We are all Keynesians now,” attributed to Republican U.S. President Richard M. Nixon.

The most surprising thing about President-Elect Donald J. Trump is his economics. The economic plans the Donald has advanced are surprisingly Keynesian.

John Maynard Keynes and his followers argued that the free market was an inefficient mechanism of macroeconomic policy. They also believed that government spending was sometimes a more efficient mechanism for achieving economic growth.

Trump seems to accept two of the basic tenets of classical Keynesianism – the use of deficit spending to stimulate economic growth and full employment. He has made promises to that effect on the campaign trail.

Trump’s Agenda Channels Keynes

Donald’s agenda includes a proposal for $550 billion in infrastructure investment and increases on military spending. He also advocates massive tax cuts including lowering corporate taxes to 15% from the current 35% to further stimulate the economy.

Economists have estimated the cost of that tax cut alone at $6 trillion over 10 years. If that is not deficit spending I do not know what is.

More interestingly Trump accepts the Keynesian dogma of “full employment.” This is the notion that government has a moral obligation to provide every able citizen with a “job.” Trump has even boasted of a secret plan to create 25 million jobs in 10 years (note: he conveniently failed to provide details).

This puts Trump at odds with a wide variety of political and economic thought on both sides of the ideological aisle. His defeated opponent Hillary Clinton only wanted $275 billion in infrastructure spending. He also rejects the modern consensus that “full employment” should not be a goal of government.

Trump Rejects Reagan and Thatcher

Conservative leaders such as Maggie Thatcher and Ronald Reagan gave up on the idea of “full employment” back in the 1980s. Instead they substituted economic growth regardless of job creation as the major goal of macroeconomic policy.

Something to remember here is that full employment is as much a political notion as it is an economic concept. The idea of full-employment first became popular back in the 1930s when establishment types (like Keynes) were afraid of violent revolution from the left (Communism) or the right (Nazism). They were particularly horrified by the legions of unemployed Germans that became Hitler’s Stormtroopers.

This partially explains some of the American establishment’s embrace of Trumpism, and their recent rediscovery of Keynes. Many wealthy Americans were frightened by the riots that have plagued US cities over the last two years; and by the success of self-proclaimed socialist US Senator Bernie Sanders (I-Vermont) during the presidential election. The hope is that Trump might be able to buy the mob off with watered-down Keynesianism.

Will Trump’s Keynesian Agenda Provoke Political Conflict?

Trump’s Keynesian agenda is a rejection of the economic consensus that has dominated American political life for the last three decades. This puts Trump on course for a conflict with both Republicans and Democrats in the United States Congress.

Many Republicans; including the highly conservative Freedom Caucus, in the House of Representatives are staunch believers in Austrian economics which teaches that deficit spending is bad. Since the House writes the budget under the US Constitution things might get very interesting when Trump’s spending proposals arrive on Capitol Hill.

Especially if Donald ends up turning to Democrats; who share his Keynesian views, in a desperate bid to enact his agenda. An intriguing question here is will Democrats support Trump, or help conservatives sabotage his agenda in order to increase their chances of recapturing the White House in 2020?

Not surprisingly Austrian economists such as Frank Shostak of the Mises Institute are already attacking Trump’s plans. Shostak condemned Trump’s loose spending policies and predicted that they will weaken economic growth at his blog.

This will put some Republican legislators in a very uncomfortable dilemma; should they abandon their long-held beliefs, or go along with Trump’s popular agenda? Polls show that most Republican voters like Trump, even in deeply conservative districts.

Why Keynes is Popular in Modern America

That and Trump’s victory indicate that Keynes is actually very popular with the American people – even if they do not know who he was. Most voters seem to agree with the concept of full employment; and believe in stimulus by deficit spending, even if their elected leaders do not.

A major reason for Trump’s popularity is the deterioration of America’s infrastructure over the past few decades. Once gleaming Interstate highways are now full of potholes; and Washington DC’s Metro futuristic Metro system is now unsafe to ride and often out of service because of breakdowns. Americans that cannot get to work because of a traffic jam or a delay on the subway are simply fed up with lousy infrastructure.

Another is widespread unemployment and underemployment which is having a corrosive effect on many communities. That includes the small towns and decaying industrial cities of the Heartland where Trump dominated the vote. One effect of high unemployment is a massive drug problem in the Midwest. Thousands of people have died because of a glut of black tar heroin in Ohio alone, The Columbus Dispatch reported.

The popularity of Keynes also creates a dilemma for Donald; if his Keynesian economics fail he will be blamed. Both the wealthy that want protection from the mob, and the working class that wants full employment and a return to the 1950s will turn on Trump. He will find himself a scapegoat rather than a savior, and a one-term president.

Ironically Trump might end up proving one of Keynes’ most famous quotes.

“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist,” Keynes wrote. “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”

Keynes was not only a great economist; he was something of a prophet. With the above quote old John Maynard seemed to predict Donald Trump and sum up his agenda.

1 Comment
  1. […] Trump to the Washington event. They’re going to need money and Trump has recommended spending $550 billion or more on infrastructure. At least it would attract some media attention to Hyperloop One because […]

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