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President Trump?

By Michael Knox - posted Friday, 1 April 2016


Ferguson pointed out that populists may be either from the left or the right of politics. He noted that Juan Peron of Argentina was a populist of the Right. On the other hand, Hugo Chavez of Venezuela was a populist of the Left.

Populists tend to have three major components in their economic program. The first is protection against imports. This is often achieved through import tariffs.

The second is restrictions on immigration. Trump has famously promised to build a wall on the Mexican border paid for, he says, by the Mexicans.

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The third element of populism is usually expansion of the Federal Budget deficit. Budget deficits are expanded to provide favours in return for the support of the populist president.

What are the results?

Import barriers tend to result in demand switching. This means that demand is switched from imported product and services to domestically produced goods and services. This increases domestic demand but decreases the long term incentive for the economy to compete.

 

Restrictions on immigration tend to support real wages in the short term. In the long term, they reduce the availability of skills and labour to allow the economy to grow.

Expanding budget deficits also increases demand in the short term. In the long term demand is reduced as the debt has to be paid back.

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What we can see from each of these elements is that populism can be very successful in the short term. Yet it is short term success purchased at the cost of great long term damage.

Donald Trump, if elected to conduct his populist agenda, may actually be successful and popular in the short term. Unfortunately, this success and this popularity may be purchased at the cost of long term damage for the US economy. The name emblazoned at 401 Wabash Avenue may recall disasters equal to those of early American history.

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Disclaimer

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever



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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

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