Voodoo Economics Is A Perfect Excuse For Trump's MAGA Agenda

Scott Bessent Shouldn't Be Confirmed— But He Will Be

Bessent

Yesterday, the Financial Times published an interview with historian Doris Kearns Goodwin by Edward Luce. She recapped “the infamous 1856 assault on Charles Sumner, a leading abolitionist, by Preston Brooks, a pro-slavery congressman who beat him with a cane on the Senate floor. ‘Sumner becomes a hero in the north. The outrage helps to mobilise moderates. Meanwhile, Brooks becomes a hero in the south as someone who did a great deed. People started sporting canes. That makes me think of January 6.’ Is she saying that the US faces an equivalent spectre today? Comparing America’s wildly diverging takes on the January 2021 Capitol Hill assault to the bifurcated nation on the eve of the US civil war sounds ominous, I say. ‘It’s weird to find solace in the civil war, or the Great Depression, or the beginning of world war two, but my whole optimistic temperament depends on saying that we will get through it and emerge stronger,’ Goodwin replies. ‘We paid a terrible price for the civil war but we took away slavery, our original sin.’”

Trump’s return does not fit easily into Goodwin’s America. I suggest that an era that does echo today is when the Carnegies, Rockefellers and Vanderbilts— the Elon Musks, Mark Zuckerbergs and Jeff Bezoses of their age— were redefining what it meant to be wealthy. Goodwin likes that comparison. “The robber barons probably looked in the mirror and thought they were God too,” she says.

The late 19th century was a time of dizzying technological upheaval, canyon-wide gaps between rich and poor, and resentment by small-town America of the increasingly “sinful” immigrant-teeming cities, she says. Then along comes Teddy Roosevelt, one of Goodwin’s heroes (she calls them “my guys”). Roosevelt ushers in the progressive era, busts the trusts, offers a square deal to every American and uses government to tame the vast power of the private combines. “An English guy said that he had seen two forces of nature in America— the Niagara Falls and Teddy Roosevelt,” Goodwin says.

Who is today’s Roosevelt, I ask. “History doesn’t produce these characters easily,” she says after reflecting. “He knew how to use the bully pulpit.” Then, “Teddy would have been great on Twitter.” So would Mark Twain and Winston Churchill, I say. But they may have frittered their lives away. “Lincoln always said don’t speak extemporaneously— think before you speak,” Goodwin says. “But he could be so quick in debate. When someone accused him of being two-faced, he said ‘If I had two faces, would I be wearing this one?’”

I confess to Goodwin that the surreal quality to recent US politics has turned me away from history to science fiction. Trump’s orbit has become a battleground over which of the titans will dominate AI— the technology that will supposedly upend our world. Musk also wants to settle Mars. “I prefer John Grisham, or a mystery novel,” Goodwin says. But she concedes that the leader who masters his day’s medium wins. Lincoln’s speeches were printed by the newspapers and turned into pamphlets. Franklin D Roosevelt broadcast his fireside chats on the radio.

“Saul Bellow [the great Chicago novelist] said you could walk the streets and see people glued to their radios and not miss a word of what FDR said,” she tells me. Eight out of 10 Americans listened to him— “the others probably threw their radios out of the window,” Goodwin says. Kennedy and Ronald Reagan knew the power of television. “Then along comes social media and Trump has mastered that.”

…Goodwin says that Trump has a chance with his second inauguration to atone for his first. Last time he spoke of “American carnage.” This time he could forget old enmities and bring the country together. I express doubt that Trump will do this. “Lincoln used to say that democracy was a system that allowed you to arrive at your level of talent and discipline,” Goodwin replies. “A lot of people don’t feel that any more. This is where class comes in. People feel they will never have that camaraderie they had when their father was in the union. Trump spoke to that. You wonder how much talent is out there and the system doesn’t let them rise.”

What would she recommend Trump do? Goodwin talks of the need for national service to break down barriers between Americans— throwing together people from different classes, races and regions via the military draft or a civilian service. “We used to have study hall, when we would read,” she says. “They could have that too.” Trump could make such a project his legacy, she says. “Kennedy said that problems created by man can be solved by man. Unless we break down the sociological and psychological antipathy between Americans, then the only way we could change that is we have some huge foreign problem . . . If I were not writing, that is what I would be working on.”

Paul Krugman doesn’t write history. His newest blog post, Voodoo, MAGA Style, is about the chicanery of how the right wing uses “economic growth.” He noted that “what we see are right-wing politicians justifying cruel and/or irresponsible policies— massive tax cuts for the rich, harsh treatment of the poor and working class— with the claim that all will be well because these policies will unleash rapid economic growth. Donald Trump has brought his own brand of nonsense, with claims that tariffs can make foreigners pay for everything. But the old voodoo is still very much part of the mix.”

Scott Bessent, Trump’s pick for Treasury secretary, may sound like a “relatively conventional, reassuring pick. Yet Bessent’s ‘3-3-3’ economic plan— or maybe it’s just a concept of a plan, since he has provided no specifics about how he might achieve his goals— is full-on magical thinking.” Bessent claims, implausibly, that he “can raise economic growth to 3 percent…

We actually know a lot about how to fight recessions and accelerate recoveries. The clean little secret of macroeconomics is that Keynes was right: expansionary monetary and fiscal policies are expansionary, contractionary policies are contractionary. This becomes obvious whenever we get something like a natural experiment, such as the harsh austerity policies imposed on some but not all European economies during the euro crisis:

When someone like Bessent claims that he can raise the growth rate, however, he means steepening that long-run trend. The Congressional Budget Office expects potential GDP to rise about 1.9 percent a year over the next decade; Bessent is claiming that he can raise that to 3 percent. The problem is, nobody knows how to do that.

Long-run economic growth is the sum of growth in the labor force and growth in productivity, output per worker-hour. (OK, hours per worker can also vary, but never mind.) We could, of course, accelerate growth in the labor force by admitting a lot more immigrants; somehow, however, I doubt that Trump will sign off on that. What about labor productivity?

…[T]he question is whether there are plausible policies that could raise productivity enough to get growth up to 3 percent.

Well, Republicans believe, or claim to believe, that they can sharply raise productivity growth by cutting taxes on the rich. You could say that claim is unsupported by evidence. But that’s too weak; in fact, it’s powerfully rejected by the evidence.

…[W]e had very rapid productivity growth for a generation after World War II. If tax rates at the top play a crucial role in growth, that couldn’t have happened, since top tax rates throughout the postwar boom were incredibly high by current standards:

CBO also has estimates since 1979 of the average level of federal taxes on top income groups, which is more informative than just looking at the top tax rate. These show big swings depending on which party was in control:

What’s notable is that the 1995-2005 productivity surge came after Clinton sharply raised taxes on the wealthy, and that a tax bump under Obama didn’t have any visible effect.

I’m not claiming that high taxes on the rich caused high productivity growth. What we’re probably seeing are forces that have nothing to do with policy; that 1995-2005 surge was business finally figuring out what to do with IT. And we could, possibly, see a similar surge in the near future from AI. But there’s no reason to believe that cutting taxes will do anything to boost long-run economic growth.

A personal observation: If you have a high salary and live in New York City, you face a quite high marginal tax rate, because both the state and the city levy income taxes on top of federal taxes. So are affluent New Yorkers slow-moving and lazy because taxes eliminate their incentive to work hard? Not exactly.

Tax cuts, then, won’t deliver high growth. Nor is there any reason to believe that there would be a big payoff to deregulation— especially financial deregulation, which has repeatedly led to disaster.

So should governments just give up on trying to accelerate long-run growth? No, they should do what they can. But they should do so in a spirit of humility, realizing that nobody knows how to make a big positive difference— and shouldn’t base their economic plans on the assumption that their preferred policies will deliver a growth miracle.

I mentioned that hubris about growth isn’t entirely a right-wing vice… [M]arkets were reassured by [Bessent’s] selection, because he comes across as a normal, sensible Wall Street type. But personal affect is a very bad guide to how policymakers will act. Trump’s future Treasury secretary— I assume he will easily be confirmed— has policy ideas that are, in their own way, as disconnected from reality as Trump’s belief that he can fund the U.S. government entirely with tariffs, at no cost to consumers, or Elon Musk’s belief that there’s $2 trillion a year in wasteful spending hidden under the sofa cushions or something.”

Keep in mind that at the same time that Bessent was promising tax cuts for the very rich, he was also voicing his determined opposition to increasing the minimum wage. Yesterday, Erica Payne, co-chair of Patriotic Millionaires, told us that “Scott Bessent— despite or perhaps because of his storied career on Wall Street— does not seem to understand basic math.”

“Ah, yes,” California Congressman Ted Lieu told us today, “the perfect Trump nominee— someone who thinks tax cuts for the ultra-rich are essential but raising the minimum wage is somehow too extreme. It’s amazing how ‘fiscal responsibility’ always seems to skip over corporate boardrooms and land squarely on the backs of workers.”