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Trump’s moves on macro policy make things tougher

Key macro policy moves on the part of the administration in recent weeks include:

  • Appointments to the Fed (see my previous post)
  • Proposed budget with cuts in nondefense discretionary items and net increases in defense (New York Times breakdown)
  • A single-sheet tax plan with huge cuts for the rich and little for people of modest means
  • Continuing attempts to repeal and replace Obama’s ACA (Affordable Care Act) after the failure of the Senate to pass any form of “Trumpcare”
  • Renewal of efforts to slow down ACA
  • A new infrastructure plan with less new federal spending than hoped for by most progressive observers
  • Abandonment of Paris climate agreement (which changes planning for the future, although this decision does not literally belong in the macroeconomic policy department)

The budget did not take into account losses in revenue likely to occur as a result of the tax plan. Also built into its assumptions were Laffer-curve type effects on economic growth, permitting rosy tax-revenue forecasts blasted by fiscal conservatives and others.

Regarding health care, these moves are adverse for a number of reasons: 1) Since Trump administrative measures include nonenforcement of the individual-level mandate, drop-out of healthy people from the insured pool is likely to occur; 2) proposed cuts to Medicaid will take money out of the system that help pay for mandatory care in emergency rooms; 3) slowing down of moneys for states who expanded Medicaid under the ACA to help low-income residents obtain coverage.

Sharp discretionary cuts will put an increased burden on finances at the state and local levels, where federal moneys help to finance health and welfare spending. The budget did follow through on the campaign promise to leave Social Security retirement benefits untouched, despite moves that appear negative for related federal disability programs. Discretionary items included numerous anti-poverty-type programs of varying effectiveness. A narrower set of drastic cuts to a list of high-profile programs was announced early on by the administration but did not add up to a fiscally significant amount of money for a central government with a budget that is enormous.

On the pro-growth and employment progressive team, it seems fair to point out that defense did not escape the ax as a result of spending cuts in the stimulus wind-down starting in 2010.  Recall massive cuts to bases around the country, which came at a time when unemployment was still near post-1980s highs.  Moreover, some defense-related programs help with things like diplomatic solutions and control of nuclear materials around the world. These cuts have been driven by efforts to avoid raising the deficit when addressing needs to infrastructure, health-care, etc—which are driven by Congressionally-imposed fiscal rules known as “spending caps.” Budgetary hyper-concern also drives stories about the budget which emphasize the unrealism of administration growth assumptions, as opposed to calibrating a just-large-enough dose to reach full employment. For those who appreciate the message of the policy doctrines known collectively as MMT (Modern Money Theory), fiscal policy is only an instrument to achieve the nation’s true goals—including real sustainability issues that remain urgent as always.

We’ll get back to matters other than spending and taxation soon–like ways in which reductions in antitrust law enforcement might undermine the existence of interesting markets and market goods, let alone the usual struggles about health care, poverty, and other items more widely agreed to be jeopardized by a generally market-oriented system. We have not even mentioned the economically important child care issue, which is set to be a focus of Ivanka Trump as an image-softener for the White House, much along the lines of past first ladies’ initiatives in highway beautification, mental health, etc. In the US, child care is one  of those items promoted largely by means of tax deductions and credits. The article reports a de-gendering of plans to

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