Quote:
Originally Posted by TravelingHere
His administration would lower prices or at least reduce pricing pressure by:
1. deregulation
2. permissive energy policy
3. reduced government spending
The above three would be the big primary drivers.
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I'll expand. Or as Blackman puts it when someone posts something that conflicts with his political position and is not simple minded, I'll bloviate.
Some background -- Do we really want to see prices fall? Many economists would tell you that deflation leads to recessions or anemic growth. People think prices will fall so delay purchases which leads to a decrease in demand. And that can be true. Japan and the Great Depression in the USA are examples.
On the other hand, if improvements in productivity cause increased supply, and demand isn't falling, then deflation can be positive. Oil and gas is an example. Improvements in hydraulic fracturing and horizontal drilling have resulted in increased supply in the USA, and lower prices than what we'd have otherwise.
Trump's policies that could result in lower inflation include,
1. As you said, Deregulation. Deregulation can improve productivity and lower prices.
2. As you said, energy policy. If Kamala were elected and reverted to her 2020 campaign policies, she'd ban fracking and drilling on federal lands and offshore leases. This would kneecap the industry in the U.S. and put the power to set prices back in the hands of OPEC.
3. Again, repeating you, reduced government spending. Absolutely. That's Keynesian economics. A question though, will this happen? Based on Trump's history in office, I'd say no. But he's saying that Elon Musk is going to engineer $2 trillion in cuts in federal government spending. If that's even close to true, it will help.
Trump's policies that could result in higher inflation include
4. Lower taxes. Again, that's basic macroeconomics. However, as long as spending is reduced as well, lower federal taxes make a lot of sense. If you shrink the federal government and leave more money in the hands of individuals, investors and businesses, which are the engine of growth, the economy will benefit.
5. Tariffs. I think they would just create a one time step up in inflation. I'm opposed to them more because they'll lower our overall prosperity, competitiveness, and productivity, than because of the inflation risk.
6. It's possible he may appoint more dovish people to the Fed, although it would be hard IMHO to find the people to do that given how far behind the curve the Fed was in 2021 and 2022.
And this could go both ways,
7. Massive deportation of illegal immigrants. This one's kind of like reduced government spending. Will it really happen? If it does, Trump says he wants to replace illegal immigrants with legal immigrants. That's actually a good idea IMHO. But Stephen Miller and others will be working behind the scenes to try to prevent that. In the short run, deporting millions may indeed increase inflation by creating labor shortages. But in the long run it would make the USA more like Japan and some European countries, which have shrinking populations. That would have a disinflationary or perhaps deflationary impact.
