Janet Yellen: US interest rate rise 'vote of confidence' in economy – as it happened Read more

How do you win elections? Shellshocked Democrats suddenly find themselves grasping for answers to this simple question. But there’s a simple answer, time tested by tinpot strongmen the world over: build stuff and put your name on it.



I’ve seen mobbed-up politicians in Latin America win elections from jail, having slapped their names on everything from trash cans to water treatment plants to entire towns. Any American exceptionalism hubris about the US being immune to this sort of thing should have been dashed by this election. President-elect Trump isn’t so great at some of the fundamentals of running a business, like avoiding bankruptcy, but one thing he excels at is building stuff and putting his name on it.



Trump promises Americans $550bn in infrastructure spending when he takes office. It’s a bald-faced attempt to buy his way to a second term, and it’s likely to work. His strategist Steve Bannon, the Riefenstahl-inspired new Karl Rove, has boasted of being the man behind the plan.

“With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Shipyards, ironworks, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks.” Whether it sticks or not, you can be sure there will be one thing all of those shipyards and ironworks will feature, beginning with a capital T.



Normally half a trillion in public spending is the kind of thing that Republicans should balk at. But with Trump giving congressional Republicans their wishlist, beginning with massive tax cuts for their top contributors, we can expect little checking or balancing from Capitol Hill, even if the only thing that will get jacked up is the deficit. So it may be a surprise that the first signs of resistance to Trump’s program are from that famously cautious, hidebound institution, the Federal Reserve.



US Federal Reserve raises interest rates for second time since 2008 crisis Read more

Granted, it’s a cautious resistance. On Wednesday, the Federal Reserve raised its key interest rate by 0.25%. Modest as it is, it’s the first rate hike in a year, and the central bank currently plans three or more hikes in 2017. It signals the end of the free money era, now going on eight years, that underpinned the financial crisis recovery.



In her announcement, Fed chair Janet Yellen hinted that this move was in anticipation of a new period of profligate spending by the Trump administration. For the first time in years, she said fiscal policy is “not obviously needed to provide stimulus”, expecting that stimulus to come from Congress via spending.

Yellen warned Congress of the likelihood of Trump’s spending plan driving up prices and an already high debt-to-GDP ratio last month. Trump placed Yellen at the top of his enemies list long before the election, accusing her during the campaign of being “highly political” with monetary policy, and propping up a “false economy”.

In theory, these rate hikes could make borrowing costly enough to cause Congress to think twice. Probably, though, the promise of a permanent Republican majority in the midwest will dissolve whatever shreds of ideological principle remain in the party.

The joke should be on the Democrats, who for decades have resisted the kind of massive public-works spending that might have secured them a permanent majority, for fear of being labeled populist. Trump was never afraid of the label, and has reaped the rewards.

However, the real joke will be on American workers, who were sold a jobs package which, on closer inspection, turns out to be a scam. Trump’s infrastructure plan, according to Obama official Ronald Klain, “doesn’t directly fund new roads, bridges, water systems or airports” but instead “provides tax breaks to private-sector investors who back profitable constructions projects [which] might already be planned or even underway”. It’s not a jobs or infrastructure plan at all, but “a massive corporate welfare plan for contractors”.



Donald Trump has a handy scapegoat when economic clouds appear Read more

Regardless, American taxpayers will be left with the bill for a $550bn giveaway to Trump’s corporate cronies. In return, Americans will see few new jobs, higher prices and, thanks to a newly hawkish Fed, slower growth and costlier loans and mortgages. There’s a word for this: stagflation, and it once cost the Democrats the White House for 12 years.



Yet Trump will slap his name on a few bridges and tunnels, and point to the handful of jobs he “saves” for every thousand he loses. And when labor leaders cry fraud, he’ll sic his followers on them, just as he did with steelworkers union president Chuck Jones, who got death threats for calling out another scam, Trump’s Carrier deal.

It’s another lesson Trump learned that the Democrats never did: say anything loudly and long enough, and eventually people will believe you. That goes for being a jobs president too.

