I really hate defending Trump. I’m definitely not a fan. However, there is no case to be made for raising rates when wages are still miserably low and the Fed is having trouble meeting its inflation target. Higher interest rates place banks in competition with workers for their piece of the pie and do nothing to increase productivity at pace with GDP growth resulting from higher prices. Monetary policy has proven to be a poor substitute for fiscal policy in steering the economy anyway and we should think about a ZIRP, or even eliminating Treasury bonds. They are not a necessary component to spending sans a gold reserve to defend and do not fund anything. We also have to acknowledge that higher rates paid on bonds inject public money at the top of the income strata which has some inflationary pressure of its own, especially from rent-seeking in the absence of consumers with disposable income.
There is some truth to what AOC stated as a reason for low unemployment numbers being people having multiple jobs to make ends meet. The method of computing unemployment is also faulty and under-reports dramatically. Wages have to be sufficient to justify working for many people who have conflicting obligations or low skills and don’t need a source of healthcare insurance. Even if the disincentives only add a percent that would put unemployment back into territory where the Fed wouldn’t be advocating for increased rates. As much as this economy is touted for its improvement I believe we are still in a general deflationary cycle, with the only exceptions being housing and energy, and have been since ’08. We would be doing much better with a more equitable distribution of wealth, but increased incentive to save via higher rates and poorly managed fiscal policy only increases inequity.
Trump’s tariffs are just an added tax on consumers and haven’t added to revenue to compensate for lost sales. They certainly haven’t added enough to compensate for the planned bailouts of farmers who lost much of their export market. Someone needs to tell him it is the importing companies that pay those taxes, not the exporting nations. He’s still yapping about Mexico paying for the tariffs threatened against it in retaliation for our immigration issues. How’s that working for him with his tariffs on foreign steel and aluminum products? He’s famous for starting fires so he can take credit for putting them out, and I think this is the motivation for his attack on Mexico that is backfiring spectacularly. The trade deal proposed months earlier will likely be the end result of all of his grandstanding ahead of the 2020 election.
The major issue with trade is not the jobs it costs, but our obsession with deficits and the national debt. Without deficit spending sufficient to compensate for trade, or far out of proportion wealth accumulation resulting from disconnecting production from wages, we are transferring immense amounts of wealth upward and erasing the middle class in the process. Nixon took us off the gold standard because it isn’t sustainable in a net importing nation that is restrained in its ability to create currency. If we continue to insist on applying gold standard logic to a fiat economy we can only keep repeating the boom and bust cycles and creating unnecessary misery. One of the primary purposes of any government is to organize its economy and distribution of resources around its currency, not use the people and their economy to balance a mostly meaningless number.
Imports are always a net wash in macro unless the dollars lost aren’t replaced by spending to allow consumers to purchase the cheaper products. It makes little difference who makes the goods or where they are made with a sovereign fiat currency and a debt only denominated in the currency Congress creates at will without revenue restraint. A balanced budget, even if currency drains are factored in, represents a 100% tax rate that effectively steals the resources used by the issuing government and leaves nothing to store value or fuel growth in the economy. This forces unhealthy dependence on private sector debt and makes the economy vulnerable to dips in the business cycle, eventually creating more deficit via automatic stabilizers and safety nets necessary to prevent a domino-like collapse of supply chains.
Prolonged government surpluses, or even balance, remove money required to retire private debt and cause private sector default that eventually weakens the economy to the breaking point. Bank reserves created by lending always balance the principal of the loans and cannot retire the debt that created them or be net saved as a store of value. An economy dependent upon private sector debt must grow sufficiently to roll over that debt or it collapses in default. Only deficit spending that has velocity in the economy can do either. This is why the last seven times we have sustained balanced budgets, or come close to balance for any length of time have been closely followed by recessions or depressions that were only mitigated by increased federal deficits.
