He announced plans to increase spending. And he announced plans to cut taxes. That means that his plan is an enormous gamble on growth. Indeed I heard him this week inform listeners in no uncertain terms that the way it will be paid for is moving the US forward from 1% a year increase in GDP to 3% or even more. That's his plan to fund the deficit and fix the nation.
This may sound familiar. It is basically the same idea that many of us on the left put forward as an alternative to austerity. But with important differences:
1. The scale of the deficit he is proposing to run is eye watering. He wants to increase military spending by 10%, spend $1,000 billion more on infrastructure, cut income tax, and cut corporation tax. Oh, and build the biggest and most useless wall since the Great Wall of China failed to control the Mongol invasion! He hasn't spelled out where he intends to cut spending.
2. The timing is different. The left were proposing a modest boost to the economy for a short period of time during the depths of the recession. Trump is proposing a massive boost at a time when we are emerging from the worst depths of that recession.
3. The targets for his generosity are very different. Both left and right would agree on infrastructure spending. After that there is almost complete divergence. Trump thinks he can boost the economy by giving tax cuts to the very rich and to corporations. These aren't people who need that money in order to go out and spend it. They tend to invest the money in property, shares or company acquisitions. To me that sounds like a financial bubble not wise investment for the future. The best place to put any boost to spending would be in the science and technology of alternative energy so that we can get ourselves permanently free from dependency on fossil fuels. That is the best way to prepare an economy for an inevitable technological change, cut off funding from unpleasant regimes and limit the extent of the environmental disaster that is already underway. Almost the only thing we know about Donald Trumps cuts is that he won't do this. He intends to cut spending on environmental projects.
Those three differences matter enormously. Obviously it means that the people who will benefit from his policies are the well off who voted for him not the poorer sections of America who he claims are behind him but actually voted overwhelmingly Democrat. There are, of course, enthusiastic working class Trump supporters and he did peel off enough of them to win the election but they aren't his main supporters and are not the target of his largesse. The poor will suffer and most of them knew that when they voted.
Perhaps more importantly is the fact that the timing and the targets of economic policies make a big difference to their success. Done well a boost to an economy during a downturn is usually a very effective policy and the right investments can transform a country and set it up for the future. Done badly during an upswing and those same policies will crash and burn.
Or rather I should have said burn and crash. Pump this amount of spending into any economy and it will roar ahead. It is highly likely that the immediate impact of Trump's policies will be a very rapid improvement in US economic figures, accompanied by high approval ratings and much coverage in the UK about how we have got it all wrong and Trump was in fact an economic genius.
It will take a little time for the problems to kick in. These will be:
1. Growth will be harder to achieve and slower to arrive than forecast and government revenues won't rise fast enough to cover tax cuts
2. The deficit on government spending will continue to increase alarmingly
3. There will be a lot of cheap money available for loans and private debt will mount rapidly
4. Inflation will start to rise and living standards for the poor will fall.
5. Asset prices will soar
6. The US balance of payments with the rest of the world will continue to be horribly negative
7. US foreign debts will mount
No one ever gets predictions about the future absolutely right. But if this list is even remotely correct then most economists would recognise all the signs of a dangerous bubble that can only lead to another economic crash.
So hold your nerve whilst the roller coaster rides up. Because you are going to need it when the carriages start to go down the hill and it is discovered that no one has bothered to put any structures in place at the bottom of the ride.
We got out of the last economic boom and bust in 2008 by the skin of our teeth. If Trump does what he says he will, and to give him his due that is something he does tend to do, then we are in for another even bigger one. With less tools in the armoury and a paranoid psychopath in charge of US economic policy.
Almost everyone else on the left is expecting Donald Trump to crash and burn quickly. I don't. I think he will burn and crash. That is much more dangerous!