Banana republic watch

Trump’s at it again:

President Trump on Saturday attempted to bypass Congress and make dramatic changes to tax and spending policy, signing executive actions that challenge the scope of powers between the White House and Capitol Hill. . . .

He mischaracterized the legal stature of the measures, referring to them as “bills.” Congress writes and passes bills, not the White House. The documents Trump signed on Saturday were a combination of memorandums and an executive order.

Actually, Trump is right; they are “bills”. The WaPo is confused because back when the US was still a constitutional republic it was Congress that passed “bills”, just as Congress appropriated money for border walls, set tariff rates, declared wars, etc. Now Congress gets to decide National Bird Watching Day.

The president said if he wins reelection he would seek to extend the deferral and somehow “terminate” the amount of taxes that are owed. The payroll tax funds Social Security and Medicare benefits, and it’s unclear what will happen to those programs without the money.

Why would these programs need tax money? Can’t we just borrow money to pay future SS and Medicare recipients? Trump understands MMT even if you guys still believe in myths like the need to actually pay for government programs.

PS. Yes, I know that this is all clown show stuff and that Trump’s not serious. But although Trump will never be an actual dictator, he certainly enjoys playing one on TV.

PS. Speaking of banana republics, file this under the good (Asia, Africa, Australia), the bad (Europe and Canada), and the ugly (US and Latin America.) Yup, we’re becoming a banana republic.



12 Responses to “Banana republic watch”

  1. Gravatar of Benjamin Cole Benjamin Cole
    8. August 2020 at 16:10

    Yes, we have no bananas!

    Perhaps we should have rule of law.

  2. Gravatar of Benjamin Cole Benjamin Cole
    8. August 2020 at 16:31

    Sumner has an interesting post at Econlog regarding the Fed’s mandate. I am canceled at Econlog so I will comment here.

    Sumner posits the Fed should target moderate long-term interest rates.

    But we now have globalized capital markets, with perhaps $400 trillion in total assets (which includes bonds, equities and property).

    And long-term interest rates on sovereigns are set in globalized markets. In a world that appears glutted with capital yet defined by soft aggregate demand.

    Can a lone central bank hope to affect interest rates on long-term sovereign bonds, in a world of globalized capital markets?

  3. Gravatar of Benjamin Cole Benjamin Cole
    8. August 2020 at 17:37

    Add on: What can be “monetary policy” conducted by a lone central bank, but operating in a globalized capital market?

    So the Fed buys a few trillion dollars in bonds. So what? You can put a bucket of water into a lake–but as long as there is ingress and egress, the lake will settle to its level.

    I think we have ponder what Stanley Fischer is up to, and why.

  4. Gravatar of Christian List Christian List
    8. August 2020 at 19:05

    German media said the talks have failed because the Democrats wanted to spend much more money than the Republicans. Like a trillion more, is that possible? The President had to do something, because there is no such thing as no policy. Many programs would have expired, that too would have been an action by inaction.

    That’s something for you, didn’t you always want a payroll tax cut? There you go:

    Trump had tried to insist that Congress include a payroll tax cut as part of the talks, but Democrats and Republicans rejected the idea. Trump has sought repeatedly to cut payroll taxes, even before the novel coronavirus, and on Saturday he took his first unilateral action related to the tax…

  5. Gravatar of Benjamin Cole Benjamin Cole
    8. August 2020 at 20:49


    Yes, I think the payroll tax is a good idea, even as a standard anti-recession tool. Anytime unemployment rises above, say, 4%, a payroll tax holiday is implemented.

    The Fed should buy US Treasuries and place them into the Social Security Trust Fund to compensate for lost revenue.

    Will this plan cause too much inflation?

    I wonder.

    Presently, the US has implemented a large corporate income tax. The Fed buys trillions of dollars of Treasuries and places them onto its balance sheet (where they might be a permanent addition. No one knows). The Treasury borrows money to make up for lost revenue.

    Suppose the Treasury borrows a trillion and places the money into the Social Security Trust Fund, while the Fed buys an equal amount of Treasuries and keeps the added funds on its balance sheet.

    The corporate tax cut was not inflationary but a payroll tax cut is inflationary?

    Of course, a payroll tax cut would have some mechanical disinflationary effect, by lowering labor costs.

    Trump actually has some good ideas from time to time. This is entirely separate from his personality.

    I suspect a payroll tax cut is a great idea, but then in macroeconomics no one is ever wrong (or right).

  6. Gravatar of Postkey Postkey
    9. August 2020 at 02:48

    “Trump actually has some good ideas from time to time. This is entirely separate from his personality.”
    Socialist ideas?
    “Who would have thought that the first socialist president of the United States would be Donald Trump? He gave people universal basic income for a few months, and they took possession of companies. If that’s not socialism, I don’t know what is socialism. “

  7. Gravatar of ssumner ssumner
    9. August 2020 at 09:17

    Christian, You said:

    “The President had to do something, because there is no such thing as no policy”

    You had to write a comment, because there is no such thing as not commenting on one of my posts. Do you even think before typing?

  8. Gravatar of Michael Sandifer Michael Sandifer
    9. August 2020 at 10:11

    Christian List,

    We have a Constitution that dictates that a President can only spend money as specified in law, which requires approval by Congress. It is not legal for President to adjust taxes or direct funds in contradiction with lawfully passed budgets.

  9. Gravatar of Christian List Christian List
    9. August 2020 at 12:33


    I’m just using your method of “comparative transference”. In this case, monetary policy ideas transferred to general policy. There’s no such thing as no action.


    Excuse me if I don’t trust your legal expertise. It has nothing to do with you, I don’t trust most legal expertise anymore. It has happened so often in recent years that the media and legal experts have claimed certain things that were then decided completely different by the courts.

    Law is what the courts decide, and unfortunately it has become increasingly difficult to predict what they will decide.

  10. Gravatar of Michael Sandifer Michael Sandifer
    9. August 2020 at 17:16

    Christian List,

    All you have to do is read sections 7 and 8 of the US Constitution:

    There are laws that give the President and cabinets and agencies some discretion over spending, but what Trump is threatening to do well exceeds the authority for such discretion, and I’m not aware of any legal precedent that will cause much confusion. Which cases do you have in mind which will cause doubt here?

  11. Gravatar of Christian List Christian List
    10. August 2020 at 06:32


    it’s not in that section, or at least I dont see it. Make a short quote maybe?

    You are not aware? The “muslim ban” comes to my mind first, there was this clusterfuck of trials, in the media there were 80-90% experts who said it was illegal, many federal judges said it was illegal, Scott said it was illegal, but in the end the Supreme Court decided otherwise.

    That’s the way it works with many decisions by Trump, in the end you can only be sure if the Supreme Court has made its decision.

    Laws are never clear, you always need someone to interpret them, and all power lies with the last interpreter. It’s like Stalin’s ascribed saying about votes and counting the votes. Don’t fool yourself.

  12. Gravatar of ssumner ssumner
    11. August 2020 at 13:48

    Christian, You said:

    “but in the end the Supreme Court decided otherwise.”

    No, the Supreme Court said it was illegal. Get your facts straight.

    And your “comparison transference” makes no sense.

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