Can Trumponomics work? Partly yes. Ultimately no

A few years ago this column argued that we should see significant political events through a very long-term lens that could be termed the economic and political super cycle. While the usual political cycle lasts for four to five years, a super cycle might last for decades and involves a recalibration of intellectual and cultural thought as well as political, economic and social forces.

Each super cycle, no matter how successful, also contains the seeds of its own destruction. Donald Trump’s victory is part of a transition from one super cycle to another. Trump is not an aberration, he is a trend, and his protectionist philosophy, “Trumpism”, could set the tone for global politics in the years ahead.

Since the end of the second World War, there have been three major American super cycles, each with their own economic creed. Given America’s cultural dominance, these movements tend to start in America before spreading to other parts of the world. Ideologies are like fashion. Just as with punk rock in music, the high press in football or flares in jeans, economic fashions jump from country to country. Ideas that were once seen as radical or unusual become mainstream and, before you know it, everyone’s at it.

The first postwar economic cycle lasted for about 30 years, from 1948 to 1978. The overriding philosophy was Keynesianism, which sought regulated markets, high taxes, large governments and managed trade. The high point of Keynesianism in the US was the administration of John F Kennedy, which set out the ambition for what Lyndon Johnson called The Great Society, an all-encompassing “cradle-to-grave” initiative by the US government to improve the lot of all Americans. Its most prominent advocate was the economist JK Galbraith. The Great Society was undone by the war in Vietnam and creeping inflation.

Throughout the 1970s, the intellectual foundations of Keynes were chipped away by the cerebral energy of the free-market economist Milton Friedman. In the same way Kennedy championed Galbraith, Ronald Reagan leaned on the thinking of Friedman. The core of Freidman’s attack on Keynes, and the old super cycle, was his belief that only the free market, not the government, could deliver prosperity. In the 1980s, Reagan made this new philosophy of neoliberalism his own, smashing trade unions, uprooting government programmes, deregulating and embracing the free movement of goods, people, capital and ideas. Others followed suit.

On November 9th, 1989 –35 years ago today – Reagan received the vindication that propelled neoliberalism forward: the fall of the Berlin Wall and the end of communism. With the Cold War over, there was no need for more evidence – the free market reigned triumphant. In the following 30 years, the neoliberal super cycle, exported from the US, has dominated most of western policy-making.

One of Freidman’s diktats concerned “shareholder value”, which contended that companies should maximise profits for owners over everything else. American companies scoured the globe looking for profitable locations. Ireland was one such place.

The very success of neoliberalism – sustained economic growth and an outsized gain for those who own capital and assets over those who work for a wage – contained the seeds of its own destruction. American workers were laid off. As factories moved away, immigrants moved in, making the locals more anxious. Skilled, unionised people who used to work in a steel mill were stacking shelves on zero-hours contracts at Walmart. Naturally, they seethed, waiting for a hero. And who is more early 21st century hero than a reality TV superstar, speaking their language and not talking down to them?

He also came with an ideology – isolationism, which is deeply rooted in the American political DNA. Isolationism distinguished Thomas Jefferson from Alexander Hamilton. With two huge oceans protecting the US from the world, why should they police the globe? With all the resources it needs, self-sufficient in food and energy, why should America import cheap goods from China when it can make them? How do you stop cheap Chinese goods? You make them expensive with tariffs.

All this stuff resonates, because there’s an element of logic to it. Trump also says he will bring American money and jobs back to the Rust Belt by giving companies tax breaks to set up in these desolate places. Sound familiar? We know tax breaks work. What about illegal immigrants, who the “left-behinds” feel are taking their houses, their places in elementary schools or care in the local hospital? Trump’s solution is simple: deport them all, which of course would knock the economy backwards immediately. Fewer people, fewer resources, fewer workers, lower output.

That said, is this doable?

Remember, America has closed its doors before. From 1915 to the 1970s, the immigrant population of the US fell from 15 per cent of the total to 5 per cent. Immigrants as a percentage of population fell in every year for 55 years. It can happen again. Interestingly, the heyday of Keynesian America occurred largely in the absence of mass immigration. Before the second World War, the US was also one of the least open markets for foreign goods. Free trade is a relatively recent part of the American economic lexicon. Borderless movement of capital is also something Maga theory is against, and if Apple, Google or Pfizer are forced to invest at home, it’s at no cost to the average American and therefore an obvious winner electorally for the Trump movement.

Even the free movement of information, something we believe is absolutely part of our social media online world, is not above control. Think about Trump’s attempts to ban TikTok or even his own banishment from Twitter pre-Musk. Information freedom is, and can be, conditional.

Only in the area of tariffs can a popular obstacle be seen: inflation, which was a huge factor in the Trump victory. Tariffs act like a sales tax on imports. America imports a lot, so there will be a jump in the price level before anything else. This would not be good news for Trump. If they can get over that, the protectionist/nativist economics of Trumpism could work, as too could coaxing corporate America to redeploy at least some of its resources at home. If illegal immigrants are expelled, low-income wages would rise in the US. This is what Maga is all about, and is where it meets Bernie Sanders. Both the right and the left want wage increases.

The American academic Gary Gerstle, author of The Rise and Fall of the Neoliberal Order, refers to these super cycles as “political orders” that reflect “the ability of one political party to arrange a constellation of policies, constituencies, think tanks, candidates, individuals who come to dominate politics for extended periods of time. Every political order also has not only an ideology, but a vision of a good life in America.”

Super cycles are also defined by their ability to co-opt the opposition into their thinking. So the left-leaning Keynesian Democrats of the 1950s persuaded the traditionally right-wing Republicans under Dwight Eisenhower to convert. Similarly, the Republican neo-liberals of the early 1990s forced the supposedly left-leaning Democrat Bill Clinton to adopt their creed. Likewise today, the Maga movement has pushed the Democrat Party, even before the election, into tougher controls on immigrants. The super cycle epochs or political orders set the tone and others follow. Trump today is that ringmaster.

However, there is one antidote to Trumpism and it is macroeconomics, the great leveller. Trumpism is only possible if the US continues to borrow, thereby increasing its national debt. It must borrow because it will take time for the Maga project to divert trade, build factories and substitute what it gets from China. To tide itself over, it will have to borrow, and borrow a lot. But it is already stretched.

The US national debt is a phenomenal $30 trillion (€27.86 trillion), or about 100 per cent of GDP. Trump’s promised tax cuts will add at least $7.5 trillion to this. It will soon be spending more on interest payments than it does on the military. Trumpism doesn’t do debt management, and it is clear that this trajectory will lead to a massive debt crisis in the US, not this year or next but within the term of his administration.

Ultimately, the financial markets, so effusive today celebrating the victory of Trump, will push Trumpism towards bankruptcy. For a guy who has been bankrupt many times, this should come as no surprise to the Donald.