Stephen Moore on Trumponomics

Early on in the Trump administration, the President tweeted, “I believe strongly in free trade but it also has to be FAIR TRADE.”

The free trade/fair trade distinction goes back to the 1980s, when then President Ronald Reagan’s free market advisers unsuccessfully plead with him to focus solely on the former. After all, they argued, free trade is fair trade. It’s fair to consumers and producers, while tariffs, quotas and other protectionist policies promote unfair business practices. Fair trade is usually just a euphemism for protecting uncompetitive domestic industries from foreign competition. Reagan understood this, but he also had the political savvy to signal loyalty to American companies, so the hybrid “free and fair trade” mantra stuck.

Stephen Moore, a former President of the Club for Growth and an economic advisor to President Trump, thinks we are seeing a repeat of the Reagan trade doctrine. While Trump may be threatening countries with draconian tariffs on their exports, Moore says that he is angling for “zero tariffs” behind the scenes. The tough talk is merely a bargaining tactic designed to get other countries, namely China, to reform their own protectionist economies in line with the free world.

We can hope that this is the case, but this and other questions remain about Trump’s actual commitment to free market policies. Also troubling is the seeming one-sided focus on tax cuts without any significant reductions in government spending. As Milton Friedman observed, “to spend is to tax” — if not now, then in the future. Basic economics dictates that expectations of future tax increases will eventually either depress consumer confidence, or translate into higher inflation.

Moore, whose free enterprise bonafides are second to none, has an answer to this as well. While there may not be such a thing as a “free lunch,” economically speaking, there have been situations in which reductions in tax rates have led to increases in overall revenue.

Arthur Laffer is credited with the idea of the “Laffer Curve,” showing the optimal rate of taxation that maximizes revenues — past a certain point, the disincentive from higher taxes starts to shrink the overall economic pie, and the government’s larger percentage ends up being a smaller total amount. Moore and Laffer have co-authored a new book titled Trumponomics: Inside the America First Plan to Revive Our Economy (available Oct. 30, 2018), which makes the case for “growing the pie” as the primary objective of economic policy.

While most economists said that 4% growth would be impossible after so many years of 0–2% growth under Obama, the recent data is proving otherwise. Moore co-founded the Committee to Unleash American Prosperity in 2015 with Laffer, Larry Kudlow, and Steve Forbes. They aimed to “persuade the presidential hopefuls in both parties to focus on the paramount challenge facing our country: slow growth and stagnant incomes.” Did the plan work? Perhaps, but it remains to be seen whether economic growth will be enough to pull the US out of debt (now standing at $21,606,948,383,546.28).