This column has written several times on recommended policies for President Donald J. Trump, who will be inaugurated today. However, Trump is erratic, and the people around him are often more so. Not only do we need good policies over the next four years, but we must avoid some superficially attractive bad ones, some of them truly destructive. Today, on this day of huge rejoicing for Trump supporters, I though it worth submitting a checklist of policies that Trump might be tempted to adopt but shouldn’t.
The list below comprises several different sources of bad policies. Trump’s own brain is the least dangerous of them; most of his flights of fancy are either impossible (annexing Canada) or a surprisingly interesting idea that nobody since William Seward has previously thought of – buying Greenland. A more dangerous sources of bad ideas is the GOP Congress/lobbyist nexus – campaign donations for re-election must come from somewhere and are hence prolific generators of bad ideas. Corporatist media and think tanks are another source of self-serving rubbish. Finally, some few ideas, having been generated in the conservative media, have become very popular with Republican activists, albeit less solidly supported in Congress. For each of the bad ideas for Trump to avoid, I will thus suggest its likely origin.
First, and most important, Trump should avoid making loans and grants to large corporations. This has been a Democratic disease, especially under the Biden presidency (for example, the CHIPS Act and the Inflation Reduction Act) but Trump’s first Presidency was also guilty of it, most notoriously the $4 billion promised to the Taiwanese company Foxconn in 2017, promoted by Wisconsin Governor Scott Walker, then seeking re-election. That grant was scaled back again and again as Foxconn’s ambitions shrank, but it should not have been made in the first place. Grants to large companies tilt the playing field in their favor against entrepreneurs, thereby suppressing competition. They represent a wealth transfer from middle-class taxpayers to corporate behemoths, and are always thoroughly bad policy, however hard the corporations and local office-holders lobby for them.
Second, and related, Trump should avoid cutting corporate taxes further to 15% as he has suggested. There is a case for saying the corporate tax rate cut in the 2017 legislation to 21% went too far, and that the rate should have been set at 25%, more in line with taxes on private individuals, thereby preventing the excessive skewing towards corporations of the benefits of that legislation. Furthermore, full immediate expensing of capital expenditure, as allowed in the 2017 Act, should be reversed. Both these provisions benefit large corporations over small ones, who have far less ability to play games in a low-interest-rate environment such as the U.S. suffered from in the 2010s. Moreover, the deferral of corporate tax on foreign income held abroad is a grotesque subsidy to outsourcing multinationals. The U.S. Treasury desperately needs more revenue, to close the yawning budget deficit; large corporations, especially multinationals, are by far the best place to get it.
On the same subject, don’t give corporate bailouts to large companies that get in trouble, such as Boeing (NYSE:BA). These companies get in trouble because their operations are consistently unprofitable, and their management consistently makes bad decisions, such as Boeing’s underinvestment in new models and devotion to buying back its stock, to the extent it exhausted its equity in 2019, even before the current run of losses began. Rewarding failure is a bad principle in corporate management; it is an even worse one in government, where innocent taxpayers’ money is devoted to propping up the inept but politically connected.
On another corporatist boondoggle, do not privatize Fannie Mae and Freddie Mac; close them down once and for all. Their absurd mission of guaranteeing almost all housing debt, and the political pressure behind them, means they plea for bailouts in every housing market downturn, because they have previously relaxed their credit standards too far. It is economically absurd for housing debt to be guaranteed by a behemoth monopoly; housing is a diverse asset that lends itself very well to bank or bond finance by a multitude of different independent institutions. Closing Fannie and Freddie will make the housing market freer, reduce the cost and bureaucracy of homebuying, as mortgages come from local banks, and remove a large risk from taxpayers. Privatizing them merely encourages bad behavior; as monopolies the taxpayer would inevitably be asked to bail them out when they failed.
The administration does not have direct control over monetary policy but has considerable “jawboning” power and Trump will appoint Fed Chairman Powell’s successor in May 2026. Having made his fortune in real estate, Trump believes in low interest rates and in avoiding tight money conditions. He should resist the temptation to impose these views on the Fed. The period of low interest rates in the 2010s destroyed U.S. productivity growth, while the rise in interest rates since 2022 has caused a spike in productivity growth since the middle of 2023, bringing new health to the U.S. economy despite the inept meddling socialism of the Biden administration. Should interest rates revert to the “Gosplan” negative real rates of 2010-22, Trump will kill that restoration of productivity growth despite his deregulation and will condemn the American people to a re-run of the slide into socialism of the dour low-growth Obama years.
To group the tax no-no’s, Trump should not extend the state and local tax deduction above the current $10,000, except perhaps modestly, a proposal much loved by blue state politicians and their wealthy leftist constituents. The cap has done a great deal of good in knocking budgetary sense into Democrat state governments and it will do more in the future as the possibility of restoring the SALT tax deduction grows more remote. Also, do not add new tax loopholes, which inevitably prove bigger than they appear. For example, the “no tax on tips” idea is a sweet-seeming giveaway to impoverished waitresses but would lead to gigantic amounts of tax gaming quasi-fraud by dodgy restaurant owners, so should be avoided. Do not abolish tax on social security – the fisc cannot afford it. Social security and Medicare become severe problems within a decade – no need to accelerate the collapse.
Tariffs are generally a good thing, because they raise revenue – the “External Revenue Service” is a good marketing gimmick and will focus a group of bureaucrats on raising revenues from trade. The Whig theory that international trade should be free of the taxes that every other economic transaction must bear is completely cuckoo – tariffs will raise much needed revenue and take some of the strain off income taxes. However, tariffs above 20-25% are very economically expensive (roughly, the economic cost of a tariff is proportional to the square of its rate) and raise little revenue because international trade in the item ceases, replacing it with often inferior and certainly much more expensive domestic goods. A moderate balanced tariff, structured to maximize revenue, is the optimum.
Finally, some miscellaneous don’ts. Don’t allow individuals to invest their pensions in private equity, a proposal much loved by private equity donor groups. There is already too much money in that sector; it is a bubble like so many others in the past. Allowing retail pension funds into such an opaque sector, in which all the advantage is with the insiders, would merely unleash a swarm of unscrupulous salesmen, of which the financial services sector has all too many. Retail investors would be at the back of the queue, one’s position in which is the most important factor in private equity investing. They would thus be “stuffed” with all the rubbish deemed too toxic for the institutions and would whine for a taxpayer bailout when it went wrong.
On immigration, this column has already explained in detail why the H1B program should be abolished and certainly not expanded. Trump’s globalist proposal of “stapling visas to college degrees” should also be rejected. There are already far too many low-quality colleges in the U.S., and such a program would only encourage them to give fake “degrees” to all the world’s ineducable down-and-outs. No, thank you!
On foreign policy, the U.S. should stop providing grants and free arms to Israel and Ukraine. Israel is a rich country and can afford to buy the arms it needs; giving them for free only encourages the fringe “Greater Israel” expansionists, who should be discouraged in the interests of world peace. As for Ukraine, our arms supply has only encouraged the re-creation of a World War I-style tragedy, in which hundreds of thousands of Ukrainian, Russian and now North Korean young men have been killed or maimed for life. A peace deal was available in March 2022 that would have avoided almost all the slaughter; the West should have pushed both sides to accept it, instead of offering the Ukraine regime unlimited support, which was in any case unrealistic in the long run. Free gifts corrupt politically and wreck economically; they should thus be avoided. The optimum budgetary allocation for foreign aid and subscriptions to international bodies is zero.
Finally, lawfare should be avoided. President Trump and his associates, notably the estimable Rudy Giuliani, have been treated disgracefully by the Biden administration’s Justice Department and prosecutors in “rotten borough” hard-left districts such as the District of Columbia and Manhattan. Responding in kind is tempting, but it would degrade the entire justice system so that lawfare was practiced by both parties (doubtless more effectively by future Democrat Presidents than the inept Biden) which would reduce U.S. politics to even more of a gangster gunfight than it already is. That is a game at which the Democrats, with their massive majority of sleazy lawyers, judges and jurisdictions (there is no GOP equivalent of Manhattan, let alone DC) will almost always win.
It would be much better to put in protections, with the help of the Supreme Court, so that this lawfare cannot happen again – abolishing the DC court circuit, folding it into Maryland (as could also be done with the jurisdiction, giving it full representation without extra appallingly bad Senators) would be a useful first step. Trump should perhaps task Vice President J.D. Vance with this effort; he is an excellent lawyer, who has been lucky enough to avoid past lawfare, so can act in the interests of good government and against the trial lawyers’ lobby.
On this day of righteous Trumpist rejoicing, I do not seek to “rain on the parade” but simply to indicate some policies to avoid, in the interest of making President Trump’s second term a truly glorious and successful one.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)