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Donald Trump and Capitalism's Next Crisis

Donald Trump’s first weeks in office have seen the birth of what might become a mass opposition movement. Yet some continue to see his ostensible rejection of aspects of neoliberalism as offering a way forward for workers in the United States. Michael Roberts, author of  The Long Depression, shows “Trumponomics” for what it is: a barely coherent attempt to boost the profitability of capital at the expense of the working class, and an economic program more likely to trigger a new slump than end the current one.

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The election of Donald Trump as US president has shocked the world’s elites. The “most powerful person in the world” is a bigoted, misogynist, super-egoist who appears to take no sensible advice and reacts like a spoiled child. His first four weeks in the presidency have seen bans on Muslim immigrants (reversed and then revised), appointments (and resignations) of wacky advisers, wild tweets, and attacks on the capitalist media for not backing him 100 percent in his fake news and alternative facts.

But what has been the reaction of the world’s financial markets, of the investors, big banks, hedge funds, and asset managers? The stock markets have been booming, reaching all-time highs. Why is this? Well, as it was once said, “It’s the economy, stupid!”

The strategists and owners of capital are turning a blind eye to Trump’s antics and instead hoping that he will successfully implement his economic promises. These are designed precisely to boost the profitability of capital, specifically American capital, cruelly at the expense of the very people who voted for him and deliberately at the expense of America’s economic rivals, namely China, Europe, and Latin America.

Optimism rules in financial markets. What does Trump offer capital? He says that he is going to make “phenomenal” cuts in corporate taxes on profits, lower taxes for the top 10 percent of income earners, deregulate the banks and finance sector that caused the global financial crash in the first place, and introduce a program to build bridges, roads, airports, and other infrastructure projects.

None of this helps the majority of people who voted for Trump, supposedly against the big business, Wall Street candidate Hillary Clinton. But it sounds great to the 1 percent, particularly financial investors. 

Breaking with Neoliberalism?

Amazingly, it also sounds promising to some supposedly on the left. British Keynesian historian and economist Robert Skidelsky tellsus that “Trump has also promised an $800bn–$1tn program of infrastructure investment, to be financed by bonds, as well as a massive corporation tax cut, both aimed at creating twenty-five million new jobs and boosting growth. This, together with a pledge to maintain welfare entitlements, amounts to a modern form of Keynesian fiscal policy.” Skidelsky goes on: “As Trump moves from populism to policy, liberals should not turn away in disgust and despair, but rather engage with Trumpism’s positive potential. His proposals need to be interrogated and refined, not dismissed as ignorant ravings.”  

Trump’s supposed stimulus measures are music to the ears of Keynesian economists, despite the general distaste that the top Keynesian gurus have for the attitudes and rants of “the Donald.” Indeed, if these policies are implemented over the next year or so, Trumponomics will be the next test of the Keynesian solution for getting the world economy out of this Long Depression. Abenomics in Japan, following similar policies of public spending, tax cuts, and monetary easing, has miserably failed. Japan’s GDP growth has hardly moved, while wage incomes and prices remain transfixed.

Skidelksy thinks that cutting taxes on corporations will create new jobs and increase growth. Corporate tax rates were slashed during the neoliberal period. Officially, the United States has a 35 percent marginal tax rate on corporations, but after various exemptions, it is effectively only 23 percent—among the lowest in the world. Yet economic growth has floundered; instead, there has been a rise in the share of profits going to capital at labor’s expense and a rise in unproductive financial speculation. 

Sure, an infrastructure plan is badly needed. According to the 2013 report card by the American Society of Civil Engineers, the United States has serious infrastructure needs of more than $3.4 trillion through 2020, including $1.7 trillion for roads, bridges and transit; $736 billion for electricity and power grids; $391 billion for schools; $134 billion for airports; and $131 billion for waterways and related projects. But federal investment in infrastructure has dropped by half during the past three decades, from 1 percent to 0.5 percent of GDP.

As I explain in my book The Long Depression, what really drives investment in modern capitalist economies, where private capital investment dominates, is the profitability of projects. Private investment has failed to deliver because the profitability is too low.

Trump’s plan will do nothing to resolve this. As Keynesian economics guru Paul Krugman has pointed out himself, any project will be privately owned and run and just be subsidized by the taxpayer. As Krugman explains

imagine a private consortium building a toll road for $1 billion. Under the Trump plan, the consortium might borrow $800 million while putting up $200 million in equity—but it would get a tax credit of 82 percent of that sum, so that its actual outlays would only be $36 million. And any future revenue from tolls would go to the people who put up that $36 million. Crucially, it’s not a plan to borrow $1 trillion and spend it on much-needed projects—which would be the straightforward, obvious thing to do. In that case we haven’t promoted investment at all, we’ve just in effect privatized a public asset—and given the buyers 82 percent of the purchase price in the form of a tax credit.

Perhaps most significantly, and confounding the views of the Keynesian dreamers, the Trump plans will not raise US economic growth from its current depressed pace. JPMorgan reckons US economic growth will hardly pick up at all from its current 2 percent a year average and will be nowhere near the 4 percent annual rate that Trump claims he can get.   

In fact, there is little evidence that Keynesian stimulus programs work to deliver jobs and growth. Skidelsky talks about the Roosevelt era of the 1930s, but actually, very few permanent or new jobs were created in this period. The unemployment rate stayed high right up to the start of the war. As Krugman himself pointed out in his book End This Depression Now!, it took the war to deliver full employment and economic recovery.

Like Abenomics in Japan, Trumponomics is really a combination of Keynesianism and neoliberalism. The new spending and tax cuts are to be paid for, apparently, by more deregulation of markets and labor conditions to boost profits. This is supposed to boost the growth rate in a “dynamic model,” or what used to be called “trickle-down economics,” where the rich get tax cuts and spend it on goods and services so that the rest of us get some more income and jobs. The main incentive, according to Trump’s own economic expert, is not from reductions in the personal or corporate tax rate, but from allowing businesses to write off their investments immediately instead of over time.


“America First”

What Skidelsky further ignores in his paean of praise for Trump’s policies is the hallmark of Trumponomics: trade protectionism and restrictions on immigration.These policies are much more likely to be imposed than his Keynesian-style stimulus.  

Trump plans to drop the TPP (the regional trade deal with Japan and Asia) and the TTIP (with Europe) and “renegotiate” NAFTA, the regional trade pact with Mexico and Canada. The aim is to “protect” American jobs and end cheap Mexican labor. 

As the Donald said last March: “I’m going to get Apple to start making their computers and their iPhones on our land, not in China.” And he wants to impose a 45 percent tariff on Chinese imports. But even if Apple finds enough workers to assemble in the United States, the cost of making an Apple iPhone 7 could increase by $30 to $40, estimates Jason Dedrick, a professor at the School of Information Studies at Syracuse University. Since labor accounts for only a small part of an electronic device’s overall costs, most of these higher expenses would come from shipping parts to the United States. If the iPhone components were also made in the country, the device’s costs could climb up by $90. In short, if Apple chose to pass along all these costs to consumers, the device’s retail price could climb by about 14 percent. So Trump’s trade policies would mean a sharp rise in the prices of goods in the United States, even assuming there is no retaliation by China.

Trump screams that the cause of the losses in manufacturing jobs over the last thirty years has been the rigging of trade terms by low labor-cost manufacturing in China and Mexico. According to this thinking, it is trade and the shifting of production locations overseas by US multinationals—in other words, globalization. But the evidence shows that very few US manufacturing jobs would have been saved with different trade policies or by not agreeing to NAFTA, for example.  

It’s true, of course, that manufacturing employment in the United States fell from around a quarter of the workforce in 1970 to 9 percent in 2015. Absent the US trade deficit, manufacturing may be a fifth bigger than it is, while competition from China led to the loss of 985,000 manufacturing jobs between 1999 and 2011. Yet that’s less than a fifth of the absolute loss of manufacturing jobs over that period and quite a small share of the long-term manufacturing decline, the reasons for which must be sought elsewhere. 

What these studies reveal is what Marxist economics (and my book!) has argued many times before. Under capitalism, increased productivity of labor comes through mechanization and labor shedding, that is, reducing labor costs. Marx explained in Capital that investment under capitalism takes place for profit only, not to raise output or productivity as such. If profit cannot be sufficiently raised through more labor hours (more workers and longer hours) or by intensifying efforts (speed and efficiency—time and motion), then the productivity of labor can only be increased by better technology. So, in Marxist terms, the organic composition of capital (the amount of machinery and plant relative to the number of workers) will rise secularly.

This “capital bias” in technology can explain the fall in labor share’s of annual value in the last thirty years and the growing inequalities. Workers can fight to keep as much of the new value as possible that they have created as part of their “compensation,” but capitalism will only invest for growth if that share does not rise so much that it causes profitability to decline. Capitalist accumulation therefore implies a falling share of value to labor over time, or what Marx would call a rising rate of exploitation (or surplus value).

Profitability thus depends on the class struggle between labor and capital over the appropriation of the value created by the productivity of labor. Clearly, labor has been losing that battle, particularly in recent decades, under the pressure of anti-trade union laws, the ending of employment protection and tenure, the reduction of benefits, a growing reserve army of underemployed, and the globalization of manufacturing.

This is the real reason for American workers falling behind in wages relative to increased productivity and investment in new technology that sheds jobs. The falling share going to labor in national income began at just the point when US corporate profitability was at an all-time low in the deep recession of the early 1980s. Capitalism had to restore profitability. It did so partly by raising the rate of surplus value through sacking workers, stopping wage increases and phasing out benefits and pensions—and by the introduction of new technology to replace labor after a major slump in production.

The resultant weakened bargaining power of unions and higher unemployment, combined with a marked decrease in redistribution through taxes and transfers, is the main explanation for why Americans have fallen behind in income since the 1980s.

Indeed, the bottom half of income earners in the United States has been completely shut off from economic growth since the 1970s. From 1980 to 2014, average national income per adult grew by 61 percent, yet the average pre-tax income of the bottom 50 percent of individual income earners stagnated at about $16,000 per adult after adjusting for inflation. In contrast, income skyrocketed for high earners, rising 121 percent for the top 10 percent, 205 percent for the top 1 percent, and 636 percent for the top 0.001 percent! The result, of course, is skyrocketing inequality. In 1980, adults in the top 1 percent earned on average twenty-seven times more than the bottom 50 percent of adults. Today, they earn eighty-one times more. Furthermore, this increase in income concentration at the top of the scale in the United States over the past fifteen years is due to a boom in capital income—that is, income from existing wealth in the form of dividends, interest, and rents, not higher wages for top earners.

It’s a tale of two countries. For the 117 million Americans in the bottom half of the income distribution, growth has been nonexistent for a generation, while at the top of the ladder it has been extraordinarily strong. Because progressive income taxation has been eroded and social benefits cut back, government taxation and transfers have had little redistributive effect on the inequality caused by the market. 

Capitalism’s Next Crisis?

The loss of US manufacturing jobs, as in other advanced capitalist economies, is not due to nasty foreigners fixing trade deals. It is due to the inexorable attempt of American capital to reduce its labor costs through mechanization or through finding new cheap labor areas overseas to produce.  

As I also explain in The Long Depression, globalization—the cross-border expansion of world trade and capital flows and the development of value-added chains internationally—has been an important counteracting factor to the falling rate of profit, experienced after the mid-1960s up to the early 1980s, in the major advanced economies. Deregulating labor rights, crushing trade union power, and privatizing public sector assets domestically went with global expansion by multinationals.  

The irony (and the worry for capital) is that the Great Recession and the ensuing Long Depression seem to be ending globalization anyway. This was already in trouble before Trump and Brexit. Similar to that of the 1930s, since 2009 the global financial crash, the Great Recession, and consequent Long Depression had brought the expansion of world trade to a grinding halt. Sure, information flows (Internet traffic and telephone calls, mainly) have exploded, but trade and capital flows are still below their pre-recession peaks. Global foreign direct investment as a share of GDP is now falling, and capital flows to the so-called emerging economies have plummeted.

Emerging economies thus risk being driven into a slump as trade falls further and capital inflows dry up. Emerging economies have been building up large amounts of debt (credit), raised from US and European banks to invest, not always in productive sectors. Global debt relative to productive investment has been sharply increasing. And emerging economies’ corporate sector debt-to-capital ratio has also risen sharply.

Low and slowing economic growth globally, along with a rising cost of borrowing and stagnant trade—both now threatened by Trumponomics—will increase the risk of a global slump, not avoid it.

Michael Roberts is author of The Long Depression, published by Haymarket Books, and blogs at


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