The Budget of Fear and Individualism

An overview

Trump’s first budget proposal is out, one of the most expected budgets ever in american history that symbolizes Trump’s campaign motto: “Make America Great Again”. In case people doubt about it he made sure people would really see that on this budget by labeling it as “America First: A budget blueprint to make America great again”. As promised during his whole campaign he will do everything in his capabilities to shift priorities in Washington to make the American society safer, stronger and prosper while making other nations fear his administration. Does this budget represents this?

Yes, the most absorbing fact of this budget proposal is the fact that there will be a $54Bn. increase in the defense department with the goal to buy more jets, warships, and boost the military activity against ISIS. That will also be of the like of the Defense Industry that has ties to the Republican party. To balance the budget this massive increase in defense and military will be offset by a huge decrease across all others departments

Captura de ecrã 2017-03-18, às 15.20.22

(US Gov Departments expenditure, source: Washington post)

As we can clearly, Trump’s administration represents an inversion in what has been American policies in the last 8 years during Obama presidency. Cuts for almost every department except the Defense, the Homeland Security and Veteran Affairs departments. This ultra conservative and anti government intervention is clearly emphasized in this budget, specially when looking at the EPA department that will be the most affected one (in %) according to this administration hardline stance on global warming. Another way to look at this is seeing the decrease of nearly $10.1 Billion at the State Department which goes along the isolationist mindset that is reshaping american politics.

Proposals and a new paradigm in American policy

As we can see in the table above, Trump administration will do several large cuts in some key departments like the State, Labour and Education departments.

Among the major program cuts implemented by Donald Trump we have:

-The elimination of the USDA Water and Wastewater loan and grant program, a reduction of $498 million.

-The reduction or elimination of 20 programs within the Department of Education including Striving Readers, Teacher Quality Partnership and Impact Aid support payment for federal property and international education programs.

-Cuts FEMA state and local grant funding by $667 million, including the Pre-disaster Mitigation Grant Program and Homeland Security Grant Program.

-Eliminates funds for Section 4 Capacity Building for Community Development and Affordable Housing.

-Ceases payments to the United Nations’ climate change programs for the Green Climate Fund and other funds.

-Scales back funding for the World Bank and other international development banks by $650 million over three years.

-Shrinks the Treasury Workforce by an unspecified amount

-Stops funding for the Clean Power Plan.

These measures like the elimination of funds for affordable houses and education show that Trump will do major cuts in several traditional welfare sectors contradicting his electoral promises of giving better living conditions to the American people being not so different of many traditional Republican proposals that refuse the government intervention in these key sectors. Another sector in which this can be seen is in health with the removal of the Patient Protection and Affordable Care Act, known as Obamacare, which will mean that many Americans will become unable to pay health insurance meaning they cannot be assisted if they have an emergency health problem and will also become unable to pay treatment for oncological and chronic illnesses. Despite Trump’s promises that Obamacare will be replaced by something better until now, no concrete proposal was made.

Less surprising is the decrease in funds for Climate, Development and Migration issues. On these subjects Trump presents a populist evolution of the Republican stances by ignoring or in some cases, even denying the existence of some of World’s major problems, in a contrast with a more internationalist and interventionist position taken by the Obama administration.

As it is typical in a nationalist budget proposal this also marks a shift is the balance of the United States policy that will give now less importance to Global Affairs and more importance to Internal Affairs following the concern of many Americans that worry about their living conditions and jobs but not about a war in some Middle East country or a big natural disaster in Asia.

In the limit this could mark the return of an isolationist America. This can appear surprising if we consider the United States policy after the Second World War but in fact if the US was quite isolationist and protectionist during the XIX century and most of the first half of the XX century. However unlike in the XIX century this position is now much more irresponsible because some problems like the Climate Change, Islamic terrorism and the Migration crisis are global and require agreements between the World’s most powerful nations, among which is included the United States, in order to overcome them. There is also a moral imperative because the United States has responsibilities in some of this problems specially in Climate Change and in the instability in the Middle East.

Economic prospect

Above we’ve seen how the budget might be for the next year, but numbers alone don’t mean anything, however if we take into consideration its implications for the american economy now that’s something even more interesting to think and look at.

One of the most famous economists ever, that is still a reference in our days, John Maynard Keynes said that Aggregate demand, in other words, a country GDP is represented by the below equation:

Y= C+G+I+Nx, where Y is the country output (we refer it as GDP most of the times), C is private consumption, G government spending, I is Investment and Nx is Net Exports ( Exports – Imports).

Taking into consideration the proposed budget G will decrease in 2018 due to government slashing some expenditure on social programs, as a consequence many poor families will lose their subsidies which will make them poorer, and since Investment is divided between private and public, we see that it might have a negative variation (seeing for example the Transport Department projected expenditure variation). With this in mind we could already see that, all things remaining constant, American 2018 GDP might degrow a bit, however there is still one thing to take into consideration, which is Net Exports, for that we need to take into consideration the effect of the Interest Rate and Exchange Rate.

Last week, we saw an announcement by FED’s president Janet Yellen stating that FED interest rate will rise from 0,75% to 1%, which has its economic consequences.

fig32

(Exchange Rate, Rate of Return, source:University of Colorado Boulder)

Represented in the image above, we have the vertical line which is the domestic interest rate, the horizontal line the foreign interest rate, the vertical Axis the Exchange Rate level and the horizontal Axis the expected rate of return. We see that an increase in the american interest rate (From left to right) will mean an higher expected rate of return of american investments. This means that the dollar will be more desirable and demanded which will trigger it’s value, that is to say, it’s exchange rate goes up, a dollar now is worth more Euros, Kwanzas, etc.

This interest rate hike and consequently Dollar appreciation might deteriorate American Net Exports, since the dollar is now more expensive and so are the american products.

This combination of raising interest rate while cutting government expenditure can lead to a deceleration of the american economy in 2018.

In the end, we should bear in mind that this is just a budget proposal and needs congress approval to become a reality. Even though it is creating some divisions among republicans this proposal seems a plausible budget and it seems likely to be approved by a congress in which Republicans have the majority of the seats. This is a budget proposal that represents fear, individualism and isolationism focusing on military activity, instead of supporting social, education and healthcare programs that can be a social uplift for many poor families and improve the living conditions of many americans. Sectors like the environment are also ignored by this budget proposal. These measures will not only be negative for the economy because it lacks enough of a stimulus, but will have the likely result of dividing and polarising even more the American society which can create more social unrest special among the poor and minorities.

 

Luís Carvalho, economics student and proud 2015 graduate of democracy

Pedro Diogo, economics graduate

Disclaimer: This Post reflects solely the author’s opinion it does not represent the whole platform

Lobbyists in Brussels – the Dark Side of the European Union?

In front of the the European Parliament, there is a small square with a lot of little bars and coffee houses called ‚Place du Luxembourg‘. Every workday, it is busy with people who work in the European institutions and the many offices in the vicinity of the Parliament. You can sit there in a coffee house and watch them pass by. It would not be surprising to find, here and there, a Member of the European Parliament (MEP) and his assistant sitting at a table with a business(wo)man or the representative of a NGO, talking over a file of documents, while having a coffee and a piece of cake. Continue reading “Lobbyists in Brussels – the Dark Side of the European Union?”

Third Way is Kaput

Third Way

In the 1980s, Neoliberalism dogma was still underway, but according to author Stuart Hall, another movement was being created, it was “New Times”.

The “New Times” that would become one of the causes of the Third Way, consisted in the transition from industrialized economies to tertiary and IT-oriented economies. In addition to economic changes, these “new times” also reflected the decline of the political class, the expansion of people’s individual choices in terms of consumption and lifestyles, as well as the beginning of the debate on the issue of sexuality that began to emerge as a “hot” topic at the time. Continue reading “Third Way is Kaput”

Verhofstadt Surrenders to Political Opportunism

The presidential elections in the European Parliament last week have shown low instincts and political intrigues at their best. Opportunism and the strive for power have prevailed over political integrity and the adherence to values and ideas. Guy Verhofstadt has best illustrated how quickly one can fall prey to the little intrigues and deals that animate life in politics. The man who has strongly endeavoured to become known as the fiercest defender of democratic values and pro-European ideals has not shied away from playing Continue reading “Verhofstadt Surrenders to Political Opportunism”

2017: A practical guide for the worried voter

The year 2016 has ended, for some a terrible year where we have lost dozens of famous people. From football legend Johan Cruyff to legendary singer Leonard Cohen. People who were not only great in their profession but who also influenced the world around them. Take Olympic champion and anti-war figure Muhammad Ali. A hero and inspiration for many who showed us we should never give up on our dreams despite our social background, religion, or race. Continue reading “2017: A practical guide for the worried voter”

Civil disobedience in Sudan: Another Arab Spring?

“Peaceful” civil disobedience is always linked in the minds with Mahatama Ghandi’s march to the sea in protest of the British monopoly on salt, his most courageous act of civil disobedience against the famous British rule in India in 1930. However, this time the news come from Africa, specifically in Sudan where Sudanese  started on Sunday 27th of November 2016 a five-day civil disobedience with varying proportions of response among the residents of the country.

Continue reading “Civil disobedience in Sudan: Another Arab Spring?”

Europe Together: Three Common Sense Proposals for Digital Europe

europe-578-80-1

When talking about Europe’s Digital Union it is easy to get lost in abstract terms such as net neutrality, portability and geo-blocking. The S&D group even made a short glossary descripting the jargon, quite handy. Fortunately, it is also possible to briefly describe in everyday language what priorities I, as a young, non-expert yet assiduous internet and app user, would see as my priorities for digital Europe. Continue reading “Europe Together: Three Common Sense Proposals for Digital Europe”

The rage against the Establishment

November the 9th, 6:30 Am

I woke up quite early to hit the gym, I started my daily routine packing up things, had a quick breakfast trying to avoid the inevitable, checking who had won the elections or was predicted to win at that time. It was with no surprise that I saw Trump with 244 electoral votes against 215 from Hillary.

I must admit I wasn’t shocked at all, the night before I went to bed with the feeling the next morning I would wake up with Trump being the winner and that was what happened.

How did a guy accused of sexual assault, who filed for bankruptcy more than once, who proposed to build a wall, bring back waterboarding and torture[i], ban Muslims coming in, with no political experience and all his sexist, homophobic and racist interventions manage to be seen as the most fit for the job at the oval office? Continue reading “The rage against the Establishment”

Ireland’s Incomplete Revolution

When we see the word ‘Revolution’ we think of the French or Americans in the 18th century. We think of war, uprising, political turmoil, not 21st century Ireland.

The Revolution I speak of has a few factors.

  1. Growing opposition towards the Church’s role in Ireland & Irish politics
  2. Irish women standing up to the backwards Irish way of life.
  3. Most importantly, the repealthe8th movement for safe & legal access to abortion.

Continue reading “Ireland’s Incomplete Revolution”

NATO: An Expensive Self-Fulfilling Prophecy

The North Atlantic Treaty Organisation, created in 1949 to insure Europe’s security by making sure Germany’s might wasn’t going to rise in an unchecked way whilst countering Russia’s growing and ominous stranglehold over the East, has changed a lot throughout history. In order to adapt itself to the evolution of its rivals – the USSR being the main one – the Alliance decided, for instance, to rearm Germany. The idea of having entire columns of Leopard main battle tanks within reach to face soviet ones in case a full invasion of Europe was to happen was actually one of the first symbol of the disagreements that were yet to rise between the Allies. As long as the West had a common foe, the Allies would be willing to compromise with each other: The French Republic, which was viscerally opposed to Germany having an army again, tried to establish a European Army composed of national battalions ([1]), but then, got into reverse; The Red Army storming Prague was an unfriendly reminder of what could happen on a larger scale if the Allies were not to act in a commonly agreed way. France, therefore, learnt how forgetting about its national obsessions – though understandable at that time – could pay off on the long run, even if it meant giving up on strategic interests first. Yet, the soviet threat, that was very real between 1949 and 1989, is now rightly or wrongly seen as an exaggerated one. But by whom? And to achieve what? Continue reading “NATO: An Expensive Self-Fulfilling Prophecy”