One way to redistribute wealth.

Photographer: Andrew Harrer/Bloomberg

The Left Underestimates Trump's Economic Plan

Tyler Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include “Average Is Over: Powering America Beyond the Age of the Great Stagnation.”
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While the first weeks of Donald Trump’s presidency have brought plenty of chaos, some underlying themes are emerging. I think of the economic policy so far -- call it Trumponomics -- as a new approach to the redistribution of wealth, working through jobs and regions rather than income transfers. To be sure, I don’t see any single architect of Trumponomics, not even Trump himself, but even without a master plan, there are some common threads.

It’s easy to underrate Trumponomics, because so often it sounds, frankly, stupid or misinformed. In a wide variety of areas, including health-care reform and the border tax adjustment, experts struggle to describe the plans, much less evaluate them. Still, Trumponomics, though highly flawed, will probably not crash the economy, and might steal a lot of the left’s thunder.

Consider the border tax adjustment, as it is being called, namely the corporate-tax-reform plan that also imposes some import taxes. I agree with Paul Krugman’s assessment that, for all its complications, this plan is essentially a value-added tax plus a wage subsidy (allowing corporations to expense in such a radical manner works out to a form of the latter, because the wage bill is written off from taxes.)

As a libertarian-leaning economist, I don’t favor either of those changes, or their combination, but still there is a logic here worth considering. Think of this policy as taxing the consumption of elites and throwing that money, and more, at job creation, in this case through corporate subsidies. It’s a bigger and bolder gamble than just making some marginal adjustments in current transfer payments. In essence Trump has outflanked the left by packaging plans for redistribution of wealth with a revamped mercantilism, combined with a macho mood, media-baiting and incendiary rhetoric about who deserves what. It is an underlying fear of the left that a right-wing-flavored redistribution might prove more popular with voters than the left’s preferred egalitarianism and identity politics.

Or consider the replacement of Obamacare. Whatever the Trump administration ends up doing, it will sound very messy and be very messy. And it is unlikely to maintain the number of Americans with good health insurance. Democratic critics are convinced the new plan will harm America’s health, but they are leaping to that conclusion too quickly. Think of the real Trump health-care plan as regional and jobs-based. If more people had better jobs (I’m not saying Trump will necessarily get us there), that could in fact do more for their health than giving them subsidized insurance. Jobs provide people with money, community connections and a sense of purpose, as well as the ability to help others.

Or consider that the Trump administration may do more for the opioid epidemic than did the previous administration; that problem took 33,000 American lives in 2015, and the number is rising rapidly. It seems the Democrats too are now more interested in solutions, in part to improve the quality of life in hard-hit regions and stop them from voting again for Trump. The positive fallout could be significant.

Medicaid reform is yet another medium for understanding Trumponomics. There is talk of replacing the current program with block grants to the states, or in some other way reapportioning how the federal government contributes. The sound political guess is to expect that Republican-leaning and swing states will get more, and New York and California will get less. That will be a big blast of fiscal policy toward the problems of “Middle America,” where there will be more jobs and better funded state pensions, and perhaps ultimately better health. Recent immigrant arrivals on the coasts will lose some Medicaid benefits, and coastal elites may pay higher state taxes. I wouldn’t be shocked if those proved to be politically sustainable changes.

I still think Trumponomics won’t work. It is too divisive; it will be applied politically, targeting favorites and enemies, rather than in accord with the dictates of efficiency; it may destroy rather than create jobs on net; and most of all it badly damages the U.S.’s global reach by cooperating less on issues of trade and migration. I think of the program as a whole as cashing in on the capital asset of America’s foreign reputation and redistributing some of those rents to Trump-supporting regions. That is a form of shortsightedness, and a sign of the decay of our republic.

Still, I think many of the critics are underrating the potential popularity and durability of Trump’s efforts, at least if they manage to pass. Stock prices have been up, and VIX measures of volatility are stable or down. On key issues such as health care and taxes, the new policies will sound terrible, but they will utterly outflank the left by being radically redistributive and choosing some new ways to measure policy success.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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Tyler Cowen at tcowen2@bloomberg.net

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Stacey Shick at sshick@bloomberg.net