Economics and politics - comment and analysis
23. November 2016 I Heiner Flassbeck I Countries and Regions, Economic Policy, General, General Politics

An interview with Heiner Flassbeck about the economic consequences of a Trump presidency

Heiner Flassbeck gave an interview to The Real News Network about the economic consequences of a Trump presidency. The video can be watched here.

Heiner explains that tax cuts do not mean very much as long as we do not know who is going to be the beneficiary of these cuts. As far as we know, Trump is planning tax cuts for companies. According to Flassbeck, this is really a bad idea. It contradicts the other idea of spending money on infrastructure. But, in fact, Trump did not say much yet. Conservative politicians always say we need to simplify taxes, but it is never getting simpler. One can, of course, change the tax rates. But the main question is what a dollar of a euro that has been earned really means and that is complicated. Trump is also planning to spend money. That is in principle a good idea, especially investment in infrastructure. If Trump goes for a very large investment program, it will create jobs and growth. The problem is how to do this. If he means public-private partnerships, this will be really bad, because it never works – we tried it in Europe. So, we need public investment. There is another point. Both the US economy and many other European economies have a structural problem, in that nowadays the company sector is a net saver. This creates a very peculiar kind of market economy. It is not really a market economy anymore, because the original idea is that private households are saving and that companies go into debt in order to invest and innovate. Today, however, companies are also net savers. In order to return to a normal situation, companies need to go into debt again, but this will not work if you cut taxes. Perhaps it would be better to increase taxes – this has never been tried. The only alternative left is that the government has to spend money. It has to get it from the capital markets. Since interest rates are zero these days, the government can borrow at no cost and do a lot of extremely useful things. There is no cost involved because governments never pay back their debt. It is a stupid idea that governments should pay back their debt. They never do. So, we need investment in infrastructure and there are a lot of other very positive things that we can do, for example investing in education and in environmental protection.

Flassbeck does not think that the GOP is out to cut social programs, social welfare, health care, etc. for budgetary reasons. Money is easily available – it will not be raised through taxation. If cuts take place, it will be for purely ideological reasons: the Republicans want to cut the government back and they prefer a small government that they want to keep out of the markets. We have the same problem in Europe. European governments have a phobia to any kind of government debt although we are in the same situation as the United States. In Europe too, companies are net savers. It is therefore absolutely necessary to spend money in the world everywhere.