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Decimal Digest
27 Jan 2017

Dawn of a new Economic Paradigm

As Mr. Trump shifted from president elect to president Trump, people were expecting that once in power he will not act on his promises. Indeed, this has been one of the features of domestic politics around the world that election time rhetoric and action post the elections have never matched. All the pundits worldwide have not grasped the fact that this time it’s different even after being proven decisively wrong on Brexit and US elections.

The impact of policies on the American social structure over the years must be considered to understand Trump's economic policies. If the speech given by Mr. Trump to the border patrol guard is a sign of things to come, we can clearly see that Trump's main goal is to resurrect the middle class. The political logic behind Mr. Trump's actions is that he conceives that the Republicans and Democrats will unify against him. Anticipating this trend, he aims to keep his voter base consolidated by actually acting on his promises to keep his own party members at bay, and rely on the tea-party and libertarian ideologues to maintain legitimacy.

Trump's Plan relies on repairing the middle classes household balance sheets is based on the thinking that the middle class is a source of sustainable demand. His strategy relies on lowering the cost differential of doing business in USA. The cost of doing business will be lowered by reducing the regulatory costs, imposing tariffs, weakening the dollar and some anticipated economies of scale which will be achieved from these actions. The above actions will be inflationary in nature in the short term but will also help ensure that over time there is wealth transfer to the middle class. The overall pie will reduce due to increased tariffs, while the reduction in regulatory costs, imposed in the name of environment; will increase the size of the pie, leading to net-net balanced outlook on potential output for the US in the long term. Once these policies are put in place we will observe a progressive decline in income tax which will be implemented. All these plans are aimed at phasing out the power of government over financial resources- its manifestation is clearly seen in the fact that the per capita income of Washington and its adjoining districts is higher than that of Silicon Valley. Trump aims to correct the misallocation of resources by rent seekers in Washington. While we wish him all the best for this, we expect significant backslash from potential power lobbies, including most of the mainstream media.


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