Yves here. I’m not persuaded that that the Trump Administration will engage in meaningful fiscal stimulus, aka deficit spending, although in fairness, J.D. Alt presents it as a risk for his opponents, not a given. While Trump on the trail made only occasional hand-waves about deficits, which looked more to be designed to show that he was on board with established Republican positions, his Cabinet picks skew heavily towards billionaires who aren’t known for liking a more muscular government (save those in the military pork business). The only one on Trump’s team that I’ve seen speak in favor of deficit spending is Carl Ichan, who is a mere advisor.
Specifically, Trump’s big supposed stimulus program, his infrastructure plan, will not provide any meaningful spending boost. It is to be funded with private borrowing made cheap via special tax breaks plus tax goodies for equity investors too.
But the Fed plans interest rate increases for 2017 that pre-suppose that the incoming Trump Administration will turn up net spending. In other words, if Trump does not engage in deficit spending to offset the Fed’s monetary drag, the economy is likely to get its long-expected recession.
I’d like to propose that it is important, right now, for existing progressive political leaders to stake out positions in support of direct sovereign spending for the creation of collective goods. If they must, they can call it “deficit spending.” What is important is that they very aggressively get on the record as proposing and supporting federal spending programs to to address specific issues that Americans are struggling with.
If this does not happen, there is a real risk that the newly empowered right-wing government of the Trump administration will propose to increase “deficit spending” first. If that were to happen, the progressive cause will have a serious dilemma: Do they push back against Trump―decrying the dangers of increasing the national debt!―or do they get aboard his spending train as more-or-less unnecessary baggage, and watch as it puffs and whistles its way into the hearts of the American heartland?
I make this suggestion because it seems fairly certain that the last eight years of conservative insistence on fiscal austerity and federal debt reduction have been primarily driven by a political strategy to prevent the Obama administration from accomplishing anything of substance that could endear it to voters. The fact that Obama, himself, aided and abetted the substantial success of this strategy―by publicly agreeing the U.S. “debt” was unsustainable, and embarking on high-profile negotiations to rein in the “federal deficit”―underlies the enormous danger America’s progressive cause now faces.
With Obama (and the Clinton legacy touting its budget “surplus”) now gone, the opportunity exists for progressives to forcefully reverse the political mistake. But there is not much time. Even though the fiscal-austerity position was a political ploy, it is still very much stuck in the thinking and rhetoric of the House and Senate Republicans. If the progressives come out first, and early―before Trump has an opportunity to reframe their allegiance―the Tea-Party politicians, who built their reputations by refusing to increase the federal debt ceiling, will have no choice but to, once again, loudly denounce and denigrate the spending proposals. If that happens, it will be much more difficult for Trump to initiate the secret weapon of every authoritarian populist government around the world: giving direct cash payments, stipends, and rebates to the unemployed and under-employed voters―transforming them into vehemently loyal supporters. (This is precisely what is happening today in Poland.)
I’m well aware that current progressive leaders and legislators abhor the possibility of being denigrated and roasted (and made into fools) by fiscal conservatives for irresponsibly proposing to “increase the federal deficit and national debt,” likely causing “run-away inflation and economic catastrophe”―of being challenged to explain how they will collect enough taxes to pay for it all, etc. The problem is―and this is the central point―these progressive leaders are in no position to turn the tables: to make the same accusations to the right-wing conservatives should they choose to play the spending card first. And I think there can be no doubt, unless they are strategically held off, that they will play it. How else can the new government possibly hope to avoid the otherwise unavoidable disappointment of “Trump-populists” when they discover that cutting taxes on the wealthy―and empowering corporations toward increased profits―results in absolutely nothing for them?
It would be better, of course, if the progressive leaders came clean and proposed the direct issuing of sovereign fiat money to pay American citizens to build and do useful things. I realize that’s too much to ask. It may well be, however, this is the best opportunity there will ever be for some brave, intelligent, progressive leader to come right out and propose that we begin properly using the money that we actually have―the democratically controlled sovereign fiat money which our government issues every day in the billions of dollars, to monetize the profit-making efforts of American enterprise. He or she, of course, will be vilified and mocked as a harlequin. But maybe it is best to play the harlequin now, let the reality of modern fiat money begin to seep into America’s awareness while, at the same time, keeping the Tea Party fiscal-“hysteriots” screaming in Donald Trump’s ear.