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More Trumponomics news

The administration continues to make announcements of interest to those concerned with macro policy, budget priorities, employment recovery, investment in the future, etc. Today, Trump announced (Financial Times article) that his administration would seek a 10-percent increase in annual defense spending. A graphic in the article shows that even in nominal terms (dollars) the defense budget is still smaller than it was in 2010, when post-fiscal-stimulus budget caps were introduced. The wind-down of stimulus spending from the recession cost many government jobs. Moreover, the president and other Republicans tend to be in favor of higher spending in this category. Hence, today’s news is not a big surprise.

Trump stated that he intended to cut nondefense spending by an equal amount. Overall, however, it is probably reasonable to expect the new administration and Congress to Loosen US fiscal policy, raising budget deficits rather than lowering them. Investors appear to be of this opinion, while chief US central banker Janet Yellen of the Fed awaits concrete action before raising interest rates (link to FT on the Fed’s take). The defense increase may or may not actually occur, since changes to the budget depend on a lengthy process involving both houses of Congress.

A step-up of fiscal stimulus is a positive development in our view, while the particulars are very troubling in the view of this blog.

Since our last post, Trump has also announced that he will seek to completely eliminate nine programs that his party has repeatedly tried to cut, including the main program providing funding for the arts. (Link to New York Times article) These latter cuts do not involve such large amounts of money relative to the overall federal budget. Hence, the overall budgetary and macroeconomic effects will not be of much consequence. However, they will affect employment and will be bitterly opposed by many who support the priorities embodied in the programs slated for elimination. An emphasis on the arts may be a good future-oriented policy, according to some research by economists concerned with psychological well-being and the environment.

Trump also campaigned on a promise not to cut Medicare and Social Security–in contrast to program expansions proposed last year in the election campaign by Clinton and her Democratic Party rival Bernie Sanders. It is safe to say that most other benefit programs supported by the federal government, particularly those specifically for the poor, are in peril.

Announced Trump intentions on fiscal policy tend to work in the direction of a lower value of the dollar, leaving aside other things that might occur in the coming years to throw off attempts to anticipate exchange rate changes. Meanwhile, the New York Times over the weekend reports that trade-related issues appear to be on the back burner at the White House for now, though the administration states that it will be watching for acts of “currency manipulation,” which are illegal under international law. Since inauguration day, the administration had publicly expressed concern about the strength of the dollar as a purportedly unfair impediment to US growth and exports. The latter issues are also of interest to those concerned about macro policy in the US and elsewhere.

It is not nutty to think that exchange rates, trade, etc. are important economically, and we hope to get to these matters soon, including some links to neat articles by economists on exchange rate policy and impacts of exchange rate changes. This blog may also take a look at some data on money market mutual funds, a topic of a presentation of mine at an economics conference held last Friday through the weekend by the Eastern Economic Association. The aforementioned talk was part of a session put together by the Association for Evolutionary Economics. I wish colleagues whom I saw there the best, including those I did not get a chance to talk to this time.


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