I am catching up after my vacation, and have been somewhat struggling to find timely topics to discuss. One of the problems of the Trump administration for me is that the focus of discussion are on political economy topics — and the administration’s actions do not have a whole lot of serious support.
Trump gave in to his love of posting tariff rates on social media, and just unloaded another broadside on unfortunate (mainly non-OECD) countries. It remains to be seen how sustainable this round of tariffs will be, but it seems more likely that he can ignore domestic complaints that result from trade relations with countries that are smaller trade partners than countries like Canada and Mexico.
Otherwise, the impact of the Trump administration’s policies still seem to be political and micro-economic, as well as non-rates macro (e.g., dollar weakness). I do not see too much that is happening on the rates front, other than the hints that they want to push out Powell from the Fed based on a dubious “with cause” claim about construction cost overruns. Putting a clown as Fed Chair who would cut rates might generate a certain amount of excitement in the rates commentary world. Otherwise, the massive increase in immigration enforcement is a political issue, but it is unclear how much it is reducing domestic agricultural capacity. The fiscal changes of the administration are creating issues for Americans (e.g., loss of disaster preparedness), but that has limited business cycle impact. Tariffs would presumably have inflationary effects if they were actually imposed for some time.
MMT Debates
Most economic discussions now revolve around whether Trump’s policies are good ideas, and it is hard finding credible people who think imposing 50% tariffs on Brazil to support a right-wing politician is a sensible economic policy. Policy discussions are straight political economy territory: were the tax cuts a good idea?
As someone in the Modern Monetary Theory (MMT) camp, the current environment is not where MMT is too distinctive. What distinguishes MMT from neoclassical theory are arcane economic modelling arguments that only matter for people who care about what is taught in Economics 101, as well divergent views on the mechanics of fiscal policy. Although MMT academics lean progressive, progressive political economy views are not a sole province of MMT. (From a political organisational standpoint, attempting to push progressive political policies as being MMT-exclusive helps destroy the already bad organisation of the left.)
Although there was a big American budget bill, nobody seriously framed the issues as being about austerity. Cuts were made to government spending solely based on the reality that the Republicans hate government, and want to destroy government capacity. Cuts to Medicaid are based on the belief that there is a huge number of 30 year videogame-playing able-bodied unemployed who are on that programme.
The place where MMT-style debates are current is the United Kingdom, where the government is committing political suicide courtesy of an attachment to “fiscal rules.” Bill Mitchell has an article on the topic here, I do not follow the U.K. political situation closely enough to want to stick my nose into what Labour should or should not do. On paper, the neoliberal poster child Mark Carney could run into the same fiscal orthodoxy political problems, but Canada is facing an obvious crisis and thus there is no appetite to do stupid things in the name of fiscal orthodoxy. Fiscal orthodoxy will only become a political issue once again in the United States if the Democratic Party arises from its stupor and wins back some branches of government.
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(c) Brian Romanchuk 2024
