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| US voters chose candidate with a more radical approach to economy US voters chose candidate with a more radical approach to economy | |
| (2 days later) | |
| By voting for Donald Trump, Americans have chosen the candidate with the more radical programme for the economy. Hillary Clinton’s proposals were cautious, costed and conservative. By contrast, the president-elect is gambling that he can shift the US out of its post-financial crisis torpor through a mixture of tax cuts and spending increases even though they run the risk of higher inflation and a bigger budget deficit. | By voting for Donald Trump, Americans have chosen the candidate with the more radical programme for the economy. Hillary Clinton’s proposals were cautious, costed and conservative. By contrast, the president-elect is gambling that he can shift the US out of its post-financial crisis torpor through a mixture of tax cuts and spending increases even though they run the risk of higher inflation and a bigger budget deficit. |
| Although Trump campaigned as an outsider, his policies have been tried before. Ronald Reagan said his tax cuts and extra spending for the Pentagon would generate higher revenues and balance the budget. It didn’t. Tax breaks for the rich and military Keynesianism sent the deficit rocketing. | Although Trump campaigned as an outsider, his policies have been tried before. Ronald Reagan said his tax cuts and extra spending for the Pentagon would generate higher revenues and balance the budget. It didn’t. Tax breaks for the rich and military Keynesianism sent the deficit rocketing. |
| Similarly, George W Bush, said his tax cuts and war on terror were compatible with fiscal prudence. They weren’t. | Similarly, George W Bush, said his tax cuts and war on terror were compatible with fiscal prudence. They weren’t. |
| Trump’s package is a mixture of Reagan and Bush, with a bit of Dwight Eisenhower thrown in. He has pledged a $500bn (£400bn) programme of infrastructure spending to renew the roads, tunnels and bridges built in the 1950s and has promised to increase defence spending. | Trump’s package is a mixture of Reagan and Bush, with a bit of Dwight Eisenhower thrown in. He has pledged a $500bn (£400bn) programme of infrastructure spending to renew the roads, tunnels and bridges built in the 1950s and has promised to increase defence spending. |
| The plan is also to cut taxes for both individuals and companies. America’s corporation tax is one of the highest in the developed world at 35%. Trump plans to cut it to 15%. Income tax will be simplified and cut across the board, but with the better off set to be the biggest gainers. | The plan is also to cut taxes for both individuals and companies. America’s corporation tax is one of the highest in the developed world at 35%. Trump plans to cut it to 15%. Income tax will be simplified and cut across the board, but with the better off set to be the biggest gainers. |
| History suggests that this combination will result in faster growth. Economists at Deutsche Bank said it could double from its current rate of around 2%. History also suggests it will come at cost of higher inflation and of a much bigger budget deficit. Luca Paolini, the chief strategist at Pictet Asset Management, predicts it could average 6% of US GDP over the next decade, up from a current 3.1%. | History suggests that this combination will result in faster growth. Economists at Deutsche Bank said it could double from its current rate of around 2%. History also suggests it will come at cost of higher inflation and of a much bigger budget deficit. Luca Paolini, the chief strategist at Pictet Asset Management, predicts it could average 6% of US GDP over the next decade, up from a current 3.1%. |
| Trump has said his spending commitments will be matched by savings elsewhere, although again history suggests that this is easier said than done. Congress is, for example, unlikely to allow the new president to repeal Barack Obama’s Affordable Health Care for America Act unless there is something to replace it. | Trump has said his spending commitments will be matched by savings elsewhere, although again history suggests that this is easier said than done. Congress is, for example, unlikely to allow the new president to repeal Barack Obama’s Affordable Health Care for America Act unless there is something to replace it. |
| The problem of getting tax and spending plans passed on Capitol Hill has not disappeared simply because the Republicans are in control of both houses of Congress as well as the White House. It will take all Trump’s marketing skills to persuade some of the fiscal conservatives in the Republican party that his sums add up. | The problem of getting tax and spending plans passed on Capitol Hill has not disappeared simply because the Republicans are in control of both houses of Congress as well as the White House. It will take all Trump’s marketing skills to persuade some of the fiscal conservatives in the Republican party that his sums add up. |
| A looser fiscal policy that leads to stronger growth and higher inflation is also certain to elicit a response from the Federal Reserve. The uncertainty caused by Trump’s victory could result in the Fed delaying the increase in the cost of borrowing it had been pencilling in for December, but the respite will be short-lived. Interest rates under Trump will end up being higher than they would have been under Clinton. If things don’t go according to plan, the US will suffer from higher inflation just at the time that trade and migration curbs result in weaker activity. | A looser fiscal policy that leads to stronger growth and higher inflation is also certain to elicit a response from the Federal Reserve. The uncertainty caused by Trump’s victory could result in the Fed delaying the increase in the cost of borrowing it had been pencilling in for December, but the respite will be short-lived. Interest rates under Trump will end up being higher than they would have been under Clinton. If things don’t go according to plan, the US will suffer from higher inflation just at the time that trade and migration curbs result in weaker activity. |
| But for the time being, all Wall Street can see is higher growth and bigger corporate profits. That’s why share prices have been going up. | But for the time being, all Wall Street can see is higher growth and bigger corporate profits. That’s why share prices have been going up. |