March 6, 2017 (Analysis) The Great Depression scarred the United States. It caused incredible damage, and is one of the many causes for World War Two. President Donald Trump says that he is a very intelligent man, and that he understands economics like none other. He also says that he went to the Wharton School of Business, and that he was tops in his class.
He went to Wharton’s, one of the top business schools in the country. Presumably he earned an economics degree. Here is the problem. Anybody who has earned a degree in Economics, History, or social sciences, would know about Smoot-Hawley, or at the very least the Great Depression, and the role those tariffs, well intentioned as they were, had. None in his right mind would want to walk down a similar path as President Herbert Hoover, who presided over a deep depression, which was made much worst by a trade war.
The opening salvo for that trade war was Smoot-Hawley. Incidentally, Hoover had his doubts and considered not signing these tariffs into law. He feared that enacting those tariffs could be a very bad idea. Unlike Trump, Hoover was capable of self reflection.
What happened after those tariffs were signed into law were predictable. Other countries fired back. They raised punitive tariffs on American exports. Jobs that were supposed to be preserved by American tariffs on foreign goods disappeared anyway, as those markets closed their doors. A cycle of countries raising tariffs and closing their borders to goods and services started in earnest. Historians of the Great Depression agree that this trade war not only deepened the depression, but lengthened it.
Trump is following on the same kind of economic policies that led to the Great Depression. The Tax bill passed earlier in the year is the kind of economic policy that runs counter to standard economics. In fact,
As a historian of the Great Depression, I can say: I’ve seen this show before.
In 1926, Calvin Coolidge’s treasury secretary, Andrew Mellon, one of the world’s richest men, pushed through a massive tax cut that would substantially contribute to the causes of the Great Depression. Republican Sen. George Norris of Nebraska said that Mellon himself would reap from the tax bill “a larger personal reduction [in taxes] than the aggregate of practically all the taxpayers in the state of Nebraska.” The same is true now of Donald Trump, the Koch Brothers, Sheldon Adelson and other fabulously rich people.
During the 1920s, Republicans almost literally worshiped business. “The business of America,” Coolidge proclaimed, “is business.” Coolidge also remarked that, “The man who builds a factory builds a temple,” and “the man who works there worships there.” That faith in the Market as God has been the Republican religion ever since. A few months after he became president in 1981, Ronald Reagan praised Coolidge for cutting “taxes four times” and said “we had probably the greatest growth in prosperity that we’ve ever known.” Reagan said nothing about what happened to “Coolidge Prosperity” a few months after he left office.
Republicans worship business again. They worship those who have made so much money, that if we give them a tax break we will see them give money to others. As they say, trickle it down. We are already seeing the predictable results of this policy. Even months after implementation the deficit is growing faster than Republicans predicted. We are also seeing buybacks and not the creations of jobs.
Even before the tax package was passed, we knew this:
Annual deficits are creeping up to $1 trillion and the national debt has topped $20 trillion. On Monday, Treasury said that the United States will need to borrow $441 billion in privately held debt this quarter, the largest sum since 2010, when the economy was emerging from the worst downturn since the Great Depression.
Even without a trade war, deficit spending is expected to slow down the economy. The level where it sits is not healthy. A trade war will only add to the headwinds. It is not like other countries, many of them our allies, are not telling us what they will do. We slap a tariff on steel and aluminum, well, good luck to Harley Davidson and Whiskey Bourbon. Both are now targets of European Union retaliatory tariffs.
This is just the beginning. Across the world, this is seen as the beginning of an economic war, that we cannot win. In fact, trade wars have many losers and no winners.
This is one reason why Gary Cohn, Economic Advisor to the President, resigned this afternoon.
Cohn, who heads the National Economic Council, had reportedly threatened to leave after Trump’s incendiary comments following the fatal race riot in Charlottesville, Virginia.
But his decision to quit comes after Trump’s decision to impose tariffs on steel and aluminum imports, a move he and Treasury secretary Steven Mnuchin have reportedly vehemently opposed.
The tariffs might be a popular move with the core of the president’s base. But they show he paid no attention at Wharton’s. The president is setting the country for not just an economic slowdown. He is laying the ground for a major economic crisis.
We are due to a slowdown. The business cycle is long in the tooth already. However, his actions may lead to a crisis not unlike that of 2008, or worst. We have to wonder, given the current tensions in the country, if that slowdown will also have real effects with internal stability.
We already have wild cat strikes. There is already instability in the air. The reason why Franklin Delano Roosevelt avoided those was the expansion of a safety net, and the rights of organized labor. These are the same that Republicans have been trying to roll back since 1933. Time will tell, but we are living through a Chinese curse.
Oh and Mr. Trump deserve an F in both Economics 101 and that long ago survey course in American history.