Notes on the Revolution
February 10, 2020
Trump and the State of the Union, Part Two
By Charles McKelvey
In our last episode of Notes on the Revolution, we looked at Trump’s State of the Union address. We saw that he gave a stirring speech, connecting to the right and the center of the U.S. political culture. And we saw that his approach to immigration has serious shortcomings, but that his opponents do not effectively critique the most significant shortcomings in Trump’s response to the global problem of uncontrolled and unregulated international migration. Today we look at those aspects of the speech that relate to the U.S. economy.
Trump maintains that the U.S. economy is stronger than ever, noting particularly the level of GDP growth, the unemployment rate, and the number of factories and blue-collar jobs. The following day, a number of media critics took Trump to task for making exaggerated claims in this regard. However, they presented data that rectified Trump’s omissions and misstatements, but these changes do not challenge the essence of Trump’s claim. Although cast in a frame of declaring that Trump was lying and misstating, the media critics were confirming that the U.S. economy is strong, if measured by GDP growth, unemployment rate, and factories.
Although it is common to discuss the health of the economy in such terms, the fact is that such indicators provide a very limited picture. At the present moment, the indicators are strong, compared to what they were ten years ago. However, there are basic negative tendencies in the U.S. economy, which are central to the productive and commercial decline of the U.S. economy relative to other core powers, tendencies that have been more or less continually unfolding for decades. These include the so-called “double deficit,” that is, a balance of trade deficit, in which a nation imports more goods and services than it exports; and a state budget deficit, in which a government spends more than it takes in, compensating by taking out additional loans. The U.S. economy has had a growing double deficit for years, which means it is not on a strong foundation, and it could confront major crises in the future.
Related to the balance of trade deficit is the recent tendency in the United States toward financial speculation, which consumes capital that could be used for investment in production, without actually producing anything. Normally, owners of capital invest in speculation when it is more profitable than investment in production, and conversely, they invest in production when it is more profitable. Historically, financial speculation was cyclical: it went up and down, according to its level of profitability, and when it was low, investors turned to production. However, in recent decades, financial speculation has been converted from a cycle to a tendency, a continually increasing phenomenon, creating what some economists have called a “casino economy” or a “fictitious economy.”
As U.S. capital turned increasingly to financial speculation, it underinvested in the productive capacity of the nation, reducing the capacity of its economy to compete with the economies of other nations. And this underinvestment in production has been occurring precisely at a time in which the service component of the world-economy was growing, and ecological considerations became more necessary, thus favoring investments in new, sustainable forms of production. Moreover, there was at the same time an increasing militarization, which meant that much of the limited investment in production was channeled to the production of new arms technologies, rather than new sustainable forms of production that are likely to be increasingly important in the future.
In the context of these long-standing negative tendencies, Trump’s claims are interesting. He states that he has attained a better trade deal with China that includes the imposition of tariffs on Chinese goods and that protects U.S. industry from what he considers to be unfair competition from China. (It really isn’t unfair; it’s an alternative definition of fair from the vantage point of the less advanced economies). Trump further states that the new U.S. trade practices with China will “reduce our chronic trade deficit,” and they already have created a situation in which “our Treasury is receiving billions and billions of dollars,” or in other words, a situation in which the state budget deficit is being reduced. Therefore, Trump’s approach to trade appears to have some merit, in that it seeks to reduce the long-standing “double deficit.”
Whenever a government undertakes a new initiative, if the policy is intelligent, it can be assumed that it will attain some of its objectives, and that it also will generate unintended negative consequences. So there needs to be constant observation and analysis, making necessary modifications in the policy. This should be done with respect to Trump’s trade policies, without politicizing the issue, and with recognition that the effects of an intelligent trade policy would be long term, and they would not necessarily be registered in recent changes in the unemployment rate.
With respect to the previous trade arrangements with China, Trump observes, “I don’t blame China for taking advantage of us; I blame our leaders and representatives for allowing this travesty to happen.” This comment is consistent with his tendency to cast himself in opposition to the political establishment. He is not wrong in asserting that the leaders of the two political parties have not defended the productive and commercial capacities of the nation. The political establishment in recent decades has adopted policies that enabled owners and managers of capital to profit from financial speculation, rather than adopting policies designed to encourage investment in national production and to protect the development of the U.S. productive and commercial capacity. The political establishment has in recent decades protected the short-term interests of capital, without concern for the consequences for the nation. And a degree of popular consciousness of this fact was an important factor in the political rise of Trump.
Trump also claims that his policies of deregulation and tax cuts have revitalized U.S. industry, that U.S. companies “are coming back to our country in large numbers thanks to our historic reductions in taxes and regulation.” Here he is on weaker ground. The experience of recent decades shows that the availability of more capital does not necessarily mean more investment in production; it will go to financial speculation, if it is more profitable. Tax cuts and tax credits have to be conditioned on investments in particular sectors, which the government, in defense of the interests of the nation and people, has determined are areas where investment is needed. As with any program of economic planning, the effects of the sound policy of tying taxes to investment may take years to be expressed; it is not likely to generate immediate effects in the number of factories.
With respect to government regulations, the issue should not be ideologized. To be opposed to government regulation as a matter of principle; or to be opposed to the elimination of any government regulation; are extreme ideological positions. Government regulations exist for a reason, be it prevention of the superexploitation of labor or the protection of the environment. So in general terms, government regulations, even if they impose constraints on production and profits, contribute to the common good. But in some cases, government regulation, although well-intended, has more the consequence of constraining production than of carrying out their purported function. Regulations should be constantly evaluated with respect to their effectiveness and their unintended consequences, with attention to the protections that are needed as well as productive needs.
In standing against government regulations in principle, and in promoting non-conditioned tax cuts, Trump appears to be promoting the interests of capital, rather than the good of the nation. In this regard, he stands in the tradition of the Republican Party.
In our last two episodes, we have been looking at Trump’s State of the Union address. We are giving him mixed reviews, finding some concepts that are intelligent and others that have limitations. And we are finding that his critics are often off the mark. In our next episode of Notes on the Revolution, we will look at Trump’s extremely superficial and myopic view of socialism, Venezuela, and Iran.
This is Charles McKelvey, reflecting on the unfolding global popular socialist revolution forged by our peoples in defense of humanity.
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