The Economist interviews Trump
I always knew that Trump was kinda dumb, but I had no idea he was this bad. I actually found the interview kind of funny:
Will you keep interest deduction in the corporate tax? Will corporate interest payments…
Do you want to answer?Mr Mnuchin: We’re contemplating it. We’re contemplating it.
Contemplating getting rid of it?
Mr Mnuchin: No, we’re contemplating keeping it. That’s our preference. But we’ll look at everything.So what would your preference be Mr President? You know about that very well.
No, I would say probably…I think we’re contemplating is the word. And it hasn’t been determined yet, but we’re contemplating.Contemplating…
We’re contemplating various…I have to say, we’re contemplating various things, but one of the things that’s very important is simplicity. We want to keep it as simple as possible. Because even if you do, it’s complicated. I mean even if you keep it simple with taxes it gets complicated.
That’s bad, because eliminating the deductibility of interest would have put debt and equity on a level playing field (dividends are not deductible) and allowed for much lower tax rates. The Trump administration appears more concerned with pleasing Wall Street than making taxes more efficient.
But beyond that it’s OK if the tax plan increases the deficit?
It is OK, because it won’t increase it for long. You may have two years where you’ll…you understand the expression “prime the pump”?Yes.
We have to prime the pump.It’s very Keynesian.
We’re the highest-taxed nation in the world. Have you heard that expression before, for this particular type of an event?Priming the pump?
Yeah, have you heard it?Yes.
Have you heard that expression used before? Because I haven’t heard it. I mean, I just…I came up with it a couple of days ago and I thought it was good. It’s what you have to do.It’s…
Yeah, what you have to do is you have to put something in before you can get something out.Mr Mnuchin: And as we talked about, economic growth under the Trump administration could increase revenues as much as $2trn over the ten-year period of time. So priming the pump in the short term leads to growth.
So you would have a bigger deficit, a stimulus, to prime the pump that would lead to faster growth?
So I happen to think that 3% is low. But you can’t do it if your companies are leaving the country because taxes are too high.
Newton and Leibniz discovered calculus. Keynes and Trump discovered prime the pump.
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12. May 2017 at 12:54
Chauncy Gardiner, years of vanity and arrogance.
12. May 2017 at 13:05
The only things Trump will be priming with this kind of policy, is debt, future taxes, bridges to nowhere, and economic overheating; followed by a severe downturn and his early loss of power.
12. May 2017 at 15:27
“That’s bad, because eliminating the deductibility of interest would have put debt and equity on a level playing field (dividends are not deductible) and allowed for much lower tax rates.”
That’s true, however, what about leveling the field between immediate consumption and saving and leveling the field with other types of interest? Scott has already explained many times the reasons for moving towards a consumption tax by eliminating taxes on savings. When corporations deduct interest, doesn’t that offset (in terms of economic incidence) the taxes paid on interest by the debtholder? (Or, at least it would if borrower and lender paid the same tax rate.) Municipal bonds are already tax free, as is consumer mortgage interest (due to deductability). Treasuries seem to me to also be tax free because the federal government is the one paying the interest. (Paying taxable interest on treasuries and levying a tax on that interest seems to me to be equivalent to just paying a lower, tax-free interest rate.) So, it seems that consumer, non-mortgage interest is one of the few interest types that is taxed. Since some savings is taxed and other savings is not taxed, it seems impossible to treat everything equally. Then, maybe the next best thing would be to eliminate savings taxes whenever the opportunity arises, hoping that we eventually eliminate all of them. (For example, maybe it is politically easier to make all consumer interest deductible than to eliminate the mortgage interest deduction and eliminate taxes on all interest.)
I have a more general question about tax incidence. When there is one payer and one receiver, then nominally taxing the payer is equivalent, in terms of economic incidence, to nominally taxing the receiver. Does that also extend to the case where there is one payer and N-1 receivers? For example, when a consumer buys a product, he pays a certain amount that is shared among N-1 providers of labor and capital. If any subset of the N parties pays a tax, then that creates a gap between the amount the consumer paid and the total amount received by the N-1 receivers. Does nominal (statutory) incidence *ever* affect economic incidence, i.e., how that gap is shared among the N parties? It seems like it shouldn’t if everyone makes decisions based on after-tax prices. Also, we can think of every tax as paid by the payer and passed up the production chain (like a VAT would be) so that, by induction, it seems like every tax should have the same incidence as if it was levied as a sales tax on the final good. For example, a wage tax nominally paid by labor is equivalent to a wage tax paid by the employer, which has the same incidence as if it was paid by the employer’s customer, which has the same incidence as if it was paid by that customer’s customer, etc. all the way until the tax is levied as a sales tax. Does that mean that every tax in the production chain — wage taxes, corporate taxes, VATs — all have the same incidence as a sales tax? That would seem relevant, for example, in trying to understand the distributional impact of the proposed corporate tax cuts. Rather than thinking corporate taxes are paid by (higher-income) shareholders, don’t we also have to consider that they are equivalent to taxes levied on (disproportionately lower-income) consumers?
12. May 2017 at 17:43
How to spot Trump derangement syndrome:
See someone quote the Treasury Secretary, about the Secreatory contemplating a change to a tax policy that’s been in place a bajillion years, but does not at this time announce it will change, and then see that someone say this proves Trump is dumb.
Bwahahaha, this blog is a farce. I love reading this, it’s better than a comic strip.
12. May 2017 at 18:57
Well, at least Trump is deferring to Mnuchin, who appears to know the topic somewhat.
On federal deficits, I wonder if Trump is any worse or better than the macroeconomic community at large.
Do federal deficits matter?
Where is the terrible fallout from the Fed’s QE program?
Gold prices cracked when the Fed went to QE, and never recovered.
The PCE today is at 1.56%.
Kevin Erdmann just pointed out that that present-day core CPI, sans shelter, is at 0.8% YOY.
In other contexts (usually when discussing why real wages are way down), some economists have suggested the CPI overstates inflation. If so, we are dead in the water now in prices, after decades of running large federal deficits.
Not only that, the Fed can evidently buy back debt with only positive consequences.
Why has the Bank of Japan monetized nearly half of Japan’s national debt through QE—and still has unsure voting outside of deflation?
With Allan Meltzer’s passing—but the ongoing and perhaps eternal sermonizing of Jim Grant of “Interest Rate Observer”—should we re-examine the “federal deficits cause inflation” totem?
12. May 2017 at 19:25
“Keynes and Trump discovered prime the pump.”
NGDP “targeting” is just a belief that a continuous priming of the pump is optimal
Hahaha
13. May 2017 at 04:14
If you think that’s dumb, how about what Trump says about exercise depleting a lifetime finite amount of energy?
https://www.vox.com/science-and-health/2017/5/9/15590962/donald-trump-thinks-exercise-will-kill-you
The people who write horoscope-ed advice columns are more intelligent.
13. May 2017 at 04:15
Horoscope-based
13. May 2017 at 05:47
Jaap, A mixture of Chauncy Gardiner and Captain Queeg.
BC. No, the incidence of a tax on consumption goods is different from the incidence of a tax on all goods (including investment goods.)
13. May 2017 at 07:18
Here is a decent discussion between Chris Wallace and Shep Smith in which they compare Trump’s behavior this week to that of Nixon:
https://www.youtube.com/watch?v=WwTU9Y_pVX0
I’m frankly amazed that there are maybe 3-5 honest on-air people at Fox News.
13. May 2017 at 07:59
Major Freedom – do you think Trump acts stupid to fool us into under estimating him? I am trying to figure out why Trump intentionally appears ignorant and foolish so often. My initial inclination is that Trump is actually ignorant and foolish. But I am open to other theories.
You have brought up that the pizzagate shooter was an actor. Do you think the guy was paid to show up with a gun? Sounds like he will be spending a few years in prison. Should we expect him to be a very rich man when he gets out?
13. May 2017 at 08:07
People criticize “prime the pump”, when they unable to think with a clear mind and understand what is being said. Let me explain. Trump’s job is to choose how to market policy. He is expected to market a policy of lowers rates, but has short-term deficits but has long-term supply-side benefits. He hit upon using the slogan “prime the pump” to market the rate changes. It is good marketing and if one thinks as a salesman rather than a hater, it is pretty clear. Do people really think Keynes tried to sell supply-side changes with the slogan “prime the pump”?
Still confused? The slogan “If you like your doctor, you can keep your doctor” is marketing and not healthcare policy. capisci?
13. May 2017 at 09:06
Don,
More deficit spending, ceteris paribus, will lead to higher interest rates. That’s just one of many problems with what you wrote.
13. May 2017 at 11:00
I suspect that what’s going on there is that Trump doesn’t understand very much, including the English language. He might believe that “come up with” means that he first heard of something. That makes the rest of the sentence make a lot more sense.
All that said, the policy is still bad, because taxes are not a significant reason why growth is so slow: Companies might not repatriate some assets because of taxes, but they have nothing to do with said assets in the first place, other than finding interesting ways to hand them to their investors.
The interesting part of economic growth today is that investment is bypassing public markets: Everything that will have good returns has big capital requirements in R&D, a lot of which comes from expensive labor. We don’t launch public companies until they have a working business model, so, in practice, you can’t invest into any of those ventures unless you are an accredited investor.
After the initial investment is done we figure out if the company will do really well or not, but at that point, it’s rare to need further investment: At large scales, companies find themselves with money fountains, so why even talk to public markets? The only value there is just providing some liquidity to early investors.
This situation can lead to those successful companies to just become their own venture capital firms, with some investments in companies they can’t buy outright, but mostly throwing money at new research, like old Ma Bell and Xerox used to do. But in that environment, their new discoveries might not even be all that important: Remember that Bell and Xerox build a lot of the technologies that power the world today, but they didn’t understand the potential of what they had built. If they hadn’t made the mistakes of licensing some of their tech for paltry sums, we’d be in a far poorer world today: A single company is going to be less efficient at applying its own IP than the whole of humanity.
So if we want to increase economic growth, what we need to do is tackle the economic and regulatory conditions that lead to this low return environment, and taxes have absolutely nothing to do with it.
13. May 2017 at 11:02
Steve J:
“Major Freedom – do you think Trump acts stupid to fool us into under estimating him?”
I don’t think he acts stupid nor do I think he is stupid. I think he is immoral, just like every past President, but I think he is a lot smarter than Obama, Hillary, Bernie and Johnson.
“I am trying to figure out why Trump intentionally appears ignorant and foolish so often. My initial inclination is that Trump is actually ignorant and foolish. But I am open to other theories.”
Well I think he benefits if his opponents think that, because they disarm themselves. Making your opponents think you’re stupid is a supremely effective strategy in getting the best of them, because they don’t put up their own best.
“You have brought up that the pizzagate shooter was an actor. Do you think the guy was paid to show up with a gun? Sounds like he will be spending a few years in prison.”
Actually he was offered a plea deal. He’ll probably get sentenced for a short time, then he’ll hit parole in no time
“Should we expect him to be a very rich man when he gets out?”
I wouldn’t doubt it.
He drives a Prius, so likely a green party terrorist sympathiser
13. May 2017 at 11:14
Found in the kettle and pot storage, econometricians debunk Friedman and Schwartz:
https://mises.org/blog/milton-friedman-debunked-%E2%80%94-econometricians
13. May 2017 at 11:38
There is an article in Salon on March 27, 2017 called “He’s a Keynesian now” where Trump also used the phrase Prime the pump. Maybe he forgot that he came up with the phrase weeks ago?
14. May 2017 at 07:26
Don, I was joking—I thought that was obvious.
14. May 2017 at 21:48
Not sure what to make of the last sentence. The Fundamental Theorem of calculus was proved by Newton’s teacher Isaac Barrow, even though the calculus became associated mainly with Leibniz. Of course they were all building on the work of Fermat and probably the Kerala school in India before them, who knew differential calculus, and arguably you can trace the core ideas all the way back to Archimedes and even Eudoxus.
Prime the pump is a phrase associated mainly with Keynesians, though as the internet has been at pains to point out at every opportunity, it goes back to the 19th century originally. The description Trump gives of it clearly suggests Keynesianism, though. I’m not sure he has a clear idea of the difference between supply and demand side policies. In fact, I’m not sure that this Wharton graduate would know how to correctly interpret a supply and demand graph if shown one today.
15. May 2017 at 05:42
Saturos, Thanks for the info on the history of calculus, I never knew it was so complicated. (Just like Trump and health care!) 🙂