Prior to the 2016 presidential election Mark Zandy of Moody Analytics projected that the Trump tax proposals would have a negative impact on the economy. This projection was egregiously incorrect and I blamed his myopia regarding prudent fiscal policy on his partisan abuse of economic theory that I referred to as a Keynesian Thumb on the scale. I wrote two articles under the title of “A Keynesian Thumb on The Scale” posted in www.georgeeconomics.com, which discuss his severely biased 2016 and 2020 projections in greater detail. The exact words of another far-left biased Economist, Paul Krugman in November 2016 were that “The economic fallout of a Donald Trump presidency will probably be severe and widespread enough to plunge the world into recession.” Given the timing of this statement, he was clearly aware of Trump’s overarching policy positions to lower taxes across the board and the use of tariffs to seek fairer trade agreements with America’s trading partners. His bias mirrored Zandy’s far left myopia that led to radically flawed economic projections.
Both of these two agenda driven ideologues have doubled down on their “déjà vu” prognostications regarding the upcoming Trump presidency starting in January 2025. Once again, these two, along with a chorus of far-left gurus, have spelled out a disastrous economic prognostication for the renewal of Trump’s policies (which mirror supply side economic theory). Given that Trump’s clearly stated economic policies today are not significantly different than his policies during his first administration, there are ample grounds to expect comparable positive economic outcomes from Trump’s policies as a whole. In an historically consistent manner, the far-left gurus, driven more by ideology than economic principles, have generated the same flawed analysis of Trump’s economic platform applying their warped extrapolation of Keynesian theory (e.g. modern monetary theory that defends unhinged government spending).
Even more egregious than their distortion of Keynesian analysis, they are guilty of an original sin know as ‘partial analysis’ and the refusal to recognize what has worked in the recent past. They prognosticate ‘Armageddon’ level economic outcomes under Trump’s economic plan based on the impact of tariffs and tax cuts on inflation, tax collection and deficit spending while government spending is assumed to remain irrational and the positive impact of Trump’s supply side policies are minimized. It is apparent that they have not adjusted their, ‘thumb on the scale’ macro model to account for the economic success of supply side policies and structured tariffs promulgated for the negotiation of fairer trade during the first Trump presidency.
The remainder of this paper concentrates on the positive effects of the supply side growth oriented economic policy that the far-left gurus radically underestimate or completely ignore. From my viewpoint, given my background in energy related modelling, the first and singularly most destructive set of actions made by the Biden Administration were to block pipeline expansion and to handcuff the domestic oil and gas producers by curtailing new leases on public land and slow walking the permitting process (to a virtual stop). The price of oil spiked in a relative short period of time. The consequential sharp rise in the rate of inflation, amplified by massive deficit spending, led to the highest rate in over four decades. The macroeconomic models developed by agenda driven ideologs were so severely skewed in support of left leaning policies that the far-left gurus, including the Federal Reserve, in a joint effort with far-left politicians, deemed the obvious onslaught of record-breaking inflation to be transitory. These macro models which severely underestimated the impact of rising energy prices and fiscally irresponsible spending on inflation during the Biden Administration will inevitably underestimate, to a comparable degree, the positive effect of reversing these errant policies (expected to occur at the very beginning of the upcoming Trump Administration). Basic Keynesian theory is not the culprit of such distorted analysis. The culprits are the far-left ideologues that now dominate the Democrat party. My respect for Lawrence Summers, a true economic scholar, was elevated when he called out the Biden administration’s excessive spending and projected the resulting spike in inflation.
Another aspect of removing the shackles on oil and gas production relates to the opening of federal lands for oil and gas production, coupled with expedited permitting. If done in sufficient volume, with America acting like a sovereign fund, maximizing its share of profit, a major portion of America’s debt can be retired and the price of oil and gas can still return to levels that existed during the first Trump Administration. Simultaneously, the cost of energy in the United States can drop substantially, the cost of all goods and services produced in the country can actually drop, and economic growth can sustainably increase.
The main unmentioned driver in the above discussion of the massive benefit of substantially lower cost of energy and petrochemicals is the elusive, but pervasive topic of regulation. Regulation, in all shapes and form, like the cost of energy permeates the economy. It is an amorphous body of rules aimed at the oversite of business, some of which are necessary to set rational guide rails and much of which are unnecessary invasive tentacles that strangle efficiency and innovation. Unlike oil, gas and all other identifiable inputs and final products and services, however, regulation cannot be adequately quantified in a manner that allows it to be truly represented as a variable in a macroeconomic model, even if broken down on a sector-by-sector basis. Regulation, therefore, is the big beast in the room which adds cost to every good and service, whether directly or indirectly. Unfortunately, macroeconomic modelling struggles to measure the sensitivity of the price and quantity of goods and services produced and sold to changes in the level of regulation. What we do know is that the cost of overregulation is staggering and is most onerous for small and medium size businesses (which employ a majority of the workforce). The cost savings that can be achieved by streamlining regulation on a national basis to reflect only what is actually needed, will continue to be radically underestimated by the macro models of far-left economists, partially due to their agenda driven bias and partially due to the difficulty of incorporating regulation as a variable (either dependent and independent) in their analytical models.
Trump has announced the establishment of an independent Department of Government Efficiency, headed that by the richest man in the word, Elon Musk, and another highly successful entrepreneur, Vivek Ramaswamy. They will facilitate the trimming of government waste and the elimination of functions that do not actually serve the interest of taxpayers. Their apparent operating format will resemble a managed audit on steroids. The cost savings attributable to this non-government agency could be a game changer for the American economy and the American taxpayer where, in conjunction with the potential cost savings discussed above, the $35 trillion federal debt burden can be severely trimmed in a timely manner. In effect, the underlying direction of Trump’s (supply side) economic agenda seeks to transform the present bloated federal bureaucracy into a slim cost-effective government that serves the public needs in an efficient manner. If successful, the actions proposed by the incoming Trump Administration to reform the bloated federal bureaucracy and spur economic growth, will return power to the free market and the consumer, spur increases in efficiency and productivity, and reward the country handsomely.