Donald Trump is at it again. Not content with signing off on a record-breaking $2 trillion stimulus package, Trump is promising to pump even more money into the collapsing U.S. economy.
In a Tuesday tweet, Trump vowed to spend another $2 trillion on a “decades long awaited” infrastructure bill.
His call to action comes as analysts revise downwards their forecasts for the U.S. economy. But while predictions of a 34% drop in GDP are a big cause for concern, it’s not clear how helpful Trump’s new plan will be.
Twitter is Donald Trump’s favorite venue for announcing new policies. On Tuesday, he announced his most expensive policy to date.
Given that this is Trump, details on the “Infrastructure Bill” are unsurprisingly sketchy.
Still, spending on infrastructure usually involves directing government funding towards large-scale development projects. Basically, the U.S. government would pay corporations and thousands of workers to build roads, bridges, power plants or whatever else.
At a time when the U.S. economy is beginning to nosedive, the case for such intervention is stronger than usual. Goldman Sachs has revised downwards its already terrible forecasts for the U.S. economy. It’s now predicting a 15% unemployment rate later this year. It’s also forecasting a massive 34% drop in economic output in Q2.
In fact, things may be even worse than that. The Federal Reserve estimated Monday that the jobless rate could hit 32%.
Meanwhile, the Dow Jones is only seeing temporary recoveries from its worst fall in decades. So Trump is right to think the U.S. economy needs some kind of help.
Up until now, Trump’s role model as president has been Ronald Reagan. But having signed a $2 trillion stimulus package on Friday, and now promising another $2 trillion for “jobs and rebuilding,” it seems Trump is now gunning to become the next FDR.
He’s now less “Make America Great Again,” and more “we have nothing to fear but fear itself.”
But the question remains: will spending $2 trillion on “infrastructure” actually work?
That depends. Critics have already complained that last week’s stimulus package is basically a giant handout to Wall Street and multinationals.
Likewise, it’s possible that a trillion-dollar infrastructure bill could see most of its value go to the coffers of “Wall Street” and “large monopolists.” So rather than helping people get back to work, it could mostly do what quantitative easing and previous stimulus measures have done: inflate the stock market.
On top of this, doctors are already protesting that Trump would be better off proposing sweeping reform of the healthcare system.
Critics could also argue that creating $2 trillion out of thin air to pay for hundreds of thousands of new jobs, among other things, will inevitably cause inflation and public debt to skyrocket.
So there are important questions to be answered on any putative “Infrastructure Bill.” It’s also highly curious to see Donald Trump, of all people, acting like a Keynesian socialist. At least some economists expect government intervention to have a positive effect.
In the same forecast published Tuesday, Goldman Sachs predicted a 19% GDP rebound in Q3 2020. This was based not only on the arrival of last week’s stimulus package, but also on the expectation of other measures:
On the other hand, both monetary and fiscal policy are easing dramatically further, which will tend to contain these second-round effects and add to growth down the road.
So while the U.S. economy will certainly get worse before it gets better, Trump’s spending plans might just help.