Trump and the Economy

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We’ll discuss how president-elect Donald Trump’s economic policies might impact the economy. Arizona State University Economist Dennis Hoffman and economist Jim Rounds of Rounds Consulting will talk about the impact of Trump’s policies on the economy.

 
TED SIMONS: GOOD EVENING AND WELCOME TO "ARIZONA HORIZON." I'M TED SIMONS. INCUMBENT HELEN PURCELL TODAY CONCEDED THE ELECTION FOR MARICOPA COUNTY RECORDER TO DEMOCRATIC CHALLENGER ADRIAN FONTES. FONTES IS THE FIRST DEMOCRAT TO BE ELECTED TO THE OFFICE IN 50 YEARS. FONTES DEFEATED PURCELL BY ABOUT 1 PERCENTAGE POINT, RIDING A WAVE OF DISCONTENT REGARDING PURCELL'S HANDLING OF VOTING MISTAKES DURING THE 2016 ELECTION CYCLE.

TED SIMONS: THIS WEEK WE'RE LOOKING AT THE IMPACT OF A DONALD TRUMP PRESIDENCY ON A VARIETY OF ISSUES. TOMORROW NIGHT WE'LL FOCUS ON IMMIGRATION AND THEN HEALTH CARE ON THURSDAY. TONIGHT, THE ECONOMY. WHAT DOES A TRUMP PRESIDENCY MEAN TO JOB CREATION AND ECONOMIC GROWTH? JOINING US NOW, DENNIS HOFFMAN, DIRECTOR OF THE L. WILLIAM SEIDMAN RESEARCH INSTITUTE AT ASU'S W. P. CAREY SCHOOL OF BUSINESS, AND WE ALSO WELCOME JIM ROUNDS OF ROUNDS CONSULTING GROUP. GOOD TO SEE YOU BOTH. GOOD TO HAVE YOU BOTH HERE. ALL RIGHT, DENNIS, HE SAYS HE WILL CHANGE THE DIRECTION OF THE ECONOMY. CAN HE DO IT.

DENNIS HOFFMAN: OH, I HOPE HE DOESN'T CHANGE THE DIRECTION OF THE ECONOMY. THE ECONOMY HAS BEEN GROWING NOT AS FAST AS MOST WOULD LIKE TO SEE. WE FACE A LOT OF HEADWINDS, AND I THINK A LOT OF THESE HEADWINDS ARE BEYOND THE CONTROL OF ANY POLICYMAKER. I THINK THAT THERE'S REASON TO BELIEVE WITH SOME OF THE CHANGES THAT MR. TRUMP IS SUGGESTING THAT WE COULD GET ACCELERATION IN GROWTH, AT LEAST IN THE SHORT TERM, AND I THINK THAT PERHAPS THAT WOULD BE AT THE EXPENSE OF LONGER TERM ISSUES, SAY, BIGGER DEFICITS. TAX CUTS, BIGGER DEFICITS MIGHT TAKE PLACE, BUT THEN, OF COURSE, THERE'S SOME CONCERNS IN PARTS OF THE PLATFORM. THE REAL CHALLENGE, TED, IS FIGURING OUT WHAT ELEMENTS WILL ACTUALLY BE ENACTED. WE HEARD SO MUCH DURING A CAMPAIGN BUT A CAMPAIGN IS ONE THING AND ACTUAL POLICY IS SOMETHING DIFFERENT.

TED SIMONS: HE SAYS THAT HE CAN GET THE GROWTH RATE TO 4%. HE SAYS HE CAN CREATE 25 MILLION JOBS OVER THE NEXT DECADE. CAN HE DO IT?

JIM ROUNDS: OH, OVER THE DECADE? THAT'S GOING TO BE TOUGH, JUST WITH NORMAL BUSINESS CYCLE. GROWTH OF 4%, NOT LIKELY. AND I THINK PEOPLE ARE LOOKING AT THIS A LITTLE BIT MORE BINARY AND WHAT I MEAN BY THAT IS WE'LL LOOK AT A PARTICULAR ITEM, LIKE WE WANT TO HAVE A TAX CUT. IN GENERAL, TAX CUTS ARE THOUGHT TO BE GOOD. WE WANT TO HAVE MORE INFRASTRUCTURE SPENDING. BUT AT THE SAME TIME, YOU ALSO HAVE TO PROVIDE SERVICES. YOU HAVE TO-- YOU DON'T HAVE TO BALANCE THE BUDGET BUT AT LEAST IT HAS TO BE MODERATELY CLOSE TO BEING OUT OF BALANCE, COMPARED TO HAVING MAYBE A TRILLION DOLLARS DEFICIT EACH YEAR. SO IT'S A MATTER OF SCALE ON THESE THINGS. PEOPLE ARE LOOKING AT IT MORE BINARY, THESE THINGS ARE GENERALLY GOOD ON THE SURFACE AND THAT'S WHAT CAUSES THE ENTHUSIASM, BUT IF YOU DIG DEEPER IT'S MORE COMPLICATED.

TED SIMONS: HE SAYS INFRASTRUCTURE SPENDING, THIS IS A DEMOCRATIC IDEA. AND NANCY PELOSI SAYS SHE WILL WORK WITH HIM ON THAT AND MR.McCONNELL SAYS THAT'S NOT PART OF THEIR AGENDA. IF HE DOES GET INFRASTRUCTURE SPENDING GOING, CAN YOU GET JOB CREATION AND JOB GROWTH?

DENNIS HOFFMAN: SURE. I THINK NUMBERS COMING OUT, THIS IS 25 MILLION NET NEW, OH, THAT WILL BE VERY HARD. I THINK THERE'S SOME DIALOGUE AROUND, YOU KNOW, TAKING MEDIOCRE JOBS AND CONVERTING THEM INTO BETTER PAYING JOBS IF YOU CAN FIGURE OUT THE MAGIC THERE. YOU KNOW, 25 NET-- AND IT KIND OF REMINDS ME OF THE CONSTRUCTION BOSS IN PENNSYLVANIA WHO BEFORE THE ELECTION SAID SOMETHING LIKE, I DON'T KNOW IN I CAN FIND ENOUGH WORKERS TO MAKE AMERICA GREAT AGAIN. AND DEMOGRAPHICALLY THAT 25 MILLION IS GOING TO BE CHALLENGED. YOU KNOW, WE'VE GOT-- NOW WE HAVE SENIORS, THE FIRST BABY BOOMERS ARE CROSSING THE 70 AND OVER LINE THIS YEAR AND FOR THE NEXT 15 YEARS, WE WILL BE TAGGING THAT 70 AND OVER LINE. WE'RE COMING OUT OF THE WORKFORCE IN LARGE NUMBERS. YOU KNOW, THE PARALLELS BETWEEN MR. TRUMP AND, SAY, RONALD REAGAN, WHEN RONALD REAGAN TOOK OFFICE IN THE '80s, AND THAT'S WHERE SOME OF THIS OPTIMISM, I THINK IS COMING FROM. AND, YOU KNOW, WE CAN CUT MARGINAL TAX RATES. WE CAN DEREGULATE. WE CAN BOOST THE ECONOMY. I THINK THAT THERE WILL BE SOME OF THAT AND IN ALL HONESTY, I THINK THERE WILL, BUT WE HAVE GOT TO RECOGNIZE THAT THERE'S HEADWINDS TODAY THAT-- THEY WERE ACTUALLY TAILWINDS IN 1980. DEMOGRAPHY WAS A TAILWIND. THE BLOOMERS WERE JUST HITTING THEIR STRIDE IN THE '80s. OIL AND GAS PRICES WERE COMING WAY DOWN. INFLATION WAS COMING WAY DOWN. INTEREST RATES WERE COMING WAY DOWN. ALL OF THOSE ARE WORKING IN THE OPPOSITE DIRECTION IN THIS PARTICULAR CASE. AND THE APPETITE FOR DEBT TODAY IS FAR DIFFERENT THAN THE APPETITE FOR TAKING ON DEBT IN THE '80s.

TED SIMONS: THERE'S SOME CRITICS TO SAY THE FEDERAL DEBT COULD EXCEED 100% OF GDP IF HE GETS THE TAX CUTS THAT HE WANTS PUT IN THIS. TALK ABOUT THOSE TAX CUTS. TALK ABOUT THE IMPACT THEY MIGHT HAVE LOCALLY AND NATIONALLY.

JIM ROUNDS: SO, AGAIN, IT'S A MATTER OF SCALE. YOU ADD UP ALL THE DIFFERENT POLICIES AND IN GENERAL, YOU CAN SAY OUT OF TEN BULLET POINTS, SEVEN MIGHT HAVE A POSITIVE IMPACT ON THE ECONOMY, IF IMPLEMENTED PROPERLY. A FEW MIGHT HAVE A NEGATIVE IMPACT LIKE THE INTERNATIONAL TRADE ISSUES. SO IN GENERAL, THEY ARE POSITIVE. BUT IT COMES DOWN TO HOW THEY IMPLEMENT IT. TO GET ELECTED, YOU HAVE TO BE VERY DYNAMIC AND VERY AGGRESSIVE IN YOUR POINTS BUT THEN YOU HAVE TO MAKE THAT SHIFT FROM CAMPAIGNING TO ACTUALLY MANAGING THE ECONOMY. IF HE CAN DO THAT, I THINK MAYBE YOU CAN SEE SOME LIFT. I'M A HUGE ADVOCATE OF ADDITIONAL INFRASTRUCTURE SPENDING. WE WILL HAVE TO DEAL WITH THAT ON A STATE ISSUE AND THE NATIONAL LEVEL BUT THE IDEAS THAT HAVE BEEN FLOATED OUT THERE THAT WE NEED A LITTLE BIT OF PRIVATE SECTOR MANAGEMENT OF HOW THIS GOES ON AND THE CONSTRUCTION SALES TAX WILL PAY FOR THE INVESTMENT, THE MATH DOESN'T QUITE WORK OUT. AND WE WILL HAVE TO HAVE PEOPLE ON THE CABINET THAT KNOW HOW NO WORK A CALCULATOR. I HOPE THAT COMES. TO ME, SEEING WHO HE ADDS OVER THE NEXT WEEK WILL TELL ME VOLUMES ABOUT WHERE THE ECONOMIC NUMBERS MAY GO OVER THE NEXT FEW MONTHS.

TED SIMONS: THE IDEAS OF HIGHER DEFICITS OPEN THE BOND MARKET. THE IDEA THAT U.S. BONDS-- EVERYONE WANTS TO GO HERE BECAUSE WE ARE THE SAFEST. ALL OF A SUDDEN, SOME COUNTRIES ARE SAYING I'M NOT SURE WE ARE THE SAFEST ANYMORE.

DENNIS HOFFMAN: EXACTLY. EXACTLY. YOU KNOW, IT'S ALL ABOUT DEBT TO SOME DEGREE. WHEN I THINK ABOUT, YOU KNOW, LOOKING BACK IN MY GENERATION, LOOKING AT THE '80s, YOU MENTIONED DEBT TO GDP, BY SOME MEASURES WE ARE ACTUALLY OVER 100% RIGHT NOW, GROSS DEBT. AND SO IN GROSS DEBT TERMS IN 1980 WHEN RONALD REAGAN TOOK OFFICE, DEBT-TO-GDP WAS 30%. 30%! PEOPLE DIDN'T HAVE A PROBLEM WHEN MR.REAGAN, MR.BUSH, I BELIEVE, LEFT OFFICE DEBT-TO-GDP WAS IN THE 50 TO 60 RANGE, AND IT WAS 70% BEFORE THE GREAT RECESSION. MY POINT IS THIS THING HAS BEEN GROWING AND GROWING. PEOPLE DO NOT HAVE AN APPETITE PERSONALLY TO TAKE ON DEBT. WE'RE IN A DELEVERAGING CYCLE, NOT A LEVERAGED UP CYCLE. WE HAVE LISTENED TO DAVE RAMSEY WHO PREACHES NO DEBT, NO DEBT, NO DEBT, NO DEBT. THAT-- LOOK, SOME PEOPLE THINK THAT'S A REALLY GOOD THING, AND I UNDERSTAND THAT. BUT IT'S A CHALLENGE IF YOU ARE GOING TO GROW THE ECONOMY THROUGH CONSUMPTION. I MEAN, IF WE DON'T CONSUME MORE GOODS, THE ECONOMY IS NOT GOING TO GROW.

TED SIMONS: AND, AGAIN, BACK TO THE BONDS AND THE IMPACT ON INTEREST RATES, THE IMPACT INTEREST RATES WOULD HAVE ON LENDING AND THUS ON THE HOUSING MARKET, WHICH IS SUCH AN IMPORTANT ASPECT OF ARIZONA'S ECONOMY.

JIM ROUNDS: RIGHT. AND IT DEPENDS ON THE EXTENT THAT THE INTEREST RATES GO UP. THEY CAN ONLY GO UP, AND SO IF IT'S MODEST, I DON'T THINK THERE WILL BE AS NEGATIVE AN IMPACT. IF HE CUTS TAXES IN SOME AREAS AND WE ARE DEALING WITH THESE DEBT ISSUES BUT IT'S MODEST. AGAIN, I THINK WE HAVE TO FIGURE OUT THAT RIGHT BALANCE AND WE CAN'T JUST LOOK AT THESE INDIVIDUAL PROPOSALS IN ISOLATION. ALL OF THIS ECONOMIC STUFF INTERRELATES. WE TALK ABOUT ARIZONA AND EDUCATION AND TAX POLICY REGULATION, IT'S THE SAME THING AT THE FEDERAL LEVEL. ALL OF THIS STUFF INTERRELATES AND YOU CAN'T BE THE LOWEST COUNTRY IN TERMS OF TAXES AND HAVE THE BEST SPENDING ON INFRASTRUCTURE. YOU HAVE TO FIND THAT PROPER BALANCE WHERE YOU HAVE A GOOD RETURN ON INVESTMENT AND I JUST HOPE THAT THEY MAKE THAT SHIFT.

TED SIMONS: REAL QUICKLY, DENNIS, THE IDEA OF A TARIFF, A STEEP TARIFF ON CHINESE GOODS, THE IDEA OF SCRAPPING NAFTA.

DENNIS HOFFMAN: I'M A FREE TRADER. FAIR TRADER IS CODE FOR TEAR OFF AND PROTECTIONIST POLICIES. DUST OFF MILTON FRIEDMAN. IN FACT THERE'S A-- MILTON FRIEDMAN. IN FACT, THERE'S A WONDERFUL CLIP WHERE THEY HAVE TRUMP DEBATING MILTON FRIEDMAN. I HAVE THINK THE TRADE ISSUE TO ME IS THE MOST-- THE BIGGEST NEGATIVE, THE BIGGEST CONCERN I HAD WITH MR. TRUMP'S RHETORIC AND IT'S ABHORRENT IN MY OPINION THAT HE TOLD THE POOR WORKERS IN THE MIDWEST THAT THEIR JOBS CAN BE SAVED. EITHER GLOBALIZATION OR AUTOMATION IS REDUCING THE DEMAND FOR MANUFACTURED WORKERS IN THE MIDWEST AND THEY-- THEY REALLY JUST NEED SOMEBODY TO BE HONEST WITH THEM ABOUT THAT.

TED SIMONS: NO NAFTA. NO TPP. STEEP TARIFFS ON CHINESE GOODS. WHAT DOES THAT MEAN TO INFLATION? WHAT DOES THAT MEAN TO THE ECONOMY?

JIM ROUNDS: IT HAS SO MANY IMPLICATIONS. THIS IS A BIGGER DEAL THAN IS BEING DISCUSSED AND IF THEY JUST WANT TO MODIFY SOME OF THESE THINGS, IF THEY IMPLEMENT SOMETHING THAT'S VERY MODEST AND IT KIND OF MATCHES WHAT OTHER COUNTRIES ARE DOING, OKAY, THAT'S OKAY. BUT THEY HAVE TO BE VERY CAREFUL. THEY ARE PLAYING WITH SOME VERY DANGEROUS THINGS RIGHT NOW, AND THEY SOUND GREAT IN THAT ONE PARAGRAPH OR THAT SOUND BITE WHEN YOU ARE ON A DEBATE, BUT WHEN YOU LOOK AT HOW THESE THINGS INTERRELATE, I DON'T WANT TO PAY $2,000 FOR AN iPHONE. A LOT OF THIS STUFF WILL SHIFT TO THE CONSUMER AS WELL. THAT COULD OFFSET SOME OF THE BENEFITS OF THE TAX CUTS AND I THINK THE MAIN POINT IS, YOU JUST DON'T KNOW UNTIL YOU START TO EXAMINE THESE THINGS IN DEPTH, AND, IN FACT, THAT'S PROBABLY THE BIGGEST ISSUE FOR ME RIGHT NOW. WHEN THERE'S UNCERTAINTY, YOU TEND TO SEE ECONOMIC ACTIVITY GET DRAGGED DOWN A LITTLE BIT. BUT IF YOU ARE TALKING ABOUT THE RIGHT POLICIES, IT CAN SEE THE ACTIVITY PUSHED UP BUT IT REALLY DEPENDS ON HOW INTELLIGENTLY THEY IMPLEMENT IT. RIGHT NOW I DON'T KNOW.

TED SIMONS: ALL RIGHT. WE WILL STOP IT RIGHT THERE. GENTLEMEN, GOOD DISCUSSION. GREAT TO HAVE YOU HERE.

Arizona State University Economist Dennis Hoffman and economist Jim Rounds of Rounds Consulting

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