Friday, April 29, 2016

How Much of a Keynesian is Donald Trump?

Narayana Kocherlakota, a hardcore Keynesian and former president of the Federal Reserve Bank of Minneapolis, has written an essay at Bloomberg titled:Trump Starts Making Economic Sense.

In the commentary, Kocherlakota correctly reports:
About a month ago, I urged the presidential candidates to explain what policies and leadership they would like to see at the Federal Reserve. So I was glad to see Trump address Fed-related issues in an interview with Fortune magazine last week.

His key comments: “We have to rebuild the infrastructure of our country. We have to rebuild our military, which is being decimated by bad decisions. We have to do a lot of things. We have to reduce our debt, and the best thing we have going now is that interest rates are so low that lots of good things can be done that aren’t being done, amazingly.”

I read this as calling for two forms of fiscal stimulus. One is more spending, especially on the military and on infrastructure such as roads and bridges. The second is maintaining low taxes despite high levels of government debt (in other remarks, Trump has favored tax reduction).
This seems to be a pretty good read of Trump economic policy.

He wants government building of infrastructure, expanded military spending and tax cuts!

I am all for tax cuts, but mixed with expanded government spending this is Keynesian stimulus policy on steroids.

Kocherlakota has correctly spotted a fellow traveler in Trump.

-RW 


2 comments:

  1. What do you think the fiscal and monetary policy response will be the balance of the year as the economy teeters on the brink of recession? Or do you anticipate the economy to pick up speed in the second half and muddle through? I lean towards risk assets mean reverting relative to the real economy in the second half. I'm interested to know your interpretation of ABCT the balance of the year given the vast majority of economic data released in recent months have been very poor.

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