According to The Economist newspaper, there are three main reasons to doubt that the Trump administration will be able to deliver on his promise to create a new economic boom.
First, Republicans in Congress are stingy when it comes to big spending bills, especially when they are not offset with budget cuts elsewhere. The regime of Ryan and McConnell don’t want to repeat the disastrous mistakes of the George W. Bush administration. He launched the uber-expensive war on terrorism, and put it on Uncle Sam’s credit card. Then he pushed through Medicare Part D, which was a godsend to millions of elderly who needed medication but couldn’t pay for it. And while these two huge spending programs were being implemented, Bush pushed through a massive tax cut. The end result was an explosion of America’s debt and budget deficits, the likes of which hadn’t been seen since the Reagan era.
Reagan was a prolific spender too, and he cut taxes at the same time. He later had to raise taxes several times when it became clear that America’s balance sheet was getting dangerously debt-heavy. Today’s Republican leaders want to support Trump as much as they can, but it’s unlikely that they will approve policies that are fiscally irresponsible.
Second, the timing of a massive spending boom would be bad. Unemployment is already low, the labor market is tightening, and there is much less slack in the economy. Stimulating the economy now would probably cause the Fed to raise rates faster than originally planned, to counteract the inflationary impact of Trump’s policies.
Third, the details of the Trump plan are sketchy. Steve Bannon said “this is a great opportunity to rebuild everything… we’re just going to throw it up against the wall and see if it sticks.” Comments like this, from a top Trump adviser, does not inspire confidence in the soundness of Trump’s plans.
Of the $1 trillion he plans to spend on infrastructure projects, only 15% of it will go towards actual rebuilding of roads, bridges, tunnels, and airports. The other 85% will come in the form of government contracts to existing private development projects, paid for with tax subsidies and other giveaways. Protests from some Republican factions who characterize this kind of spending as nothing more than Crony Capitalism are already beginning. Until we know the details, progress will probably be slow.