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Dean Baker – No, Donald Trump Is Not Leaving Us Poorly Prepared for the Next Recession

Summary:
Dean Baker doesn't think there is going to be a recession soon, nor does he think that Trump has left the U.S. ill prepared for the next recent recession when it does come. For one thing, Dean Baker is not worried about the deficit. There is a popular theme in the media these days that the Trump administration is leaving us poorly prepared for the next recession. The basic story is that high deficits and debt will leave us less room to have a large stimulus when the next recession hits. This is wrong, at least if we are talking about the economics. Before laying out the argument, let me first say that I do not see a recession as imminent. The recent plunge in the stock market means that the rich have less wealth, not that we will have a recession.

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Dean Baker doesn't think there is going to be a recession soon, nor does he think that Trump has left the U.S. ill prepared for the next recent recession when it does come. For one thing, Dean Baker is not worried about the deficit.

There is a popular theme in the media these days that the Trump administration is leaving us poorly prepared for the next recession. The basic story is that high deficits and debt will leave us less room to have a large stimulus when the next recession hits. This is wrong, at least if we are talking about the economics.
Before laying out the argument, let me first say that I do not see a recession as imminent. The recent plunge in the stock market means that the rich have less wealth, not that we will have a recession.

                                                         *********

The complainers in this picture say that because Trump's tax cuts mean the deficits are large even when the economy is near full employment, we won't be able to have even larger deficits when we are in a recession. They also say that high debt levels are leaving us near our borrowing limits. Both claims are just plain wrong.

I wasn't too keen on this, though, as it sounds like more privatisation:

But apart from this empirical counter-example, there is also a problem with the basic logic. Why would a high debt to GDP ratio be a problem? Suppose we decided to sell off the right to tax in specific areas in order to reduce the debt. We could, for example, sell off the right to tax gas, perhaps raising $100 billion a year or more. (If this sounds strange, imagine selling off toll roads, as some states have done. It would be a similar story, except instead of selling the right to charge tolls on the highway, we would be selling off the right to tax gasoline.)

That should be able to knock at least $1 trillion off the debt. Are we now better able to deal with our debt burden now that it is $1 trillion lower? I hope fans of arithmetic and economics would say no, but let's move on.

Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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