What Exactly Is Trumponomics?


NewCo Shift Forum

A Republican Economist and a Democratic Advisor Debate a Murky Presidential Agenda

At the recent NewCo Shift Forum, Obama advisor Robert Wolf, the co-founder & Chairman of Measure and CEO of 32 Advisors, debated Republican economist Michael Boskin, T.M. Friedman Professor of Economics at Stanford University. At issue was the nascent and often contradictory economic policies of the Trump administration. While the conversation, moderated by political journalist John Heilemann, remained cordial, it didn’t lack for discord. Below is the full discussion on video, and a transcript, edited for clarity.

John Heilemann (JH): Both of you wear a couple of different hats, and have historically. Mike Boskin is the T. M. Friedman Professor of Economics at Stanford, which gives him academic cred that’s really important in terms of thinking about the Trump economy. He also was the head of the Council of Economic Advisers under George Herbert Walker Bush, a very different kind of Republican than the Republican we have now in the White House.

Robert Wolf served on all three of the big presidential boards for business and financial leaders [under Obama]. He’s also now running a firm called Measure that is drone as a service company. He was previously the President of UBS, so he understands the world from the financial side, from the startup side, and also from the advice-to-the President side.

We talked earlier today about Trump and the new Republican configuration in Washington and what its effects on the tech industry would likely be. This is a conversation more about the broader economy, which obviously has impact for most of the people in this room and the industries they work in, but is actually a bigger topic.

I want to start with you, Mike, and just ask you this question. “Trumponomics.” Give us, to the extent that you understand it, and you’ve written a lot about it over the course of the campaign, what is it?

Mike Boskin (MB): I think Trumponomics, to the extent there’s a coherent core, is a set of policies. In [Trump’s] mind and in the mind of his advisors, it’s designed to help improve the standard of living in the broad middle class, especially wage earners in the United States who have suffered legitimately, they have had low wage or no wage growth for a long period of time. Many felt left behind by globalization. Although most of the serious studies have suggested most of the effect has been technology, not globalization, maybe 80/20.

The economy right now is much closer to full — it’s not at — but its much closer to full employment that it has been for the last eight years. We had a deep recession, the deepest in a generation. In GDP terms, the deepest since the Great Depression. In unemployment terms, it’s not the worst. It was worse in 1982. And we’ve had a pathetically slow recovery from the standpoint of rising incomes, job creation, etc. And even though we’ve had a long-in-duration recovery, it grew for the first five or six years at about half speed in GDP terms, and at one-third speed in job terms. We should have been growing it four percent, if we repeated the norm from previous deep recessions, or even more for at least the first few years.

Trump is promising four percent. Now his advisors are talking about three to four percent growth. There’s no doubt that there are many parts of “Trumponomics,” but if we could get the growth rate up to a non-inflationary level that was higher than the two percent we’ve been struggling at for the last seven years, it would solve a lot of problems.

But there are these issues of when we eventually get to full employment, whether we’d start to get inflation to creep up. About the worst outcome you could imagine from responding to the great recession — having a very strong recovery — would be to get back in say 1970s-style inflation. I don’t think that’s likely in the shorter-medium term, but that would be a risk.

The main components of “Trumponomics” are broad tax-rate reduction, especially large corporate rate reduction. We have the highest corporate tax rate in the world. (And) a substantial increase in infrastructure spending — it’s not much talked about, but slightly longer than a year ago, we passed a $300-billion five-year highway bill. So maybe that’s the first $300 billion of this trillion he wants — he actually wants $500 billion over five years or a trillion over 10. All of that is consistent, lower rates on a broader base, very consistent with Republican economics. It’s very consistent with Paul Ryan’s agenda, except for the infrastructure piece.

The big differences are three. One is, he hasn’t announced how he’s going to go after spending to pay for some of these other things. And he’s kept entitlement reform at bay. He doesn’t want to go after Social Security and Medicare, which are the big drivers of the debt which is going to start to rise again. If you’re worried about Regan’s deficits, any of you who are old enough to remember back then, the debt to GDP ratio was about a third of what it is now. It’s now in 77, 78 percent heading much higher starting at the end of the decade. That will be a big problem. He talks about it, he complains about it, but he doesn’t have any policy proposals yet — he’s going to be at loggerheads with some fraction of the Republican base.

The second place he’s at loggerheads is on trade. Most of the Republican base is pro-trade. Now, I think it’s fair to say that globalization and trade have benefited much of the world. They’ve been both in economic and foreign policy success, especially foreign policy, and helped lift hundreds of millions of people out of poverty, but it’s one part of problems for the struggling Americans wage earners in some industries.

Finally the other place he’s at mixed loggerheads with one part of the Republican base and not another is on immigration, but I’ll leave it at that. That’s a quick summary.

JH: We’re going to go back and unpack a fair number of those, but let me ask you, Robert. It’s clear from what Professor Boskin just said that there are areas in which Trump is a traditional Republican. Certainly tax reform is a big one and a lot of the pro-growth and anti-regulatory ideas are part of what is now the standard Republican playbook.

It’s also the case as suggested here that on spending, on entitlements, on trade, immigration, and I’d also say on questions of industrial policy, the notion of picking winners…

Robert Wolf (RW): Absolutely.

JH: …is something that runs against what Republican orthodoxy. You have commented to me that you found yourself of late in television appearances and otherwise espousing the views that you advanced and argued for in the Obama administration, and noting that you feel like you’re more conservative in some ways than a lot of these ideas, especially the ones in the second basket that I mentioned.

So just give me your sense, talk about that a little bit about — the ways in which Trump is not doctrinaire, the ways in which there’s a lot of complication here that we have to think about.

RW: I’ll try to synthesis it. One, I think that the Trump economic plan is incredibly protectionist, which is not good for this country considering we are the lowest exporter of all developed countries, so trade is important to us. It’s high spending, infrastructure, military, without cutting any of the social net. And he’s not going to get tax reform done. It’s going to be a tax cut, because you’re not going to get reform done because it’s just not going to get through the House. What’s incredible to me is where President Obama talked about “tax reduction/revenue neutral,” we are now talking about tax cuts, big spending, and huge deficits.

I actually feel them to the right of them.

It seems to me it’s great to talk about Reaganomics. I started at Wall Street. I was a Reagan Democrat in the ’80s. That’s a great time — this whole supply side economics. We are not there today, so when they talk about comparing it to Reaganomics, it’s totally different. Rates were 20 plus percent. Having a strong dollar was a great thing, and we were not in a globalized economy. It’s very different today, and so I’m incredibly concerned about their economic agenda. I agree infrastructure is important, but infrastructure is public-private partnerships. It’s roads, it’s bridges, it’s GPS, it’s fiber. It is not a tax cut for construction and development. And with respect to this economy going slow, we should just be clear: In most recessions, fifty percent of the progress came from housing. So when you go to where we were on housing you are not getting that back. So anyone who’s surprised that we are having GDP (growth) of half the normal of the recession, you should just take the housing part out and that’s the difference. I’ll pause there so we can have this exchange.

MB: May I quickly just say one thing in response to that? Every serious recession has had a prime sector, in the early 80s exports were a big issue. You can’t just take one sector out and say everything else is the same and nothing happened. Usually there’s a sector rotation.

That’s number one. Number two, I think it’s a very fair comment to say that we risk some protectionism. I thing right now we really can’t tell when Trump makes these campaign announcements and issues executive orders or statements in the White House, some of which are only telling his cabinet secretaries, some of aren’t even confirmed yet, to study this or come back with proposals — whether that’s an opening bid in a negotiation or that’s where he really wants to wind up — I think that’s a hard thing to do, but I would agree with you that that is one serious risk and I would agree with you that…

RW: You said you’re going to have one response. [laughter]

MB: I’m agreeing with you, as I said the deficits that are in place, where he would get a lot of resistance.

RW: Let’s just talk about his policies because this is on economics. His big policy recently, John, was the great way to hammer Mexico with the 20 percent tariff. It’s great to talk policy, but understand policy. That 20 percent tariff couldn’t even be done because Mexico and the US and China are part of the WTO. You’d also then have to have a trade war with China. It’s just illogical. They’re just throwing things against the wall. Now he’s going to be able to do some one-off things away from the WTO, but today, before they espouse these executive orders, they should understand what policy is.

I was a member of the President’s Export Council. The best way to go after China is to have trade with the 11 countries around Asia outside of China. That’s the best way to attack them. Not to actually figure out how to not have trade with all those who surround them. I actually find it very interesting that the President got trade promotion agreement to have an up and down vote, which was mainly Republican based. Then all of a sudden we go into a populous versus national election, and trade is the worst word in the election.

JH: Let me just put trade aside for a second because I want to come back to it in a separate way. I want to get at one of the core issues here. Andrew Ross Sorkin wrote this piece in the New York Times today that if people haven’t read they should.

RW: Well, just retweet me.

JH: Yeah, or just retweet Wolf. So Seth Klarman is this guy who runs Baupost group, which is a hedge fund manages $30 billion. And he has circulated around Wall Street a piece of paper that is like samizdat. It’s getting passed around among people that essentially says, here’s why the Trump bump is worrying in terms of the markets.

His main focus is on the possibility for an inflationary outcome. Knowing what, and I’m going to direct this to Mike Boskin first, just having seen Washington operate over the past 25 years and remembering the example of what happened in the George W. Bush administration, tax cuts are going to be easy. Spending cuts are going to be hard.

Trump has no interest in spending cuts that he’s demonstrated in any way. He’s publicly on the record as not wanting to do any entitlement reform whatsoever. So debt and deficits going up seem almost guaranteed as we move forward right?

In that environment, it seems to me that the likelihood of some inflationary — even if we get growth out of that — risk is super high. Chairman Boskin, again, this is where the theory of what you want to do meets what actually happens in Washington and the things that are likely to get done. With the President not prioritizing spending cuts of any kind, let alone entitlement reform which is necessary if you want to try to get debts and deficit under control, it seems to me like this is a pretty bad path that we’re likely to head down.

MB: It’s risky if we’re not sensible about spending. It’s not clear the Republicans in the congress will let him do all that. Now it is true that at times in the past we’ve sunk to the lowest common denominator as a way to buy votes. We had tax cuts that everybody liked. Spending control has been difficult.

On the other hand, Republicans invested a lot of political capital and bad press in 2011, in 2013. They got Obama’s budget considerably paired back and we got something in. Now they went after the easiest parts of the budget, the discretionary part not the entitlement.

JH: The part there is not much left off frankly.

MB: A third of the non-interest bearing budget, but it’s a minority and shrinking.

JH: Your view about this is that this is where we are going to end up pretty fast. In a place where the easy stuff is going to get done? Again I believe Paul Ryan if he had his head would do entitlement reform, but Donald Trump is not only not interested in it, but says he is adamantly opposed to it.

RW: So when I was appointee for the President, we spent probably four of the last eight years on tax reform. Getting tax reform is near impossible. If you could just put it at 20 percent and get every Senator in an up and down vote where you disregard all former pork, you wouldn’t get one Senator to get in line.

You have to actually reduce all of these other things and increase just spending. One, that’s not going to happen. The easiest thing they can do is a tax cut, because they can do this type of scoring that shows growth will offset the tax cut. I think tax reform is very difficult. I agree we should do corporate tax reform. What’s interesting though is that was the Fortune 100 companies don’t pay anywhere near 39 percent by the way, or 36.6 percent. They all pay 15 percent. I think a repatriation would be a good thing. Infrastructure is a good thing. But at the end of the day I think we’ll not get much outside other than that done.

MB: I disagree on tax reform. A lot of people said the same thing in the mid-1980s, but we will see.

RW: I’m with you.

JH: Let’s turn to trade. I totally agree with you that there is a question of Trump has said a lot of things, how many of them will translate into action is one of the opening questions that we confront here 15 or 16 days into the new era. And there are restraints because there are many Republicans who find Trump’s views about trade to be aberrant. Just sketch a world in which we’ve now, by executive order, are withdrawing from the TPP. We’re not going to do that. NAFTA is in jeopardy. Tariffs are being threatened on an active basis. Even if those tariffs aren’t imposed, the threats themselves have big economic implications against Mexico, against China .

What’s the world look like in which the US, which has been the cornerstone of driving for a broad consensus in favor of free trade and increasing free trade, what’s the world look like when the United States is no longer, at a minimum, it’s no longer the cornerstone of that consensus?

MB: As everyone here knows that vacuum is going to get filled. If we are not leading other people will step in. You raised the risk of China enhancing his trade relations with other 11 countries, 10 if you leave us aside. The basic issue is the TPP had some good and some bad things in it. It would have been a small benefit to us economically, a modest benefit to most of the other countries. It would have been, perhaps, a good bulwark as a strategic issue against China. Tariffs are already low in almost all these countries, especially here. We’re the largest economy and most of those other places have a pretty decent access to our markets and areas where only a small number of them are going to be opened up by TPP. We can overestimate the economic benefits of TPP. But it was important as a strategic signal to dealing with China.

The most brilliant geopolitical card played since the Truman administration set up the post World War Two security and economic global commons that mostly provided peace and prosperity for all this time, was Nixon opening China, and China’s made an immense opening, an immense growth, an immense transition. Four hundred million people have been lifted out of abject poverty. That’s one of the most remarkable transformations in human history. However, China is assertive. It’s nationalistic, and President Xi is not the democratic reformer we were hoping for by now. He has a different agenda. There’s a risk and it would be wise geopolitically to figure out how to do that. He says he’s going to do these one off bilaterals, we’ll see what happens.

JH: I want to move to a different topic just because we’re running up against time constraints, which I don’t like and I’m going to ignore to some extent, but I do want to hit two more topics even though it says last question. The first question relates to infrastructure.

You have been maybe the most public vocal backer of an infrastructure bank in President Obama’s economic circle. President Trump has not embraced that idea specifically, but is on the record along with Steve Bannon in saying he wants to do as Mike Boskin just said, a trillion dollars in infrastructure spending over the next 10 years in a public private partnership.

Just do an assessment for me of what you know of the direction they want to go. How likely is it to happen, and is it a plausible alternative to the structure that you imagined when you were advocating for it with President Obama?

RW: Thank you. It’s hard to really figure out where he wants to go. I will tell you that infrastructure is the most bipartisan issue we have in the country. The Republicans, the Democrats, the Chamber of Commerce and the unions all support it. The president’s plan is much more about tax cuts. I don’t find it necessarily an infrastructure plan.

An infrastructure plan to me is about public private partnerships. It is not just about roads and bridges. It also includes next generation GPS, and the national electric grid, and water treatment centers. I think we need a national infrastructure bank. I wrote about it multiple times, and testified in front of the Senate.

The reason we need this is to get things done in a national way or in a cross-state way, whether we like it or not, you need the government involved. You’re not going to get a national electric grid across 10 states without the federal government involved. Also, from a financial perspective, I’m talking about financial engineering here, you can leverage federal US debt at four to eight to one to actually take $25 billion, I’ll be very quick here, and allow it to become $400 billion in projects. The truth is the private sector money is waiting to get involved with infrastructure. I’ve written about it in the Wall Street Journal with Laura Tyson, and I wrote about it during the campaign in a Fox briefing.

MB: We’ve agreed on some things. I’m going to respectfully disagree with Robert here. I think a national infrastructure bank is a really poor idea that should have died in the Carter administration. First of all…

JH: Robert, don’t…

RW: I’m OK.

MB: Imagine what’s going to happen with this $25 billion or $250 billion or whatever it’s going to be. This leverage money, if it’s going to be debt when the government has to assume it, when the private sector walks away from it? It’ll be highly leverage risk taken by those people. That’s number one.

Number two, the government picking winners and losers is going to nationalize and politicize infrastructure projects. There are a large number of infrastructure projects that make some sense. Some fraction of them are appropriately federal, only some fraction. We don’t want to repeat the boondoggle that we had in the Obama administration where the shovels weren’t ready.

There was chaos and a lot of embarrassment from poor projects. Every local district is willing to say, if the federal government provides most of the money, the benefits to my constituents greatly exceed the small amount we’re going to have to pick up. There are a couple of exceptions, and we ought to do every national infrastructure project that has a rigorous national cost-benefit test. But the idea of this big program centralized in Washington, doing this and coming out in the end with positive present-value projects is to my mind exceptionally unlikely.

RW: I’ve written two op-eds. I recommend you read them…

MB: I have read them.

RW: It’s merit based. It is not about…

MB: So is allegedly every other thing the federal government does.

RW: It’s merit based. It’s project specific. It’s a public-private partnership which is driven from the private sector.

JH: One panel I didn’t expect to have a steel cage death match at it is this one on infrastructure, but here we go.

RW: Not, at all. Listen I…can I just say something. When I testified in front of the Senate, the Republicans looked at this very much like Fanny and Freddy, like a large GSE. It’s nothing like this. The problem is we will sit here five years from today and have the same infrastructure problem.

MB: I agree. We have a lot of deferred maintenance which is most the high benefits stuff comes from.

JH: I want to ask one last question. We’ve raised it a couple of times over the last day. So Carrier, Toyota, Boeing, Lockheed, the President’s been very activist in terms of singling out specific companies in addition to the industries.

I think Valerie (Jarrett) said last night that she thought that in the course of eight years, President Obama had never singled out a specific company or a CEO ever at a public statement. President Trump has done that a bunch of times both in the time when he was President-elect and now as President of United States.

Can we find, I want to end on some note of consensus. I believe I may have agreement from both of you.

Do either of you think that that is a sensible way for the federal government to conduct economic policy with that level of specificity and that focus on, not just picking winners and losers as you suggested, Mike Boskin, around infrastructure projects, but specific companies inducements, threats, bribes, brow beating, etc.?

MB: I think that president would be better advised to focus on the broad policy environment. [laughter] President Obama did not do this, I agree, but also his regulations and his agencies basically had their fingers in every aspect of business. Not only with laws and regulations, but with suggestions on how you want to behave.

The notion that President Obama’s hands are clean, I think he was much more pervasive of getting involved in industry decisions because it was done at that level. I agree that this is not the best of Trump by a large margin.

RW: I would just agree that it is not the way to go.


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