Elon Musk gets Trump's economic plans partly right

AUSTIN:  One can only admire Elon Musk for the candid nihilism of his belief that Donald Trump’s proposed tariffs, deportations, and spending cuts (which Musk has volunteered to supervise) would tank financial markets and cause an “initial severe overreaction in the economy”. They would indeed.

Musk fancies that he can save trillions of dollars by eliminating government waste. Despite being short on details, he vows to make “no exceptions”. But in the decades since Ronald Reagan took office, the US federal government has been hollowed out, leaving only two places where big waste can be found. One is the Pentagon. The other is interest payments on government debt and bank reserves. In deference to Musk, we’ll ignore the vast flow of loans, subsidies, and tax breaks for corporate America, including his own firms.

Cuts in the military and on interest are long overdue. America must face the reality that its Cold War-era network of nearly 800 bases, 11 carrier strike groups, and its nuclear arsenal has been rendered obsolete by high-precision missiles and drones. The US government must rethink national security from the ground up, recognizing the advent of a multipolar world – where mutual security is better than none at all.

To cut interest payments, cut interest rates. Only then can America, using resources unlocked by strategic reforms, fund necessary investments in new industries, climate mitigation, cities, transport, and the environment. The tragedy of President Joe Biden’s Inflation Reduction Act and CHIPS and Science Act is that they have been undercut by the US Federal Reserve, which values the dollar’s global hegemony above all else. Biden’s policies could not succeed when more powerful counter-policies blocked the way.

High tariffs may be attractive to Musk, partly because they would continue to protect Tesla against competition from Chinese electric-vehicle makers, whose EVs now sell for as little as $15,000 in China. With EV tariffs already in place, new ones could cover a wide range of goods, including semiconductors and everything that uses them. While the goal is to foster new and competitive American industries, the likely effect will be to create a secure home market for second-rate stuff. The Chinese may not mind too much; they can sell their wares to the rest of the world.

As for deportations, like Musk, I live in Texas. He surely knows that the state runs on the labour of millions of immigrants, documented and not, who are woven into the fabric of our communities and would be irreplaceable if forced to leave. The idea of a mass roundup is as savage as it is impractical – less an actual policy than a pitch for cruelty-curious voters, a long-standing electoral strategy in the United States. Back in the 19th century, the anti-immigrant party – the 'American Party' – was aptly called the 'Know-Nothings'.

Suppose the cuts and the tariffs happen, along with a bracing market crash, mass bankruptcies, bank failures, and unemployment. Musk assures us that recovery will be spontaneous and swift. In this he resembles another great American, President Herbert Hoover’s Treasury Secretary, Andrew Mellon, who counselled after the stock-market crash of 1929: “Liquidate labour, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.” (Hoover disdained this advice, but rapid recovery began only after Franklin Roosevelt was elected, when he cut the dollar loose from gold and launched the New Deal.)

One can see how some people today might be drawn to Musk’s mantra of purification: burn it down and rebuild from scratch. Americans know that something must give. The problem is that today’s Democratic Party, clinging to a worldview that was framed under President Bill Clinton in the 1990s, has promised gradual change that it cannot deliver, precisely because of its unwillingness to break with imperial commitments and Big Finance. And if Trump does win, it will largely be because the Democrats have failed to come to grips with this dilemma.

One way or another, therefore, a large rupture may be coming. But there is no sign that Musk and Trump will execute the military, diplomatic, and financial reforms required to launch the country towards renewal. Instead, disregarding campaign promises, they may turn to the old reactionary tactic of cuts in Social Security, Medicare, and Medicaid, as well as other remaining bulwarks from the New Deal and Great Society, such as the Securities and Exchange Commission, and even older agencies, like the Federal Trade Commission. Such cuts will indeed crash the economy – and much else besides. But they will free up few resources, and recovery will be elusive. They will make a desert and call it 'waste'.

As for Musk, what Mark Twain once wrote about Cecil Rhodes, the ultimate imperialist, seems worth repeating: “I admire him, I frankly confess it; and when his time comes, I shall buy a piece of the rope for a keepsake.”

James K. Galbraith, chair in government/business relations and professor of government at the University of Texas at Austin, is a former staff economist for the House Banking Committee, a former executive director of the Joint Economic Committee of Congress, and the co-author (with Jing Chen) of the forthcoming Entropy Economics: The Living Basis of Value and Production (University of Chicago Press, 2025).

Copyright: Project Syndicate, 2024.
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