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Reforming US policy requires quality not quantity, President Trump


Elections tend to trigger sudden surges of optimism. Leaders declare “yes we can” and promise to “make America great again”.

With six months to go before the US midterms, the promises are just starting to be made now, and there is a sense of hope that change will break the deadlocks that came to characterise Barack Obamas presidency.

But what the US needs is less – but better quality – policy-making.

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Midterm elections decide who controls the House of Representatives and Senate. Whichever party controls them is the kingmaker of economic policy.

The Republican party has enjoyed such control, along with the presidency itself, since Donald Trumps election, creating a potent environment for policy change.

In other times, this might have been a good thing. A failure of the two parties to act on issues as broad as economic inequality to updating ramshackle infrastructure, combined with the increasingly bitter and fractious relationship between Republicans and Democrats in general, has fed existential worries about America becoming more polarised, fundamentally unfair, and poorer.

But this administrations policy experiments should serve as a warning that any action is not necessarily better than no action.

The US economic fire has been burning just fine in recent years. Many of us thought it would continue burning for a few years yet.

But Trumps tax cut and reforms are equivalent to pouring petrol on the fire: it will briefly burn brighter, but fizzle out sooner than if youd just left it alone. The result is that the US economy could slip into recession sooner than expected.

The problems with the tax plans are symptomatic of the broader issue posed by having one party able to wield significant power in the US.

Tax reform was an opportunity to address some entrenched issues with the previous system, but that isnt what happened.

On the corporate side, the tax cuts will mostly go to shareholders rather than workers wages. The income tax side of the plan is regressive; top rate taxpayers benefit most, and for the economy, poorer households add more per additional dollar than wealthier households.

An attempt to tinker further with the system would probably end up increasing the gap between the best and worst off, while offering nothing more than a short-term shot of adrenaline to the economy. Needless to say, it will not necessarily “make America great again”.

At this stage, while the Senate is a close race, it looks likely that the Democrats could take a majority in the House. Trump will therefore need to work with Democrats if he wishes to pass further policy changes.

This could mean that his attempts to scrap Obamacare are dead in the water. This is good news for the US economy – the Affordable Care Act is not perfect, but scrapping it would leave millions of households without healthcare coverage. This would not have made America great again either.

Infrastructure investment is also politically tricky. Both Trump and the Democrats want to invest more – the challenge is that the two parties are violently opposed about how to achieve this.

The economic value hinges on which projects are selected, the time horizon, and how the costs are structured. Often political horse-trading to get these deals done requires so much compromise that the final policy is poorly designed, costs a lot in the short term, and has limited long-term benefits.

Something will certainly have to give across the political divide for an infrastructure plan – or any other policy – to be successful. But political compromise is preferable to hegemony, even if that means a return to frustrating deadlock.

The biggest lesson of US politics in the last two years is one of quality over quantity. When it comes to policy change in the US, its not what you do; its the way that you do it.

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