has essentially boosted share prices in the short term by creating debt for every ordinary US citizen to repay over the next half-century or more.
When we realize this, Trump’s endless boasting about his “great” economy can be seen for what it really is: an enormous shell game.
The sad thing is, the vast majority of US voters will be unable to understand the trick. Worse yet, Republican voters will deny its reality, just as people deny the fact the Earth is a sphere that orbits the Sun. Once you believe in nonsense it is nearly impossible to reconnect with reality. It’s simply too comfortable to continue living in fantasy-land.
But for those of us with more than no functioning neurons, Trump’s claims about his “great” economy should ring hollow because they are nothing more than the announcement of enormous economic harm that will constrain the lives of hundreds of millions of ordinary US citizens for decades to come.
And no, we’re not going to “grow our way out of the debt” because even under the most wildly optimistic projections, growth will never be more than a fraction of the additional debt burden the Trump administration has created. That debt is real, it is long-lasting, and it will ultimately trap the US economy at a much smaller size than it otherwise would have been. Which means lower incomes and fewer jobs.
So let’s remember this important fact when we hear Trump boasting about his cleverness and his greatness.
Like everything else that vomits out of his fatuous pouty little mouth, it’s a simple-minded lie.