Tuesday, December 20, 2016

Will Trumponomics be expansionary?

Deficit vultures

A few days ago, Trump announced South Carolina Rep. Mick Mulvaney to be the director of the Office of Management and Budget. He is a Tea Party nut (he was for Rand Paul, and might have libertarian tendencies), and more importantly a fiscal hawk, and for a balanced budget amendment. Mulvaney is really for cutting spending, including, somewhat surprisingly, military spending, even if he thinks that defense is the first priority of the federal government.

So this has created a certain uncertainty about what direction fiscal policy will take in the next administration. Tyler Durden at Zero Hedge has said that: "it is difficult to reconcile this appointment, with the market's increasingly conventional view of Trump as an "out of control" spender." I may be wrong, but I think Mulvaney would be as adept to balanced budget, and strict debt-ceiling limits as a budget director, as an old fashioned tax and spend Democrat. But without the taxes, of course. So I still believe that there will be an increase in deficits, and it's likely that defense and infrastructure spending increase, while taxes, for corporations and the wealthy go down.

Trumponomics is Reaganomics. And as much as fiscal hawks preach the advantages of low deficits, and reduced spending (on entitlements), they do increase both once in power. By the way, I do expect an assault on entitlements. I don't believe that the deep convictions about debt management are in general. It's basically strict fiscal rules for Dems, and loose rules and pork barrel spending for the right wingers. It's predatory capitalism, as Jamie Galbraith would call it. Another interesting nugget in the Durden post, is that Mulvaney is in favor of full privatization of Freddy and Fannie, something that I'm sure would be okay with real state broker in chief.

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