You’ve probably heard the saying attributed to Bismarck, “God has a special providence for fools, drunks, and the United States of America.” That includes California because it’s still part of the USA – despite moves for a Calexit secession. But it is membership in the Union that long has restrained the Golden State from becoming North Korea with great weather.
On Nov. 8, Californians voted to sabotage their economy with massive new increases in taxes and regulations. Fortunately for them, their folly will be offset at the national level by the man whose election they shunned, and many even loathed: Donald Trump.
Like the rest of the country, California is poised for a Trumpian boom of Reaganesque proportions. Because of the state’s own anti-business obsession, it just won’t be as booming. For example, if the state’s actions reduce the economy 1 percent next year, that still would be offset by a national gain of, say, 5 percent; leaving a positive of 4 percent. The boom just won’t be as big as in other states, which might see growth of 6 or 7 percent.
Basically, what Trump will do is repeat Reaganomics: cut taxes and regulations, impose protectionism so mild it won’t be noticed and stabilize the dollar’s value. The latter will be accomplished by “fumigating the Fed,” according to an article from the Mises Institute. That is, the era of the Zero Interest Rate Policy, eight depressing years long, finally will be over.
As Trump noted of ZIRP, Fed Charwoman Yellen “is keeping the economy going, barely. You know who gets hurt the most [by her easy money policies]? The people that went through 40 years of their life and saved a hundred dollars every week [in the bank]…. They worked all their lives to save and now what happens is they’re being forced into an inflated stock market and at some point they’ll get wiped out.”
That’s a reason why all those folks in Middle America put him in office. When interest rates are zero percent, your passbook savings account accrues nothing. Historically, the rate has been 2 percent above the inflation rate.
What about the federal deficits? All Trump has to do is get Congress to restrain overall spending, which President Clinton (Bill, who knew politics; unlike Hillary) achieved with House Speaker Newt Gingrich in the late 1990s. I think we can assume Trump can do that; that he won’t repeat the folly of Republican President George W. Bush, who in the mid-2000s went on the wildest domestic spending spree since LBJ’s Great Society 1960s spendathon.
Here are some special California factors of the Trump Boom:
Silicon Valley will continue booming, feeding the global obsession with digits. Practically all the Valley’s oligarchs backed Hillary. But we can expect some to see the wisdom of Peter Theil backing Trump. As Thiel said at the GOP convention in July, “Fake culture wars only distract us from our economic decline, and no one in this race is being honest about it except Donald Trump…. My industry has made a lot of progress in computers and in software and it’s made a lot of money. But Silicon Valley is a small place and, if you drive to Sacramento or even across the bridge to Oakland, you won’t see much prosperity. That’s how small it is.”
And as I predicted, and everyone now seems to understand, it’s those unprosperous areas that said, “Where’s our piece of the pie?” Thiel said what’s needed is a return to American entrepreneurship – for everyone.
Medical devices will boom. Irvine is the world center for medical devices, with important centers also in San Diego and elsewhere. It’s a massive source of exports, especially to Asia. Obamacare hit the industry with a 2.3 percent excise tax, which “is especially pernicious because it is assessed on gross sales, not profits.” That also hurt everybody, including poor people, who needed hip replacements, dentures, even artificial limbs, etc. How cruel. Soon, the tax will be gone.
Exports will go wild. Although Trump will impose some mild protectionism, he won’t start a trade war. Even Reagan imposed tariffs on Japanese motorcycles to save Harley-Davidson, which is why we see so many middle-aged guys, their guts bulging out, blowing out our eardrums biking around as if they were Marlon Brando in “The Wild One.”
TPP is dead, and good riddance to that 5,000-page monstrosity. Canada and Mexico are ready to renegotiate NAFTA, which after all is more than 20 years old. The old dealmeister will make revisions that help everyone prosper.
Cutting the corporate tax rate by more than half, to 15 percent, will spark American manufacturing and other corporations into much higher levels, including in California.
On capital gains, Trump’s tax plan called for keeping tax rate at 20 percent, which means: 1) It won’t go up. 2) He might make a “deal” with Republicans in Congress to cut it to 15 percent. In any case, this is great news for California’s venture capitalists, prodding them to invest in new companies and new jobs.
Defense spending will go up, although it’s not clear how. If Trump ends all or most of the foreign wars, as he has promised, that will mean reduced defense spending on the most expensive item of all, war. Wars chew up materiel, and troops, at an incredible rate. The Iraq and Afghan wars have cost at least $5 trillion. And it now costs about $1 million, each, to keep a fighter in the field. By bringing the troops home, the saved money could be used to refurbish and reequip our forces, yet with no net increase in spending.
In any case, funding new and better planes, ships and bombs will help California’s defense industry.
Real estate will keep booming. That’s a negative for renters and homebuyers. The state’s absurd restrictions on construction will continue. Restricted supply means higher prices. That means the recent trend of the state pushing poor people to other states, or dumping them onto the street, will continue. The middle class also will be hurt. Benefiting will be those with money and special skills.
It’s part of the irony of how the most left-wing state in the Union hammers hardest the working class and the poor. This blindness is part of the reason why California’s elite, Thiel and a few others excepted, has no idea why Trump won.
California Republicans, as I noted last week, could take advantage of the boom to increase their clout in the state – if they’re smart and take action.
Finally, tourism will keep expanding. Where will newly prosperous people from America and the rest of the world want to go? Disneyland!
John Seiler has written columns and editorials on California for 29 years. His email: writejohnseiler@gmail.com