Trump's Peculiar Disconnect


The Trump Administration is returning us to the Hoover time of the great depression. I'm not saying we will have another great depression. I'm saying the during Hoover time there was little to no understanding about the relationship between actions of the Federal government and the national economy. In the early 1930's Hoover wrote notes to his cabinet members asking them to figure out some solution to the growing economic slide. His cabinet members wrote back that nothing could be done. 

The cabinet members were following the understanding and narrative of the time. It was that the economy was made up of communities. The local elected bodies ran the local economies. There were available during Hoover Administration tools that could have been used to offset, at least to some extent, the downturn.

The Federal Reserve was available then and could be pumped reserve into banks making it easier for them to make loans and the loans would have been at lower interest rates. That is now known as Monetary Policy. Then there was Fiscal Policy, federal spending that Roosevelt used when he became President. 

In Trump's mind, the disconnect is different than it was in Hoover's time. But the disconnect is there. Trump does not understand that his tariffs are causing prices to rise. He exacerbates the tariff problem he has created by taking over control of the Federal Reserve. He wants interest rates forced down. This, in most cases, will make inflation even worse. Just as he does not connect his tariffs to higher prices he does not associate lower interest rate to inflation either. He sees tariffs as individual "deals" made with world leaders. The broader implications are not present in his mind. Lower interest rates are another deal. This deal is with the Federal Reserve. He seems to think the F.R. wants high interest rates because it makes money for the F.R. Again, the effect on the economy, inflation, is not understood.

The ideas of economic policy are simple ones. They require, however, the desire to learn.

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