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Major “populist” and fiscal-stimulus items offer glimmer but stay off front burner

Some progressive economists are cringing at a right-wing administration and its likely nefarious acts. On the other hand, while I count myself among this group, I see the Trump Administration as an interesting chance to get away from the standard neoliberal policies likely to be in force most of the time. For example, interventionist economic policy to improve the trade balance is likely to get a chance, and it certainly might help workers relative to policies since the 1970s, which have led to the loss of millions more manufacturing jobs and median-income losses beyond what factory automation would have wrought in any event. Who would not want to see a chance to foster growth in areas other than banking and other white collar financial industries—balance, as it were?  These sectors are by no means consistently thriving and generating jobs in any event.

Of course, in combining broadly right-wing policies with trade activism or industrial policy, there would be precedents, albeit in places that often strike the observer as bleak and depressing landscapes. These were low-wage innovators that kept organized labor weak and polluted without restraint, even as they worked to build industries. Given such precedents, there is no reason a conservative administration could not implement “interventionist” ideas that might seem at first to be oddly out of  place.

I found it troubling that the Obama administration would think it could offset the loss of key industries in manufacturing with retraining, benefits for unemployed and displaced workers, and the like—a right-wing idea to my mind, grounded in fishy economics, to boot. The gist of the approach, grounded in conventional economics: apply a naïve market test for struggling industries, and then pay the “losers” to leave to growing industries, which are assumed to be able to sprout up and thrive on their own.

What is more, today’s policies about transfers to the poor in practice seem to entail judgmental and punitive program characteristics. Their eligibility rules also are too likely to require near-absolute-zero wealth and income. Spending to bail out corporations is another implication, as exemplified by the Chrysler bailout—not a crazy move, given the jobs at stake, but when helping profit-making firms, why not help the small, new, and innovative among them? Estimated costs per new job and the like are often pointed to as evidence that the policies are wasteful giveaways, but the idea would be to intervene so as to generate synergies and economies of scale and scope. It worked for late-developing economies Japan and South Korea, as documented by much careful academic research on these case. Generally, these “late-late” developers to some extent were emulating precedents in France, Germany, and elsewhere in Europe, where strong industrial policy was generally accompanied by more labor rights and less repression. Moreover, the Asian cases I have mentioned, and others that were similar, were characterized by some degree of equality in economic rewards and land ownership, despite varying degrees of labor repression, patriarchy, excessive markups, etc. They were somewhat consumer oriented.

Also, it should be mentioned here that the spending bill leaves out the big infrastructure plans that Trump proposed during the campaign, which are likely be gotten to eventually. Nonetheless, such programs would have been another early boost to jobs and even real wages, adding to the populist part of Trump’s early initiatives.

The spending bill is only a beginning and will doubtless be modified by a Republican Congress. Signs of the interventionist-populist agenda have been seen, by the way. Consider Trump’s efforts to negotiate down the costs of a huge fighter jet purchase. The idea seems silly to unabashed free-market fanatics in both parties.  In their framework, the private sector can be counted upon to come up with the right solution—even to how much the public sector should pay it.

Fiscally, the big domestic discretionary cuts and big defense increases leave things neutral in terms of projected near-term deficits. The expansionary part—the infrastructure plans and tax cuts—have yet to be sent to Congress, where ACA repeal and replacement are dominating the scene at the moment, along with dangerous cuts to various programs included in last week’s spending bill.

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