Remind me again why Americans think Donald Trump would be so much better on inflation and the economy?
Trump’s policy team is reportedly scheming to devalue the U.S. dollar. This might well be Trump’s most inflationary and economically destructive idea yet. That’s quite an achievement, considering everything else he and his advisers have cooked up (universal tariff hikes, deficit-financed tax cuts, huge reductions in the labor force, etc.).
Trump’s objective, Politico reports, is to boost U.S. exports and reduce imports. Basically, if a dollar buys, say, fewer euros or Japanese yen than it currently does, that makes U.S.-made products look a little cheaper and potentially more attractive to European and Japanese customers (among others).
That is, until you consider everything else that might happen if we deliberately tried to weaken our currency, which would open a Pandora’s shipping container of disastrous consequences.
It’s true the dollar is unusually strong right now, although probably not for reasons Trump is happy about. Exchange rates typically reflect a country’s macroeconomic conditions (among other factors, such as interest rates). Thanks to a variety of factors — including our relatively limited exposure to the war in Ukraine — we’re doing better than most of our peer countries.
If not via recession, how would Team Trump weaken our currency? That’s not totally clear. He might try to force the Federal Reserve to cut interest rates. This is something Trump already wants to do for other reasons. (For instance, he owes a lot of debt, so lower rates would help his own finances.) Or maybe he would bully lots of other countries into raising their interest rates, which seems unlikely to happen. But if it did, it might result in a global recession.
Whatever the mechanism, a weaker dollar would likely lead to higher prices for American consumers — and not just during their summer vacations to Italy. Americans buy a lot of imported goods, from fruit to toys to cars to home furnishings. Those would all get more expensive as the purchasing power of the dollar fell.
So much for Trump’s pledge to vanquish inflation. And that’s not the only problem with his plan. . . . Deliberately weakening the dollar, or even attempting to, also threatens its role as the world’s “reserve currency.” . . . Eroding the dollar’s global use might make it more expensive for the U.S. government to keep borrowing so much (which means taxes might need to rise, or spending decline, to cover budget shortfalls).
What's driving this push for policies that would severely harm American consumers? Obviously, a economic turn down or recession would bring lower interest rates that would benefit Trump personally. But perhaps more important is the political far right's growing isolationism and an ideology that fails to grasp real world realities. Something the United Kingdom continues to suffer from in the wake of Brexit which was pushed by right wing ideologues and members of British society, especially in more rural areas. A very long piece in The New Yorker looks at the United Kingdom and the pain it continues to suffer as a result of Brexit - something Trump seemingly wants to emulate. Americans need to wake up before we find ourselves in a similar nightmare. Here are article highlights:
If Americans are not careful, Trump and his far right advisers will inflict similar pain and stagnation on America. Vote Democrat in November.My life divides, evenly enough, into three political eras. I was born in 1980, a year after Margaret Thatcher entered Downing Street with the prayer of St. Francis of Assisi on her lips: “Where there is doubt, may we bring faith. And where there is despair, may we bring hope.” The Conservative-run Britain of the eighties was not harmonious. Life beyond the North London square where my family lived often seemed to be in the grip of one confrontation or another. The news was always showing police on horseback. There were strikes, protests, the I.R.A., and George Michael on the radio.
I was nearly seventeen when the Tories finally lost power, to Tony Blair and “New Labour,” an updated, market-friendly version of the Party. Before he moved to Downing Street, Blair lived in Islington, the gentrifying borough I was from. Boris Johnson, an amusing right-wing columnist, who was getting his start on television, also lived nearby. Our local Member of Parliament was an out-of-touch leftist named Jeremy Corbyn. New Labour believed in the responsibility of the state to look after its citizens, and in capitalism to make them prosper. Blair was convincing, even when he was wrong.
I was turning thirty when Labour eventually ran out of road, undone by the Iraq War, the global financial crisis, and the grim temper of Gordon Brown, Blair’s successor. He was caught in a hot-mike moment describing an ordinary voter, who was complaining about taxes and immigration, as a bigot.
Since then, it’s been the Conservatives again. In 2010, the Party returned to government in a coalition with the Liberal Democrats. Since 2015, it has held power alone. Last May, the Tories surpassed the thirteen years and nine days that New Labour had held office. . . . There has been no dominant figure or overt political project, no Thatcherism, no Blairism. Instead, there has been a quickening, lowering churn: five Prime Ministers, three general elections, two financial emergencies, a once-in-a-century constitutional crisis, and an atmosphere of tired, almost constant drama.
The period is bisected by the United Kingdom’s decision, in 2016, to leave the European Union, a Conservative fantasy, or nightmare, depending on whom you talk to. Brexit catalyzed some of the worst tendencies in British politics—its superficiality, nostalgia, and love of game play—and exhausted the country’s political class, leaving it ill prepared for the pandemic and the twin economic shocks of the war in Ukraine and the forty-nine-day experimental premiership of Liz Truss.
Last year, I started interviewing Conservatives to try to make sense of these years. “One always starts with disclaimers now—I didn’t start this car crash,” Julian Glover, a former speechwriter for David Cameron, the longest-serving Prime Minister of the period, told me. I spoke to M.P.s and former Cabinet ministers; political advisers who helped to make major decisions; and civil servants, local-government officials, and frontline workers hundreds of miles from London who had to deal with the consequences.
Some people insisted that the past decade and a half of British politics resists satisfying explanation. The only way to think about it is as a psychodrama enacted, for the most part, by a small group of middle-aged men who went to élite private schools, studied at the University of Oxford, and have been climbing and chucking one another off the ladder of British public life—the cursus honorum, as Johnson once called it—ever since. The Conservative Party, whose history goes back some three hundred and fifty years, aids this theory by not having anything as vulgar as an ideology. “They’re not on a mission to do X, Y, or Z,” as a former senior adviser explained. “You win and you govern because we are better at it, right?”
[T]he Irish journalist Fintan O’Toole explains Brexit by describing Britain’s fall from imperial nation to “occupied colony” of the E.U., and the rise of a powerful English nationalism as a result. Last year, Abby Innes, a scholar at the London School of Economics, published “Late Soviet Britain: Why Materialist Utopias Fail,” which argues that, since Thatcher, Britain’s political mainstream has become as devoted to particular ideas about running the state—a default commitment to competition, markets, and forms of privatization—as Brezhnev’s U.S.S.R. ever was. “The resulting regime,” Innes writes, “has proved anything but stable.”
These observations are surely right, but I worry that they obscure two basic truths about Britain’s experience since 2010. The first is that the country has suffered grievously. These have been years of loss and waste. The U.K. has yet to recover from the financial crisis that began in 2008. According to one estimate, the average worker is now fourteen thousand pounds worse off per year than if earnings had continued to rise at pre-crisis rates—it is the worst period for wage growth since the Napoleonic Wars. . . . “This is what failure looks like.”
“When you start talking about this to Tories, they go, Oh, Dominic, you sound like a terrible central planner,” Cummings said. “And you go, That’s America. This is not weird left-wing shit.”
The pandemic bore out truths about the British state. There were bright spots: the vaccines and their rollout by the N.H.S.; the intervention of the Treasury, under Rishi Sunak, the Chancellor, whose furlough plan protected millions of jobs. More generally, though, the virus revealed tired public services, a population in poor health, and a government that was less competent than it thought it was.
High levels of employment and immigration, coupled with the enduring dynamism of London, mask a national reality of low pay, precarious jobs, and chronic underinvestment. The trains are late. The traffic is bad. The housing market is a joke. “The core problem is easy to observe, but it’s tough to live with,” Mark Carney, the former governor of the Bank of England, told me. “It’s just not that productive an economy anymore.”
With stagnant wages, people’s living standards have fallen. In 2008, Brown’s Labour government commissioned Michael Marmot, a renowned epidemiologist, to come up with ways to reduce England’s health inequalities. Marmot made suggestions in six policy areas, including better access to child care, walking and cycling programs, social-security reforms, and measures to improve people’s sense of agency at work. . . . “The problem was they then didn’t do it.”
Ten years later, Marmot led a follow-up study, in which he documented stalling life expectancy, particularly among women in England’s poorest communities—and widening inequalities. “For men and women everywhere the time spent in poor health is increasing,” . . . . “The damage to the nation’s health need not have happened,” Marmot concluded in 2020. He told me, “It was a political choice.”
And that is the second, all too obvious, fact of British life throughout this period: a single party has been responsible. You cannot say that the country has been ruled against its will. Since 2010, the Tories have emerged as the winner of the popular vote and as the largest party in Parliament in three elections. In December, 2019, Boris Johnson won an eighty-seat majority in the House of Commons, the Conservatives’ biggest electoral success since the heyday of Thatcherism.
How is this possible? The opposition has been underwhelming. . . . In many ways, the two momentous decisions of this period—what came to be known as austerity and Brexit—are now widely accepted as events that happened, rather than as choices that were made. Starmer’s Labour Party does not seek to reverse them.
If you live in an old country, it can be easy to succumb to a narrative of decline. The state withers. The charlatans take over. You give up on progress, to some extent, and simply pray that this particular chapter of British nonsense will come to an end. It will. . . . But Britain cannot move on from the Tories without properly facing up to the harm that they have caused.
In the spring of 2009, Cameron told a gathering of Party members in Gloucestershire, “The age of irresponsibility is giving way to the age of austerity.” . . . between 2010 and 2019, British public spending fell from about forty-one per cent of G.D.P. to thirty-five per cent. The Office of Budget Responsibility, the equivalent of the American Congressional Budget Office, describes what came to be known as Plan A as “one of the biggest deficit reduction programmes seen in any advanced economy since World War II.”
Like the choice of the word itself, austerity was politically calculated. Huge areas of public spending—on the N.H.S. and education—were nominally maintained. . . . But protecting some parts of the state meant sacrificing the rest: the courts, the prisons, police budgets, wildlife departments, rural buses, care for the elderly, youth programs, road maintenance, public health, the diplomatic corps.
At the general election in 2015, the Conservatives won a majority in the House of Commons, with proposals to make a further thirty-seven billion pounds’ worth of cuts.
“It was devastatingly politically effective,” Osborne told me, of austerity. It’s just that the effects were so horrendous. Between 2010 and 2018, funding for police forces in England fell by up to a quarter. Officers stopped investigating burglaries. Only four per cent now end in prosecution. . . . Last fall, hundreds of school buildings had to be closed for emergency repairs, because the country’s school-construction budget had been cut by forty-six per cent between 2009 and 2022.
. What was less forgivable, in the end, was the cuts’ unthinking nature, their lack of reason. In the fall of 2013, a staffer named Giles Wilkes, who worked for a senior Liberal Democrat minister in the coalition, became alarmed by projections that showed ever-reducing government budgets. . . . And so stupid things happened. Since 2010, forty-three per cent of the courts in England and Wales have closed. No one thinks that this was a good idea. For years, the Conservatives cut prison funding and staffing while encouraging longer jail times.
The long-term effects of austerity are still playing out. A 2019 paper by Thiemo Fetzer, an economist at the University of Warwick, asked, “Did Austerity Cause Brexit?” Fetzer found that, beginning in 2010, the parts of the country most affected by welfare cuts were more likely to support Nigel Farage’s U.K. Independence Party, which campaigned against immigration and the E.U. The withdrawal of the social safety net in communities already negatively hit by globalization exacerbated the sense of a nation going awry. . . . More broadly, austerity has contributed to an atmosphere of fatalism, an aversion to thinking about the future. “It is a mood,” Johnna Montgomerie, a professor at the University of British Columbia who studies debt and inequality, has written. “A depression, a chronic case of financial melancholia.”
British social-security payments are at their lowest levels, relative to wages, in half a century. Under a steady downward ratchet, started by Osborne and continued by his successors, household payments have been capped and income thresholds effectively lowered. In 2017, a “two child” limit was placed on benefits for poor families. In November, 2018, Philip Alston, the U.N.’s special rapporteur on extreme poverty, toured the U.K. When we spoke, he recalled a strong sense of denial, or ignorance, among British politicians about the consequences of their decisions. “There was a disconnect between the world and what senior ministers wanted to believe,” he said.
The fall in Britain’s living standards isn’t easy for anyone to talk about, least of all Conservatives. . . . household incomes are clearly lower than France or Germany or the Netherlands.” Part of the problem, Willetts explained, was that Britain’s richest twenty per cent had largely been spared the effects of the past fourteen years—and that made it genuinely difficult for them to comprehend the damage. “We are all O.K.,” he said. “The burden of adjustment has almost entirely been borne by the less affluent half of the British population.”
The perception of the Brexit vote as a cry of anguish from deindustrialized northern towns or from faded seaside resorts isn’t wrong—it just leaves out the rest of England. Two weeks after the referendum, Danny Dorling, a geography professor at the University of Oxford, published an article in the British Medical Journal showing that Leave voters weren’t defined neatly either by geography or by income. Fifty-nine per cent identified as middle class, and most lived in the South.
During the Brexit campaign, the E.U. came to represent not just a supranational monolith across the English Channel but profound distances within the U.K. itself. And the politicians who defended the E.U. looked and sounded, for the most part, as if they spent more time in Tuscany each summer than they had spent on Teesside in their lives. “The kind of globalism, the internationalism, the liberal élite view, was seized on by people who thought that they’d been spoken down to for decades,” John Hayes, a Tory M.P. and a Brexiteer, told me.
Overnight, and against the will of its leaders, the country abandoned its economic model—as the Anglo-Saxon gateway to the world’s largest trading bloc—and replaced it with nothing at all. “I can’t think of another occasion when a party has so radically changed direction while in office,” Willetts said. Thatcher was an architect of the E.U.’s single market, which in time became a heresy.
In the second half of 2016, May worked with a small group of advisers to formulate a Brexit strategy that ultimately satisfied nobody. “It was incredibly poor statecraft,” a former Cabinet colleague said. “Absolute shit. Abominable.” The abiding image of the Brexit talks was a photo of Michel Barnier, the E.U.’s chief negotiator, with his colleagues and their neat piles of paper on one side of a table, while their British counterparts, led by David Davis, a bluff former special-forces reservist, sat on the other side with a single notebook among them.
Cummings believes that Britain must rediscover its ability to build things—roads, railways, houses, research institutes, products that people want to buy—in order to prosper again. He argues that it is America’s ecosystem of universities, entrepreneurs, and government procurement departments that have helped maintain its economic and technological edge, not just lower taxes or a freer form of capitalism. “When you start talking about this to Tories, they go, Oh, Dominic, you sound like a terrible central planner,” Cummings said. “And you go, That’s America. This is not weird left-wing shit.”
