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Trump, GOP Resurrect 'Voodoo Economics' of Reagan Era

Trump, GOP Resurrect 'Voodoo Economics' of Reagan Era
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Friday, 01 December 2017 08:48 AM Current | Bio | Archive

President Donald Trump and the Republican-authored tax-cut plan has hit what appears to be a couple of problems.

One of the problems is Treasury Secretary Steve Mnuchin’s assertion that the tax cuts will pay for themselves.

I recall that being similar to what President George H.W. Bush used to call “voodoo economics” during the Reagan era. 

The theory is that repeatedly asserting that tax cuts will pay for themselves does not, in fact, make it happen, and the tax cuts will not pay for themselves.

The fiscal hawks will therefore be reluctant to support the bill as it stands.

Alongside that, a trigger mechanism to raise taxes, if the deficit were to rise, has not been approved.

Today sees more votes as the Senate attempts to get a more fiscal neutral compromise past.

Ultimately, I still believe, a tax cut will be passed, but that may be not just yet.

Faced with this crisis, the president has responded with swift and decisive leadership by publicly saying “Merry Christmas!”

In fact, he just did like any other president has done.

Over in Japan, Japanese consumer price inflation was largely as expected rising 0.2 percent on the year.

The Japanese consumer, does not believe the numbers however. Japanese consumers believe however that inflation is somewhat between 3 and 4 percent, and they know that wage growth is nowhere close to that.

Repeated surveys showed that Japanese expectations are somewhat stronger as expected.

We have a series of “opinion” pols on Manufacturing sentiment today in the U.S. in the form of the PMI or the IHS Markit U.S. Manufacturing PMI and ISM.

To me, all data are important, but for long-term investors, but it could be helpful:

  1. Sentiment is not the same thing as the “real” world. Describing a rise in a PMI as rising growth or raising output does not correspond with the real world.
  2. Then we have another proplem. People who answer on survey answer different questions to the questions they were asked. I’m sorry, but yes, that’s a problem>

By the way, Eurozone Manufacturing PMI has risen to a near-record high.

In simple words, this is why the difference between the headline and the reality (detail), makes all the difference for the long-term investor.

Tax cut plans were thrown into confusion by the realization that the US Treasury Secretary repeating "tax cuts pay for themselves" does not, in fact, make it true. A tax increase trigger mechanism was also ruled out. Votes will take place today to attempt to strike a new compromise.

Faced with this crisis, US President Trump has responded with swift and decisive leadership by publicly saying "Merry Christmas". Like every other president has done. I still believe that Congress will work out a tax cut plan, but it may take a bit more time.

Japanese headline consumer price inflation was 0.2% year on year. The problem is that Japanese consumers do not believe the numbers. Japanese consumers think price inflation is far higher; and in fact, Japanese consumers have the highest inflation perception and the highest inflation expectations amongst the major economies.

Assorted manufacturing sentiment opinion polls are due out.

  • This is not the real world, and calling a rising PMI or ISM "stronger output" is fake news.
  • People lie on surveys, answer questions inaccurately, or answer a different question to the one asked.
  • This is why the correlation of sentiment surveys with economic reality is so low.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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HansParisis
One of the problems is Treasury Secretary Steve Mnuchin’s assertion that the tax cuts will pay for themselves.
trump, tax, cut, gop, republicans, voodoo, economics, reagan
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2017-48-01
Friday, 01 December 2017 08:48 AM
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