Commentary from Project Syndicate
By Simon Johnson
WASHINGTON, DC – Much attention in the United States and elsewhere is focused on whether US presidential candidate Donald Trump will shift away from the anti-immigrant, anti-Muslim, and anti-rational rhetoric that carried him to the Republican Party nomination. Some of his advisers are reportedly recommending that he move toward “mainstream” Republican positions, such as those held by the leadership of the House of Representatives.
It is entirely possible that Trump will follow their counsel. After all, his current positions are not generating enough support to make victory in November likely (the widely cited FiveThirtyEight website puts his odds at around 20%). And Trump’s running mate, Mike Pence, Governor of Indiana, served in the House from 2000 to 2012 and has close ties to Speaker Paul Ryan and other Republican leaders.
The Republican establishment, deeply divided over Trump’s candidacy, certainly hopes for such a shift. But, if it comes about, no one should mistake it for a move toward more “moderate” positions. In any other year, the House Republicans would be regarded as irresponsible extremists.
To see this, consider the record from a recent hearing of the House Committee on Oversight and Government Reform, chaired by Representative Jason Chaffetz. The ostensible focus of the hearing was the policies of the Federal Deposit Insurance Corporation (FDIC), particularly with regard to the creation of new banks. As the hearing unfolded, however, it became clear that most Republican members were intent on broad-ranging deregulation of finance – rolling back all of the reforms put in place after the 2008 financial crisis. (I testified at the hearing at the invitation of House Democrats.)
In effect, most of the senior Republicans who spoke wanted to return to the pre-crisis world – or even to less financial regulation than existed under President George W. Bush. This is a recipe for repeating the boom-and-bust cycle that created the worst crisis since the 1930s and caused at least a decade of damage to the US economy.
Moreover, while sitting officials are typically treated with respect, the Republicans on the committee were extraordinarily uncivil toward Martin Gruenberg, the FDIC chairman. Worse, in addition to their rudeness and confrontational manner, the Republican members displayed a striking lack of interest in even the most basic facts.
For example, some of them claimed that low interest rates should make it attractive for new banks to be created – so, in their view, the lack of banking start-ups is an indication that the FDIC is doing something profoundly wrong. But researchers at the Federal Reserve have examined this closely and established, beyond any reasonable doubt, that the achievable interest-rate spread (the difference between deposit rates and loan rates) for potential start-up banks is extremely low. This lack of expected profitability – a side effect of monetary policy – is the primary reason people do not want to start new banks.
Unfortunately, the House Republicans simply do not want to be confronted with the findings of social science (on banking) – or apparently of science (for example, on climate change). If you put the facts before them, as happened in that hearing, they become aggressive and unpleasant – sounding rather like smaller versions of Trump. A civilized exchange of ideas and information is impossible.
The House Republicans have another big economic idea on their agenda about which we will likely hear more from Trump: a massive tax cut. If enacted, a few people at the top of the income distribution would do well; everyone else, not so much. Meanwhile, the deficit and government debt would soar, just like they did during the pre-2008 period.
Any growth that results would prove illusory, with the inevitable hard landing leading to austerity, which would be imposed disproportionately on less well-off Americans. Good luck having a sensible discussion about those issues with House Republicans.
Anyone wishing for Trump to “move to the middle” in today’s Republican Party is really just asking for a more dangerous version of George W. Bush, at home and abroad. Bush pushed through a big tax cut, along with other major increases in government spending – including for two disastrous foreign wars – and funded it all with debt. He also presided over a more complete form of financial deregulation than the US had ever seen, resulting in the largest economic contraction in almost 80 years.
With Trump in the White House, the United States might get the white-supremacist agenda of his “alt-right” allies: massive discrimination against minorities and other groups, and probably some form of police state to detain and expel millions of residents. Or it might get complete financial deregulation and a return to the most irresponsible fiscal policies the US ever experienced. The most likely scenario is that it would get both.
About the Author:
Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Baseline Scenario. He is the co-author, with James Kwak, of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.
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