So much ink and punditry is being expended on gossip about how President-elect Trump might cast his play, that too little attention is being paid to the plot. Not that the cast won't matter: Those with roles at key agencies can contribute to the success or failure of the drama now unfolding here in America before the eyes of a world-wide audience. But only Trump can fill in the blanks on his script for Making America Great again, and direct the play.
The opening act will cover what all politicians since Franklin Roosevelt have come to call the first 100 days, and will begin with a bonfire of the regulations put in place by what Obama called his presidential pen. President Trump, in some cases with the help of congress, can repeal or gut a long list of rules that he believes are inhibiting economic growth. The list includes the Clean Power Plan, the major weapon in Obama's war on coal; the Paris climate accord; the Department of Labor's increase in the number of workers eligible for overtime pay; rules that regulate banking; auto efficiency standards; restrictions on drilling and on oil pipeline construction; requirements that federal contractors provide paid sick leave. During the campaign, Trump said that 70 percent of federal rules can be eliminated, an estimate several of his advisers have since reduced to 10 percent. To make certain that these plans do not become the victims of lobbyists, vice president elect Mike Pence, now in charge of the transition team, has fired all lobbyists who had been named to the team by his deposed predecessor, Chris Christie, who now says he was always planning to serve out his term as governor of New Jersey, which ends in January 2018. Believe that and you get a lifetime pass conveying clear access to the George Washington bridge.
Subsequent acts in this drama are likely to be more difficult for the audience to follow. Trump has promised to revive the coal industry. Repeal of the Clean Power Plan will have coal industry interests cheering. But the industry's woes have more to do with the low price of natural gas, than with regulations he is about to repeal. Other regulations scheduled for the dustbin of history will make life easier for frackers to find more natural gas. That will increase the supply of natural gas, and lower its price. Boos from the coal industry, cheers from the oil industry. Unless Trump eases restrictions on the export of natural gas, which will reduce domestic supply and raise its price, to cheers from the coal industry. All irrelevant says Nick Atkins, CEO of American Electric Power, one of our largest electric utilities, an industry that accounts for 95 percent of domestic coal demand. "We're moving to a cleaner energy economy and we're still getting pressure from investors to reduce carbon emissions. I don't see that changing."
Then there is the small matter of interest rates. Trump, in this case in line with Republican orthodoxy, criticized Janet Yellen, chair of the Federal Reserve Board, for keeping interest rates at zero for too long. Thanks to a Trump rally in anticipation of the money flood associated with his infrastructure spending, share prices have been soaring and, because of inflation fears, bond prices have been diving (the latter results in rising interest rates). Federal Reserve Board chair Janet Yellen told congress on Thursday that "U.S. economic growth appears to have picked up … I expect economic growth to continue at a moderate pace sufficient to generate some further strengthening in labor market conditions and a return of inflation to the [monetary policy] Committee's 2 percent objective…. An increase [in interest rates] could well become appropriate relatively soon…". Which likely means next month.
And which will provide Trump with a "be careful what you wish for" moment. In anticipation of the increase in inflation that might result from Trump's planned tax cuts and infrastructure spending, mortgage rates have already spiked, and will rise more if the Fed makes its move next month. That will probably slow the housing market and home construction, which is already showing signs of reacting negatively to the pressure of above-4 percent mortgage rates. The combination of the market reaction to Trump's win and a Fed increase will also pressure already-weakening auto sales, buoyed at the moment by generous financing terms.
Which just might put a crimp in Trump's plans to drive economic growth closer to 4 percent than to the current 1-2 percent, and to create millions of good-paying jobs. That will depend, in the end, on tax cuts and a massive infrastructure program that will enable the audience of voters to see bridges rebuilt, potholes filled, water supplies cleaned, the electric grid strengthened, airports brought to the glittering standards of the best in Asia.
The cost of staging this finale to Making America Great Again will be, to use a favourite Trump expression, "yuge". The $1 trillion to be spent on infrastructure over ten years—or is it $500 million as Trump economic advisor Peter Navarro seems to believe—is 20 percent more than the $820 billion price tag of Obama's stimulus package, which did or did not stimulate growth, depending on which economist you prefer. Trump's critics say that his infrastructure spending spree, combined with planned tax cuts, would increase the deficit. Not so, contends Anthony Scaramucci, one of Trump's early critics turned fan and economic advisor to the president-elect. "Economists believe we are in a new normal of secular stagnation, but business people like Mr. Trump understand you can grow yourself out of excessive debt." Never mind that businessman Trump tried that and ended up with several bankrupt enterprises. In any event, like much of the Trump program, the infrastructure plan is, shall we say, evolving as it wends its way from the campaign trail to the halls of congress. The plan "strikes me as sort of concept paper or a thought piece as opposed to a real plan," Pat Jones, executive director of the trade groups that represents the private toll-road operators, told the Wall Street Journal. It is these and other private-sector operators who, when the plan takes final shape, might be counted on to have a significant role to play in minimizing the effect of Trump's program on the federal deficit. But keep this in mind: only 6,000 of the nation's four million road miles are tolled, and toll roads are no magic bullet with which to slay the deficit dragon: Toll-road operators in Indiana and Texas are filing for bankruptcy.
Trump's newfound Republican congressional allies are not about to abandon their own plans, which include a significant reduction in the deficit. Or to sign on to the view that infrastructure spending and tax cuts will prove self-financing. The non-partisan Committee for a Responsible Federal Budget estimates that over ten years the Trump plan would increase the deficit by $5.3 trillion whereas the House of Representatives' plan would lower it by $7 trillion. That's a gap of $12 trillion, which means that Speaker Paul Ryan and the author of the best-selling The Art of the Deal have some serious bargaining to do.
Those who find the plot of this play too gory, with too many dragons slain and too many old ideas shredded, might take heart from the usually sensible New York Times columnist David Brooks, liberals' favorite conservative. He assures us, "The guy will probably resign or be impeached within a year." Presumably, his replacement will revert to the policies that have produced the new normal of low growth and rising inequality.