Donald Trump is Drawing from an Economic Playbook that Didn't Work When Reagan Tried it

Mass Unemployment Destroys Political Support

The US is currently engaged in one murderous war, one genocide, and the strip-mining / reforms of what remains of the American state. Assuming that something resembling a plan is guiding Donald Trump and his minions, a process question emerges. Is this plan based on / in a review of history to see what has worked in the past--- like China undertook in crafting its economic reforms, or does it derive from pre-Great Depression economic theories long considered to have been disproved by the depth and persistence of the Great Depression?

The modern administrative state that Mr. Trump is dismantling, a term revived by Alistair Crooke, grew out of the American response to the Great Depression. The serial economic depressions that roiled the late nineteenth and early twentieth centuries demonstrated that capitalism could not consistently produce the jobs needed to employ the population, creating a political problem for capital. Further, the pre-Great Depression premise that ‘the economy’ would right itself (‘markets’) simply did not happen.

The thesis here is that the modern US state was built to provide a stable political base from which American-style capitalist imperialism could be propelled. This is a fundamentally different origin story from the implied claim that capitalist imperialism is the choice of the American people. From Smedley Butler to Philip Agee, insider accounts have revealed that the US is either 1) a rogue capitalist democracy, or 2) a well-functioning empire. If the US is an empire, why the subterfuge? Why not just say so and let the people react?

An answer is implied in the subterfuge. If a tiny group of our betters makes the big decisions about who and what the US ‘is,’ whether through careful consideration or by creating the economic conditions (MIC) that assures that such a state will come to be, how is this squared with the claim that the form of American governance is freely chosen by its people? A nation run by a tiny group of elites with a murderous military to back them up? Isn’t this the inside-the-beltway definition of authoritarianism?

The distance between the concept of (economic) efficiency currently being sold by the Trump administration and the facts of Western economic history wasn’t resolved by markets in the Great Depression. And it was barely resolved by the build-out of an administrative state. In fact, the Great Depression defined the lives of much of the generation that lived through it. And despite the myth of financial capitalism ending with the Crash of 1929, urban newspapers of the late 1930s were still reporting that Wall Street’s interests were America’s interests.

The economic divisions of that age were in ways analogous to the present. From the 1970s forward, the US was deindustrialized by representatives of the rich in favor of finance. Unlike the 1930s, when labor--- both displaced and employed, organized and won concessions, displaced industrial workers from the 1970s forward were left to rot, without employment or prospects. And urban populations existing close to finance disparaged displaced workers as if they were responsible for their own circumstances.

It would be one thing if neoliberalism had worked. With respect to reviving the economic fortunes of the tiny group that makes decisions in the US, the rich in the US have never been richer. But with respect to the national product, Real GDP (graph below), the US entered a period of lower economic growth in the mid-1970s that has persisted. Recall, Ronald Reagan sold his version of neoliberalism as the cure for lower growth. So did Bill Clinton. But their result has been a lower rate of economic growth, regularly occuring economic catastrophes like the Great Recession, and the people who thought this scheme up have taken what benefit it produced and put it in their own pockets.

Graph: illustrated is the impact of neoliberalism on US economic output. The trend lower began with Ronald Reagan. The rate of growth of Real (inflation-adjusted) GDP has fallen as the occurrence and intensity of periodic crises has increased. This is exactly what Marxist economics predicted, even while mainstream economists are left looking for arcane explanations in their models. The current relevance is that these are the policies that Trump – Musk are putting into practice. To the claim that Mr. Trump is ‘revolutionary,’ one has to get past Bill Clinton’s contribution to the Reagan Revolution. Source: St. Louis Federal Reserve.

The sense that what Mr. Trump is doing is ‘revolutionary’ misses that it is a logical extension of Federal governance from Reagan to Clinton to Trump. Grover Norquist wanted to ‘drown the government in a bathtub,’ Bill Clinton ‘ended welfare as we know it,’ and Mr. Trump is slashing Federal employment. Mr. Trump’s current program looks most like a Right-wing version of NAFTA, where cloistered ideologues sitting in half-lit rooms are making decisions that will affect the lives of millions of people without their consent.

Perhaps Mr. Trump will surprise. But at present, what looks to his supporters like a plan is at best one-quarter of a plan--- the easy part. If Trump – Musk are assuming that the jobs needed to replace lost Federal employment will simply appear because their theories suggest that this will be the case, history doesn’t support them. Ronald Reagan won reelection in 1984 through fortunate timing. And it resulted from his ignoring his own theories. Had Reagan not massively boosted military spending, the unemployment rate likely would have prevented his re-election.

The point about Trump only having one-quarter of a plan is related to industrial policy. Industrial policy was historically a broad Federal plan centered on organizing economic relations within a framework of national interests. Within an industrial policy, plans for firing the Federal workforce would be tied to well considered and plausible plans to reemploy the displaced Federal workers. Firing a material number of Federal workers with only vague thoughts that doing so will be met by private employers with plans to hire them is religion, not industrial policy.

Whatever the actual plan, with the Federal bureaucracy deeply integrated into how the US functions, the most likely outcome is that a number of Federal contractors equal to or greater than the Federal workers fired will be hired at a cost of several multiples of what the fired Federal workers were being paid, with the difference going to whatever contracting entities end up with the contracts. Otherwise, the political problem of large numbers of unemployed voters will crush the Republicans in 2026.

This problem could be particularly acute should Trump persist with his tariffs. The tariffs will appear in the US as immediate, large, increases in the prices of imported goods. Implied in the size of the US trade deficit is that more goods are being imported into the US than exported from it. Even though this is the relationship that Mr. Trump is most likely trying to rectify, it too requires a plan. Where is the supply-side planning inside the US needed to replace suddenly expensive imports with suddenly reasonably priced domestic products?

Again, Trump might have a more developed plan that he just hasn’t shared yet. But the guess here is that he doesn’t. This guess comes from Mr. Trump’s acolytes, who seem delighted by what they see being torn down without considering what will replace it. The sentiment is understandable. Even the New York Times has reported multiple times in recent months that Americans view the US as being in political free fall. This result is bipartisan, with percentages so high that only radical action can revive US fortunes.

This is the political moment that I have been urging the American Left to prepare for since I began writing for the public again in 2011. But the American Left went with the Democrats--- known to be ‘the graveyard of social movements’ after FDR passed. Having successfully sidelined old-school Democrat Bernie Sanders, Bernie is currently sheep-dogging (we miss you Bruce Dixon!) for Pete Buttigieg. From Mayor of a Midwestern bus stop to the least memorable Secretary of Transportation in recent history, lose with Buttigieg in 2028! You go Democrats.

With ‘the Left’ having been re-defined away from a set of principles for governing to ‘resisting Trump,’ it certainly appears from without that agencies of the Federal government acting in league with paid DNC tacticians are setting the agenda. From the second graph down, the current American Left is closer in spirit to the John Birch Society of the 1960s than to the Bolsheviks of 1917. With the Democrats ‘branding’ their war against Russia a ‘good war,’ the question of why they haven’t volunteered to die in it remains open. If I find a new link where interested parties can sign up, I will post it.

From one who has a history of correctly identifying culprits, Pavlovian responses require a Pavlov. While The Mighty Wurlitzer refers to the guiding hand of the CIA in domestic affairs, CNN and the New York Times appear to be the entities currently handing Pavlov’s dogs their talking points. So, while Donald Trump’s economic theories are easy-to-refute using actual economic history, his recognition that various Pavlov’s are conditioning Americans has merit.

The question of why ‘the Left’ objects to this practice of revealing hidden relationships, say with the funding of long-known disseminators of state propaganda like the New York Times by USAID, is less than clear. This defense, without first understanding what it is that is being defended, is reflexive by definition. And without knowledge of the relationships being revealed, any plan to govern by an actual Left would turn into trench warfare from the get-go. Implied is what has already been stated. The revealed role of the bourgeois Left is to make life better for the oligarchs.

In a recent go-around with generally decent, if radically mal-informed Democrats, their righteous defense of powerless immigrants was propelled by complete ignorance of the history of forced deportations from the US (graph below). Following the Sturm und Drang during Donald Trump’s first term over forced deportations, Joe Biden doubled the number of deportations while using the same methods (‘children in cages’) used by Mr. Trump. Question: why do Democrats leave the impression that they didn’t know this?

Graph: following the charge that Donald Trump was abusive toward largely powerless immigrants, Joe Biden had an opportunity to seize the moral high ground. What he did instead was to double the number of deportations from what Democrats had complained for four years were hateful and atrocious levels. In bourgeois fashion, the criticism ended the minute that Biden was elected. Implied is that the treatment of immigrants is a culture war canard used when it is politically convenient for Democrats to do so. Source: nytimes.com.

The question isn’t rhetorical. Rousting powerless people and families in a misguided effort to solve unwanted immigration that is being caused by US economic and political predations (NAFTA) in Mexico and Central America is classic scapegoating, not an honest effort at social problem solving. Anyone who listened to Joe Biden’s or Bill Clinton’s xenophobic and / or racist rants (long ago scrubbed from YouTube) would understand the continuity in Mr. Trump’s rhetoric, and not some brave, new, truth-revealing, policy.

The political response ‘menu’ that emerges from this American practice of singular and unified policies being explained as polar opposites leaves both parties voting for or against the policies they held the opposite view on only moments earlier. The insights that 1) all human beings should be treated with dignity and respect while 2) national immigration policies have been part-and-parcel of the actual practice of capitalist economies for hundreds of years, are compatible. They merge the boundaries of the state with the universalist tendencies of moral and commercial (all people are potential customers, ergo ‘equality’ is valued) logic.

With capital markets and banks providing the capital needed for capital investment in 2025, the theory of capital accumulation now motivating the Trump administration is a relic of earlier theories that never accurately described capitalist practice. The intellectual value of MMT (Modern Monetary Theory) is that it constitutes a near complete refutation of capitalist explanations of money and banking.

In Trump – Musk world, thrifty industrialists scrimp and save to upgrade their methods and facilities in the hope / expectation of earning more profits. Donald Trump’s understanding of this practice was likely informed by his inheritance of a middling real estate empire when he was relatively young. In life, Mr. Trump shifted effortlessly to ‘private’ finance, where corporate bankruptcy laws shield family fortunes from seizure.

The theory of ‘efficiency’ behind DOGE is likewise anachronistic. As economist John Maynard Keynes argued in the 1930s, the local efficiencies of capitalism quickly turn into global inefficiencies if left unchecked. 30-second Keynes: in the midst of an economic downturn, it is rational for individual firms to cut costs. But if every firm does so, a downward economic spiral results. The point: what is rational (efficient) at the level of individual firms is suicidal at the level of national economies.

A problem created by the Great Depression is that it didn’t end on its own. The Great Recession was roughly analogous. If you imagine economic cycles--- often put forward by economists as the natural functioning of capitalism, Western economies failed to turn up again in the 1930s as the term ‘cycles’ implies. While debate over the purpose and function of an administrative state is healthy, the original impetus for building it was to save capitalism, not to smother it in bureaucracy.

Through the expectation of benign and / or benevolent results from cutting Federal spending, DOGE resembles the ‘Laffer Curve’ of the 1980s. The Laffer Curve is the theory that cutting taxes will raise Federal revenues, not lower them, by redeploying resources away from government to business. Trump – Musk are making similar claims regarding the impact of cutting Federal employment. In fact, Ronald Reagan’s tax cuts reduced Federal revenues. If it hadn’t been for his increased military spending, the theoretical nature of the Laffer Curve would have been revealed.

Like most Americans, I have paid into Social Security and Medicare since I was a teenager. To hear it described as an ‘entitlement’ by Elon Musk is roughly analogous to stating that what belongs to Elon Musk actually belongs to the rest of us. The opposition? Democrats actually had to petition Barack Obama to remove Joe Biden from his ‘Cat Food Commission’ because Biden kept one-upping Republicans on how much to cut. And Democrats weren’t listening when Biden claimed the Federal budget deficit as the reason he abandoned his ‘platform’ around 2022.

For those who may have forgotten, the ‘Business plot’ of 1933 is the only known effort to affect a fascist coup inside the US. A group of fascist financiers mistakenly enlisted US General Smedley Butler to bring military might to the effort. Butler, who described his military career as ‘a gangster for capitalism,’ exposed the plot, and the coup was averted. This point is made because it wasn’t just European fascism that FDR (Franklin Roosevelt) was responding to with the New Deal.

In the early 1970s, academic economists developed a framework for ‘proving’ Right-wing ideology. If humans are rational and forward thinking, as the economists argued, they behave in ways that negate the goals of New Deal policies. The weakness in this line of reasoning is that if the model changes, so do the results. Not only does the argument require that the variables be perpetually frozen, but only one model--- the very one that the academics were putting forward, produced the claims being made.

The Right eventually won this argument. The year was 1992. Fake democracy--- in the form of two parties representing a single constituency (the rich) emerged when the President of Wall Street (Bill Clinton) completed the Reagan Revolution. The response from Democrats was to switch from policy-based politics to the ‘cult of personality’ model where policies are supported or opposed based on which party is proposing them, not their content. Democrats learned that hiding Right-wing politics behind neoliberal economics made them saleable.

Readers will recall that it was Bill Clinton who ‘ended welfare as we know it,’ not Ronald Reagan. This is mentioned because it is close in imagined purpose to what Elon Musk is doing with DOGE (Department of Government Efficiency). Clinton was shrinking the administrative state with his actions exactly as Musk is doing in the present. Clinton imagined that ‘markets’ would provide what the Federal government was taking away.

In the binary fashion of capitalism, Clinton was very right until the moment that he was very wrong. Clinton’s deregulation of Wall Street led to increasingly risky behavior, and one of the largest stock market bubbles in history. This bubble provided a temporary boom followed by a still unfolding bust. By dissociating the boom from the bust, Democrats imagined that they had beaten history. The period 2006 – 2025 was the period over which Clinton has been very wrong.

If enough people are unemployed by Federal firings and tariff uncertainty, ‘the economy’ will implode. The precise impact will depend on the scale of the lost employment. If it is in the tens of thousands, regional and local economies will be affected. If it’s in the millions, a downturn can cascade into a crisis. Equally as troubling is that Trump and Musk give no indication that they understand the historical role that Federal spending has played in reversing the economic course once a downturn has started.

But this last part isn’t entirely true. During his first term, Trump proposed and implemented a broad package of Federal expenditures to ‘stabilize’ markets and to subsidize those displaced by the pandemic. But the effort was ad hoc, meaning that without an American king to make the decision, the thought of doing so never would have occurred. Had Joe Biden not successfully represented himself as a copy of Bernie Sanders crafted from dog excrement, the thought of spending Federal dollars on the little people never would have occurred to him.

Ronald Reagan faced a similar predicament in 1984 and chose intellectual dishonesty over losing the election. Reagan explained his program in terms not that different from Trump - Musk. But he actually did the opposite of what he was claiming to do. He increased military spending while claiming that he was slashing Federal (military) spending. The increase in military spending offset his other spending cuts. This is apparently part of Trump’s strategy in forcing Europe to buy more weapons from the US.

Hopefully I am wrong that Mr. Trump only has a one-quarter plan, rather than a four-quarters plan. Should millions be rendered unemployed at the same time that poorly-conceived tariffs cut real family incomes (via rising prices), a very nasty and potentially politically destabilizing economic downturn could result. To be clear, this isn’t an argument against radical change. Mere weeks ago, the US was on the edge of nuclear annihilation. Today it isn’t. Conditions can improve.

But the dank dungeon from which Trump’s – Musk’s economic theories emerged is territory occupied by history. The political result was 1) the creation of the modern bureaucratic state and 2) the rise of European fascism. When NAFTA devastated the industrial workforce, few of Mr. Trump’s working-class supporters celebrated. A similar reaction should greet cuts to Federal employment. Hate the Federal government all that you care to, Federal workers aren’t making the decisions. They are people with families who need to eat.

Should displaced Federal workers be replaced with contractors, looting would be revealed as the Trump – Musk goal. Should they be left to their own devices, as Barack Obama left the American working-class in the Great Recession, political continuity will have been revealed. If Trump quickly reemploys displaced workers at similar incomes and benefits, his program might succeed politically. However, should sinking stock prices change Mr. Trump’s mind in mid-action, a one-quarter plan will have been revealed.