Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Trading On False Promises: Trump Trashes The American Dream

Joseph Stiglitz 23rd November 2016

Joseph Stiglitz

Joseph Stiglitz

US President-elect Donald Trump has announced a big building programme of schools, roads and hospitals. How is he going to do that while cutting back on government spending, as promised?

You cannot look at Trump’s proposals as a coherent set of government proposals. They don’t add up. He said he’s going to increase spending on infrastructure, cut VAT of course, cut taxes and cut the deficit. Now, what he doesn’t understand is that over the last quarter of a century we’ve cut back on the size of the government bureaucracy – those grey bureaucrats that get so badly maligned – and we’ve become pretty efficient.

Actually, in the previous presidential election, Mitt Romney got into trouble because he started criticising government employees. But it turned out everybody loves their fireman, their policeman, the military, social security, Medicare. And then, when you start talking about their teachers, all the things they love, that’s government.

So, there just isn’t enough fat to cut. And the reality is Trump will break his promises. Which ones? We don’t know. But we know it will be impossible for him to keep all of them.

Trump’s also said he’ll significantly cut corporation tax in the US. What effect would this have on ordinary people in America?


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

It is part of a broader reform in the tax system: ‘reform’ that Trump’s been advocating, which would lower taxes on the rich, and therefore increase inequality quite obviously. Now, the perverse thing in the United States is that the average tax rate at the top is lower than for those lower down.

So, the United States has the dubious distinction of being one of the few countries that does not have a progressive, nor a proportional, but a regressive tax system. Any philosophical framework says that’s unfair. It will be even worse if his proposals to eliminate the inheritance tax go through.

America is on its way to become an inherited plutocracy: just the opposite of the American Dream, the idea that everybody starts on a level footing and gets ahead through their own efforts. We all knew that there was a little bit of exaggeration in that kind of characterisation. But this [tax reform] would say: we’ve given up on that dream.

But isn’t America’s high corporation tax encouraging multinationals such as Apple to establish bases abroad, where it’s cheaper?

No. For a start, taking into account the definition of the tax base, allowances and loopholes, American corporations do not pay higher taxes than in other countries. There is also no argument that lowering tax rates on corporations leads to more investment. I do think there would be benefits from simplifying our tax code and having every company pay the official rate, whether that’s 25%, 20%, 15%.

But it’s actually a global question, not just a national one. There is very corrosive tax competition going on around the world. That is to say, one jurisdiction tries to steal jobs from others by having slightly lower tax. It’s a race to the bottom. It’s what Ireland did.

First of all, Ireland has a 12.5% tax rate, whereas it’s higher in other parts of Europe. There needs to be harmonisation. But then Ireland cheated on its own tax system. And for Apple, the country gave them a special preferential tax of zero.

Now, if they had done that to everyone, it would have caused havoc in the European tax situation. Every American company, probably every multinational would have said, well, why don’t we just take all of our taxes we’re paying and move to Ireland? All we do is claim our money originates in Ireland, in this cyberspace enterprise, and then we don’t pay taxes. Voilà. And we can even claim to be good citizens. Well, I have always said the first element of corporate citizenship is paying your taxes.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

The European Commission didn’t even know that Ireland had signed this secret agreement. They only discovered that as a result of activities of the US government. And that’s why we’ve been so strong against this secrecy.

Some analysts say inequality was behind Donald Trump’s election victory. A large part of the US population felt they had been left behind by globalisation. Do you agree?

Trump got elected in part because large numbers of Americans wanted a change. One, but only one, of the reasons for this is that large numbers of Americans have been left behind. The average income of the bottom 90% of Americans has changed little over the last third of a century. And an economy that doesn’t deliver for a majority of its citizens is a failed economy. The American economy is a failed economy.

Hillary Clinton represented the past. Represented continuity. Trump was the voice of change.

His diagnoses of what was going wrong with the economy, of course, were badly flawed. There were bad trade agreements, but they were only part of the story. And it wasn’t because our trade negotiators had negotiated badly. It was because, for the most part, our trade negotiators got what they wanted. They were representing corporate interest, and the corporate interest prevailed over the interest of workers.

And you saw that in the Trans-Pacific Partnership and TTIP, where corporate interests were at the table, but the ordinary citizens were not.

It was American pharmaceuticals that wanted the high drugs prices that Americans are concerned about. It was American corporate interest that wanted the investment agreements that restrict regulations on climate change, tobacco, and environmental issues of all variety.

So was it the threat of foreign competition that was worrying Trump supporters?

Globalisation is only part of what went wrong. We had advances in technology, but adapting to those is not easy. I come from Gary, Indiana, a big steel town. The truth is that we produce as much steel as we did in our heyday, but with one sixth of the workers.

But, here’s the rub. It was the Republicans that opposed helping workers adapt. The Democrats consistently argued for trade assistance, and consistently argued for programmes that would help people adapt to the changing economies. And it was the Republicans who consistently opposed these efforts to help those who were being left behind.

One of the most important things would have been, in the last few years, to have a greater fiscal stimulus. We needed more infrastructure and spending on R&D.

So, you might say one of the positive things that looks likely to come out of the Trump administration is a very badly designed stimulus package.

Even a badly designed stimulus package will help create jobs, and so help some of the people who’ve been left behind, in the short run. But of course it won’t help them retrain for the new economy of the 21st century.

It will provide more scope for private universities like Trump University to excel in exploiting poor Americans. Charging them huge fees, getting them greatly in debt, and providing them with absolutely no skills. So, what we can expect to see in a Trump administration is more exploitation of the very group that got him elected.

Moving on to the EU. It’s facing a hard decision post-Brexit on how to deal with the UK and the single market. What’s your view?

I think the best thing for both Britain and the EU is to devise the closest economic integration possible that is consistent with the vote of the British people.

[EU Commission President] Jean-Claude Juncker and others say unless we’re tough on the UK, other countries will leave. That’s absolutely the wrong stance.

It sends a negative message that the only reason countries are staying in the EU is out of fear of what will happen. If that is the best that the EU can offer, it’s a sad day for Europe.

I think the EU has a lot more to offer. It has a positive agenda, but it needs to sell itself better, especially to older people. Of course there are going to be countries that can’t go all the way along. Norway is one. Switzerland is another. Great Britain evidently is a third.

My reading of the Brexit vote is people don’t want free migration. But they could have a migration brake.

There can be a reaffirmation of the principle of subsidiarity with respect to regulations. Ice cream doesn’t have to be the same in every country. If the fraction of cream in British ice cream is different from that in European ice cream, I don’t think that’s going to end the world. But it’s important for people to know what they’re buying.

Interview by Eleanor Mears, first appeared in www.ipg-journal.de

Pics
Joseph Stiglitz

Joseph E Stiglitz, a Nobel laureate in economics and professor at Columbia University, is a former chief economist of the World Bank, chair of the US president’s Council of Economic Advisers and co-chair of the High-Level Commission on Carbon Prices. He is a member of the Independent Commission for the Reform of International Corporate Taxation.

You are here: Home / Politics / Trading On False Promises: Trump Trashes The American Dream

Most Popular Posts

European civil war,iron curtain,NATO,Ukraine,Gorbachev The new European civil warGuido Montani
Visentini,ITUC,Qatar,Fight Impunity,50,000 Visentini, ‘Fight Impunity’, the ITUC and QatarFrank Hoffer
Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse

Most Recent Posts

EU social agenda,social investment,social protection EU social agenda beyond 2024—no time to wasteFrank Vandenbroucke
pension reform,Germany,Lindner Pension reform in Germany—a market solution?Fabian Mushövel and Nicholas Barr
European civil war,iron curtain,NATO,Ukraine,Gorbachev The new European civil warGuido Montani
artists,cultural workers Europe’s stars must shine for artists and creativesIsabelle Van de Gejuchte
transition,deindustrialisation,degradation,environment Europe’s industry and the ecological transitionCharlotte Bez and Lorenzo Feltrin

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

Foundation for European Progressive Studies Advertisement

Discover the new FEPS Progressive Yearbook and what 2023 has in store for us!

The Progressive Yearbook focuses on transversal European issues that have left a mark on 2022, delivering insightful future-oriented analysis for the new year. It counts on renowned authors' contributions, including academics, politicians and analysts. This fourth edition is published in a time of war and, therefore, it mostly looks at the conflict itself, the actors involved and the implications for Europe.


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

Social policy in the European Union: state of play 2022

Since 2000, the annual Bilan social volume has been analysing the state of play of social policy in the European Union during the preceding year, the better to forecast developments in the new one. Co-produced by the European Social Observatory (OSE) and the European Trade Union Institute (ETUI), the new edition is no exception. In the context of multiple crises, the authors find that social policies gained in ambition in 2022. At the same time, the new EU economic framework, expected for 2023, should be made compatible with achieving the EU’s social and ‘green’ objectives. Finally, they raise the question whether the EU Social Imbalances Procedure and Open Strategic Autonomy paradigm could provide windows of opportunity to sustain the EU’s social ambition in the long run.


DOWNLOAD HERE

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube