LOS ANGELES—President-elect Donald Trump's economic policy is being called reckless by David Shulman, senior economist for the UCLA Ziman Center for Real Estate and UCLA Anderson Forecast. Shulman penned an economic letter published by the UCLA Anderson Forecast December Economic Forecast, where he attempts to break down Trump's economic impact.

“To us, Trumponomics is going to spend a lot more on defense and infrastructure, and he is going to cut taxes a lot,” Shulman tells GlobeSt.com. “So, we are going to end up with a very big deficit by 2018. We view this policy as reckless because the economy is already operating at or very close to full employment. Having some stimulus may be fine, but having this level of stimulus is reckless. The monetary policy is going to be more aggressive, especially with the prospect of more inflation and somewhat higher real growth.”

Shulman admits that Trump's outline is vague, but he makes the following assumptions for his forecast:

$300 billion/year annual, mostly higher-end personal tax cuts effective in Q3.
$200 billion/year corporate tax cut effective in Q3 with $50 billion of revenues associated with the repatriation of foreign earnings that quarter.
$20 billion/year infrastructure program effective in Q4.
$20 billion in higher defense spending in 2018.
$20 billion/year Medicaid/ACA cuts effective in Q4.
Relaxed energy, environmental and financial regulation.
Modest changes to immigration except for border wall.
Modest changes to trade policy yielding net reductions in food and aircraft exports starting mid-2017.

Using these assumptions, Shulman and his fellow UCLA economists estimate that the federal deficit will double to more than $1 trillion by 2018. “Most folks are not giving credit for things like the $500 billion a year in tax cuts, and we are,” explains Shulman. “That is why we get a trillion deficit. If you start with round with a $500 billion and you cut taxes by another $500 billion, then you get $1 trillion dollars. It isn't rocket science.” Shulman says that an economy operating at full employment should not have a deficit equal to 5% of GDP. During the next recession, Shulman predicts that during the next recession the federal deficit will be well above the deficits associated with the financial crisis.

While Shulman has a cautious long-term outlook, the short-term outlook, along with the immediate surge in the stock market, is more positive with more real growth, inflation and higher interest rates. “When you take a look at 10-year treasuries, which have gone from 1.75 to 2.5 in round numbers, and the stock market is up 6% or 7% since the election, the market is right is that it is predicting higher real growth and more inflation,” he says. “We think that is right in terms of the direction, but we aren't clear as to the magnitude. We don't know if the economy is going to ignite or if there are going to be a few quarters of good growth. Our sense is that we will have a few good quarters and then taper down to the 2% because we aren't ready to assume a productivity miracle.”

Shulman admits that Trump's outline is vague, but he makes the following assumptions for his forecast:

$300 billion/year annual, mostly higher-end personal tax cuts effective in Q3.
$200 billion/year corporate tax cut effective in Q3 with $50 billion of revenues associated with the repatriation of foreign earnings that quarter.
$20 billion/year infrastructure program effective in Q4.
$20 billion in higher defense spending in 2018.
$20 billion/year Medicaid/ACA cuts effective in Q4.
Relaxed energy, environmental and financial regulation.
Modest changes to immigration except for border wall.
Modest changes to trade policy yielding net reductions in food and aircraft exports starting mid-2017.

Instant Insights /

UCLA Economist Gives Us an Inside Trumponomics

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