Economic Planning from the Bankruptcy King

Donald Trump’s owned and controlled companies have filed for protection under U.S. bankruptcy laws six times. Trump’s business ventures have also included failures that simply ceased operations or sold assets to creditor to buyers of distressed properties. His failures have included real estate, casinos, an airline, a line of vodka, a “university,” a board game, a mortgage company, a lifestyle travel company, a magazine and even a company that sold high-end steaks. 

Contrary to established practices, he will not share his income tax returns with voters, and just in case the truth spills out, he has peppered his allusions to his taxes by claiming to be an expert in the use of loopholes and “tax losses” legally to avoid paying taxes for years. Strange that with approximately the same real estate assets over a comparable period, Trump’s father Fred – the source of a sizeable inheritance and a few “bail me out, Daddy” loans – reported taxable income (aka “profits”).

Trump’s academic record at the prestigious Wharton School of Business (University of Pennsylvania) was anything but prestigious. He barely muddled by. His grasp of economic theory is crude at best and contrary to that of his most distinguished advisors, almost all of whom left his administration. Two of his most essential “accomplishments” – accumulating the biggest deficits in our history and imposing tariffs to “protect” American producers – have until now been apostasy to basic Republican values. But welcome to the new “whatever Trump says we are” GOP. That those “accomplishments” have made everything worse for most of us… well, hey, the numbers look good when he talks about them.

Trump’s climate change denial policy resulted in his emphasis on the continued and expanded view of burning coal to generate electricity. He pledged to coal workers that their jobs would return and that new mines would open. He pushed coal-fired plants as good for the USA. Large numbers of those working the mines and operating the power plants rallied to his call. But the world was already turning its back on this foulest fossil fuel, and where fossil fuels are required, the price and relative cleanliness of natural gas further decimates “deposed” king coal.

“Coal is on a downward swing despite President Donald Trump’s best efforts to frame himself as a champion of the industry. According to data from the U.S. Energy Information Administration, more coal power plants closed during Trump’s first two years in the White House than in Obama’s entire first term… Trump has tried to eliminate such hurdles for the coal industry by proposing lighter emissions limits and different pollution standards, but more plants continue to close. The EIA reported in December that only one small coal plant is expected to open in 2019.

“Regardless of who’s in the White House, the price of coal is failing to remain competitive against that of natural gas, and the fuel that fired the Industrial Revolution is now getting pushed out by more environmentally-friendly renewable energies.” Fortune.com, January 7. 

For the rest of 2019, coal mines, from Wyoming to West Virginia, continued to lay off miners, shut down and file bankruptcies as the industry struggled against cleaner, cheaper natural gas and a growing aversion to the pollution associated with coal-fired electrical power generation. Alternative energy job opportunities have exploded, however. Rather than help unemployed miners transition to new industries, Trump has given them false hope… and a reason to escape reality through a massive new level of opioid addiction in the hard-hit rust belt.

Despite the fact that the application of tariffs to protect uncompetitive local businesses from cheaper imports has never really worked and that unfair foreign subsidies of their industries have other more effective remedies under international law, Trump has eschewed effective multinational treaties, forced unproductive and often stalemated bilateral negotiations and imposed tariffs on what he perceives as offending international competitors to force their compliance with his bullying goals.

Because the stock market has soared – which couldn’t have anything to do with a massive tax cut and concomitant deregulation, could it? – and the surface numbers on employment look good, Trump is able to use those numbers to support his economic wisdom even when he imposes highly ineffective trade policies. Taking credit for an economic recovery that began during the Obama administration, a natural occurrence after any severe economic downturn, seems to have added to his credibility. Make no mistake, however, this economic emperor has no clothes.

Real buying power for 70% of American workers has not risen in 40 years. Any savings from minor tax cuts for most of us have been more than consumed in higher healthcare, food and housing costs. And his unemployment numbers accept as employed those in part-time, gig or marginal jobs, adding in the high-pay of top-end financial and corporate white collar workers to make the averages look good while excluding the masses of people who have long-since given up looking for work… like coal miners. Opioids anyone?

Back to those stupid tariffs. Remember when those steel tariffs went into effect? Not too long ago. For a moment, domestic steel jobs returned. But that was then. “US Steel is losing money again… The steelmaker reported its first loss since early 2017, about a year before the Trump administration imposed 25% tariffs on steel imports in 2018. Those tariffs were designed to help reduce competition for the domestic steel industry and allow companies to add jobs and production.

“The tariffs did give steel prices a brief spike and prompted some steel companies, including US Steel (X), to bring shuttered American mills back on line… But the increased production, along with a drop in demand from steel customers, resulted in prices falling back. US Steel has shut some of its blast furnaces and laid off staff, citing the weaker market conditions….

“Other US steelmakers, including industry leader Nucor (NUE), AK Steel (AKS) and Steel Dynamics (STLD), have continued to post operating profits in the face of the downturn, but all are reporting sharply lower earnings than a year ago.” CNNBusiness.com, November 1^st. What?! Steel tariffs didn’t work?! Well, at least we got a trade agreement, albeit just phase one, with China locked down. That was a major accomplishment, right? That wily Donald Trump even extracted a promise from China to restore billions of purchases of US farm goods. Really, and exactly how do you make someone buy what they do not want? We didn’t even get the protection for our copyrights and patents that really did matter.

On the agricultural front, with a massive population, China’s major concern is assuring consistent high-volume food imports. As Trump plays “now you see it, now you don’t” vacillating trade and tariff policies, seemingly changing at his whim, China has determined that the United States is no longer a reliable source of necessary agricultural products. They have shifted to sellers all over the world, but particularly the highly productive regions in South America. They are unlikely ever to return to importing US farm products at past levels. 

Mike Doring, writing for the November 1^st Bloomberg and the Los Angeles Times, describes the pain: “U.S. farm bankruptcies in September surged 24% to their highest level since 2011 amid strains from President Trump’s trade war with China and a year of wild weather… Growers are also becoming increasingly dependent on trade aid and other federal programs for income, according to a report by the American Farm Bureau Federation, the nation’s largest general farm organization.

“The squeeze on farmers underscores the toll China’s retaliatory tariffs have taken on a crucial Trump constituency as the president enters a reelection campaign and a fight to stave off impeachment… Almost 40% of projected farm profit this year will come from trade aid, disaster assistance, federal subsidies and insurance payments, according to the report, based on Department of Agriculture forecasts. That’s $33 billion of a projected $88 billion in income.

“Chapter 12 bankruptcy filings [provisions in the US Bankruptcy Code passed specifically to benefit farmers] in the 12 months that ended in September rose to 580 from a year earlier. That is the most since the 676 cases in 2011 under the chapter of the bankruptcy code tailored for farms… Recent bankruptcies were concentrated in the 13-state Midwestern region, a key battleground in the presidential election where grain, soybean, hog and dairy farms have been hit by trade disputes. More than 40%, or 255, of the bankruptcy filings were in the region.”

As Trump touted that his efforts will increase demand like never before, that soybean farmers in particular will be need lots more farm equipment, he may have been partially correct. Many of those farmers will indeed new equipment… to retool their farms to grow new crops given the precipitous and probably permanent drop in Chinese demand for US food products… like soybeans.

Today’s blog is not about impeachment or presidential mendacity… it’s about Donald Trump’s competency in that one sphere where he claims his business experience makes him ultra-qualified. And here is what a thoroughly incompetent US president has to deal with next, after the approaching and inevitable (“what goes up must come down”) recession: “A recent study from Oxford University estimated that as many as 47% of the jobs in developed nations will vanish in the next 25 years as a result of automation. These losses will be in both white- and blue-collar jobs. As a nation, we are completely unprepared for the upheaval this will create.

“Decades ago, an increase in productivity and profit would have meant a rising quality of life for workers, but no longer. Automation can bring astonishing increases in productivity, but the increases in profit it brings currently benefit only a small minority. The vast majority of the spoils of automation have gone to investors and the executive classes who exert outsized economic power on our politics and markets — and therefore on our lives. This has left working people poorer, less secure and less powerful than ever. That trend will accelerate unless we act.” Ramesh Srinivasan writing in the October 31^st Los Angeles Times. Feel good on board a ship in a raging storm approaching rocky shoals with a blind captain on the bridge?

            I’m Peter Dekom, and Americans have bought into Trump’s braggadocio and distorted interpretation of statistics, both of which simply fall apart upon the most basic analysis.