An interview with Dean Baker, by Yongin Yi
The Hankyoreh, January 19, 2017
Yongin Yi: Donald Trump has recently nominated cabinet and treasury/commerce ministers. Steven Mnuchin (Treasury secretary), Rick Perry (Energy), Andrew F. Puzder (Labor), Linda McMahon (Small Business Administration), Carl Icahn (Special Adviser on Regulatory Reform), Wilbur Ross(Commerce), etc... Looking over these nominations, what do you think Trump’s top vision is for economic policy? (for example, deregulation). During his campaign, Trump criticized Hillary Clinton’s close relations with Wall Street. Considering, why do you think he appointed many pro-Wall Street candidates? Do you think Trump’s major base of white working class men and women would agree with this decision?
This is clearly a very pro-business cabinet. He has made it pretty clear he intends to support policies like tax cuts oriented to the wealthy and deregulation in ways that enhance business profits, often at the expense of consumers, workers, and the environment.
It is ironic that many working people supported Trump because they saw Clinton as being too close to Wall Street and Trump as a genuine fighter for working people. My guess is that these people will be seriously disappointed.
Trump says his priority is job creation. Trump stopped the Carrier air-conditioning plant from relocating to Mexico by offering tax credits. Do you think such a policy is sustainable long term in maintaining jobs in the US? He has also prevented the same fate of Ford and GM factories from going overseas. Some say such policies would increase production costs for these companies, lowering their export competitiveness, ultimately negatively affecting the American economy. What are your thoughts?
This is policy by publicity stunt. The Federal Reserve Board raised interest rates by a quarter point in December. This will slow growth and can easily cost 150,000 jobs over the course of the year. The dollar has risen by close to 10 percent over the last six months or so. This can easily add 0.5 percentage points of GDP to the US trade deficit. This would cost close to 1 million jobs. These are the types of things that will determine whether workers have jobs and the bargaining power to get pay increases, the badgering of individual companies is just a show, it is not serious policy.
Trump has discussed reducing income and corporate tax and promoting consumption and investments through tax reform. But there is much criticism about how such reform benefits the wealthy and corporations more. What is your view?
The individual tax cuts are overwhelmingly targeted towards the wealthy. It is very hard to see a rationale for why these people need even more money, especially since they have received the bulk of benefits from economic growth over the last four decades. I am more positive about the proposal on corporate income taxes. The current system is a complete mess. Many companies get away with paying little or no tax. Also, the tax avoidance industry is extremely lucrative and generates some of the largest incomes in the economy. I would like to see some version of this reform go through.
Trump had promised to deport illegal immigrants. Lately, he’s pulled back on it by pointing to “criminal illegal immigrants,” but many illegal immigrants are trembling with fear. Do you really think mass deportation of illegal immigrants will boost jobs and raise income for low-income laborers?
I think mass deportation is an extremely inhumane policy. These workers were here as a matter of government policy, even if they were technically illegal. It was hardly a secret that large numbers of undocumented workers were being employed in construction, hotels, restaurants, and other industries. The only humane path is to give these workers a path to citizenship, while imposing real checks on employment of undocumented workers going forward. I do think immigrants have reduced the wages of less-educated workers in the U.S. The studies that have found no effect have not taken account of differences in housing costs in cities that attract large numbers of immigrants compared with the cities that don't. The rents in the former can easily be two or three times as high as the rents in the latter and with housing often taking up more than half of the income of low-wage workers, this is likely to mean lower pay in cities that have seen a large recent influx of immigrants.
While Trump said he would reduce the national debt, he also expressed interest in buying more than 1 trillion dollars worth of bonds to invest in infrastructure including roads and construction. What are your thoughts on whether this policy will help job creation and boost the economy. Also, what do you think about critics who say the policy will increase the national debt?
The plan will almost certainly increase the national debt, but I do think we can benefit from modernizing our infrastructure. Ideally this would be interpreted broadly to include not just roads and bridges, but schools, water systems, Internet, and even investment in human capital in the form of education and especially early childhood education. These are all areas where the US is falling behind.
This would also create jobs. I think there is still substantial slack in the labor market as indicated by the fall in the employment-to-population ratio from pre-recession levels. For prime-age workers (ages 25-54) this is still down by two full percentage points from the pre-recession level and nearly four percentage points from the 2000 peaks. I think there is substantial room for more job growth. Also a tighter labor market will allow workers to regain the wages lost in the downturn, reversing the big shift from wages to profits.
One of the key components of Trump’s economic policy is deregulation. Trump has said he would repeal fossil fuel energy developments and coal power plants. In addition, he is critical of the Paris climate change agreement. Do you think such decisions will benefit the American economy? The more troubling among all these deregulations is that it essentially disables the Dodd-Frank Rule, which was made after the Great Recession. Do you think these policies will help reduce income inequality and the national economy?
The impact of weakening environmental regulation will primarily be exposing more workers and communities to environmental hazards. There was a spill of toxic material in a small town in West Virginia a few years ago, which contaminated drinking water. For months the people in this town were unable to use the water coming out of their faucets for drinking or even bathing. Wealthy people can protect themselves against such hazards, poor people cannot. The same applies to the impact of global warming, although the effects of action or inaction today will not be felt until long into the future.
On Dodd-Frank, the regulations were actually relatively weak and were designed to prevent the worst abuses. Ending these restrictions will simply encourage more predatory practices by the financial industry. Contrary to what is widely claimed by Trump and other Republicans, small business owners report in surveys that credit is actually very easy to get.
In both categories of regulation, it is worth noting that there are likely to be few, if any gains, from deregulation. With energy prices having tumbled in the last few years, at best we would see a very modest further impact on prices by opening up more areas to drilling and imposing fewer regulations. And, the Dodd-Frank regulations are not restricting credit to any noticeable extent.
Including the policies mentioned above and not mentioned, what do you find the most problematic domestic economic policy that Trump has set out? Why is that?
His plan for ending the Affordable Care Act is the most troubling. This was a historic extension of health care insurance that could be implemented because of a rare period in which Democrats controlled both houses of Congress, with a large majority in the Senate, as well as the presidency. If this is undone, it may be many decades before we can reverse the damage and again move towards universal health care insurance.
Of all the US presidential economic plans, which is the most similar to that of Trump’s and how did it result?
Presidents Bush and Reagan both had agendas including large tax cuts targeted to the wealthy and reduced regulation. In both cases we saw a substantial upward redistribution of both pre- and after-tax income. We also saw a big increase in budget deficits as the additional growth prompted by the tax cuts did not come close to offsetting the loss of revenue.