by Michael Roberts
The ironic thing about the (narrow) victory of Donald Trump in
the US presidential election is that their ‘safe’ candidate has lost it
for the Democrats, Wall Street and the strategists of capital. Now they
are lumbered with a loose cannon that they must try to rope in.
Trump has won because a (just) sufficient number of people are fed up
with the status quo. Apparently 60% of voters asked at the polling
booths reckon that the country “is on the wrong track” and two-thirds
were fed up and angry with the Washington government – something Clinton
Like the vote of the Brits for Brexit, against all expectations, a
sufficient number of voters in America (mainly white, older and in small
businesses or working in failing industries in smaller central US
states) have overcome the vote of the youth, the more educated and
better-off in the big cities. But remember hardly more than 50% or so
of eligible voters turned out to vote. A huge swathe of people never
vote in American elections and they constitute a sizeable part of the
Most significant, the most important issue (52%) for voters, when
asked at the booths, was the state of the US economy, with terrorism
next (but well down at 18%) and immigration (the Trump card) even
lower. Trump won because he claimed he could improve the conditions of
those ‘who have been left behind’ by globalisation, failing domestic
industries and crushed small businesses. Of course, Trump is a
billionaire and has no real interest or idea about improving the lot of
the majority. But anger at the establishment was sufficient (just) for
this egoistic, misogynist, sexual predator, rich man’s son to win.
But it is still the economy, stupid. Trump has been handed a poisoned chalice that he will have to drink from: the state of the US economy. The
US economy is the largest and most important capitalist economy. It
has performed the best of the largest economies since the end of the
Great Recession in 2009. But its economic performance has still been
dismal. Real GDP growth per person has been only 1.4% a year, well below
levels before the global financial crash in 2008. It’s a story of the
weakest economic recovery after a slump since the 1930s.
The IMF now expects the US economy to expand at only 1.6% this year.
And the US Federal Reserve bank economists are now forecasting just
1.8% a year expansion for the foreseeable future. And all this assumes
no new economic recession.
The majority view of economists is that a US recession is unlikely
and that the economy will pick up again next year. Indeed, US Federal
Reserve chair Janet Yellen (whose job is now in jeopardy), reckons that the US economy “is on a path of sustainable improvement.”
The argument goes that the cost of borrowing is near zero, the
American consumer is still spending robustly, the housing market is
picking up and retail sales are still motoring.
But what is important for the health of a modern capitalist economy
is not the ease or cost of borrowing, it is the level and direction of
the profitability of capital, total business profits and the impact on
business investment. When profitability falls, eventually total
corporate profits fall and then some time later, business investment
will contract. When that happens, an economic recession soon follows.
In the post-war period, a sustained fall in business investment has led
the economy into slump on every occasion, while personal consumption
stays more or less stable, the latter only falling once the slump is
And US corporate profits are falling. According to economists at
investment bank JP Morgan, US corporate profits declined 7% over
year-ago levels. On that basis, they reckon, “the probability of a recession starting within three years at a startling 92%, and the probability within two years at 67%”.
Moreover, the Federal Reserve is planning to hike its policy interest
rate right after the election, because it claims the economy is
returning to ‘normal’, increasing the risk of triggering a slump –
although a Trump victory will put that off as stock markets plunge.
What is Trump’s solution to all this? His economic proposals boil
down to cutting taxes, reducing government spending and taxing imports
to ‘protect’ American jobs. The main beneficiaries of his tax cuts
would be the very rich. Under Trump, most people would see their income
tax bill reduced by about 7%, but savings for the top 1% would be 19%
of their income. To balance the federal budget, government spending
would have to be cut by about 20%, hitting welfare, education and
health. Raising tariffs on foreign goods and imposing punitive
sanctions on China and Mexico, America’s two largest trading partners,
would drive up prices and provoke retaliation.
In one way, the next US president faces a worse situation than Obama
did in 2009 at the depth of the global financial crash. This time there
is no way to avoid a slump by printing money or cutting interest rates;
or by increasing government spending when public sector debt has
already doubled to 100% of GDP. Those economic policy tools have been
used up. The chalice will have to be sipped.
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