The Economic Consequences of Donald Trump

By Pavlina R. Tcherneva

Cross-posted at New Economic Perspectives

Economic consequences

A lot has been said already. For me, this was the culmination of a decades-long process where the Democrats sold out their progressive agenda and happily embraced the Republican’s neoliberal economic policies. For some of the best analysis, see here, here, here and here.

My own view is that the Democrats have not had an economic policy of their own for nearly half a century, just an ‘inferior’ version of what Republicans usually champion—tax cuts on the wealthy, dismantling the public safety-net, ‘fighting’ inflation by creating unemployment, market liberalization and deregulation across the board, which among other things brought us a colossal financial sector that has cannibalized the productive economy.

Democrats need to grapple with the reality that Bill Clinton completed the Reagan revolution, and what we got from both parties is rabid financialization, extreme inequality, corporate welfare, joblessness, and economic insecurity: precisely the conditions that fan the flames of social antagonism and deep-seated racism and bigotry. There are many ways to tell this story but, just think, the real incomes of the vast majority of US households have barely moved in the last two decades. Most of us live in stagnation (at best) and many communities are mired in an ongoing recession (even depression), while the economy is ‘officially’ growing.

Neo-liberalism on steroids

As vile as Trump’s campaign was, many of his supporters have legitimate gripes about the state of the economy and about big money in politics. Of course, the notion that Trump is the ‘man of the people’ who will deliver the kind of change they (we) need is preposterous. In fact, his entire economic platform is basically the one I already described above. Nothing has changed. It is the same old plain vanilla “trickle-down economics” we know too well.

And all of us, but especially poor working folk, will hurt even more if Trump repeals Obamacare and the Dodd-Frank Act, gives more tax cuts to the ultra-rich, cuts the budgets of the Department of Education and the EPA, and continues to weaken labor bargaining, to name just a few of his to-do items. All of this is a continuation of neo-liberal policies but on steroids.

The long-term prospects for the economy are dismal. While I do not foresee the economic Armageddon many are predicting in the immediate future, what we will see is another sequel of the structural forces that have brought us the economic ills, which produced this election result–outsized corporate power, unbearable inequality, and increased financial instability. The one bright spot could be his plan for over $Trillion in infrastructure investment. That is something we surely need. But remember, if it does not translate into genuine deficit spending, and Congress tries to ‘pay’ for these expenditures by slashing other Federal programs, there will be no ‘stimulus’. What one hand gives, the other will take away. And Mitch McConnel is already on record that infrastructure is not a priority. But if the deficit expenditure is there and Trump ends up “reviving our inner cities” and restoring infrastructure so “it’s second to none” (as per his acceptance speech), that will benefit the economy and create jobs (though it might come with a giant neon TRUMP sign on every new bridge).

But no one should have any illusions. America elected someone very much from the wealthy elite, a privileged member of the establishment, who happened to be a better salesperson.

A social plague

Unfortunately, it is impossible to discuss the ‘economic consequences of Trump’ in an objective way because he has unleashed a plague on our society, from which we will suffer for many years. Trump has brought white supremacy out of the shadows and has normalized bigotry, misogyny, and hate in ways we hadn’t seen in decades. He has now given permission for the resurgence of overt racism. And while this may well have been already underway, racism and economic anxiety are deeply intertwined, and both seem to be reaching a new fever pitch.

This cancer will stay with us for years to come and must be fought every step of the way. Whatever our gripes and differences about the economy, we must together collectively stand against acts of hate. Nothing will erode the social fabric more and undermine our ability to make progress on economic matters than this poison. Fear sells.

As FDR warned us long ago:

“We have come to a clear realization that true individual freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made.” (FDR)

Democracy didn’t fail. It did exactly what it was supposed to do. But:

“The liberty of a democracy is not safe if the people tolerated the growth of private power to a point where it becomes stronger than the democratic state itself. That in its essence is fascism: ownership of government by an individual, by a group, or any controlling private power.” (FDR)

Looking ahead

So while the mainstream pundits are burning their batteries trying to sort out what went wrong, we need to get to work—do something useful, say something inclusive, stand up to a bully, be safe and keep advocating and working for social justice.

That’s what I intend to do. On Monday I will present at James Galbraith’s conference of the Economists for Peace and Security in Washington, D.C. (Register here). Peace and Security. Two things many of us do not feel right now. I cannot think of a better place to be, discussing more important topics, given these election results. I will be talking about youth unemployment. The election has exposed further our desperate need to design genuinely inclusive social policies.

What we have here is a crucial moment to mobilize, to start drafting a Democratic progressive agenda from scratch, to shed the destructive neoliberal policies so wonderfully championed by Democrats and Republicans alike.

An Economic Bill of Rights

What might that look like? My preference would be to take inspiration from Franklin Delano Roosevelt and design policies around the Economic Bill of Rights – policies that create jobs for all, boost incomes, usher in a Green New Deal, transform our energy system, complete the safety-net with paid family leave, universal child allowance, strengthened social security, guarantee healthcare for all, invest in public education, provide debt relief for families, renew anti-trust policies and aggressive financial regulation, to name a few.  And save the environment.  Because if we don’t, none of the above will matter.

Never let a good crisis go to waste.

Friedman Responds to Thorpe on Single-Payer

By Gerald Friedman

Find a pdf version of this statement here

A distinguished professor and Chair of the Department of Health Policy & Management, in the Rollins School of Public Health of Emory University, Kenneth Thorpe has been one of the leading figures in the analysis of health care finance in the United States. From 1993-95, he was Deputy Assistant Secretary for Health Policy in the U.S. Department of Health and Human Services in charge of coordinating financial estimates and program impacts of President Clinton’s health care reform proposal. Since leaving the Clinton White House, he has written widely about the economic advantages of a single payer system to finance health care. (See footnote 1.)

Thorpe’s expertise and reputation have added weight and authority to his attack on Senator Sanders’ program for Medicare-for-All. (See footnote 2.) This makes it all the more important that his analysis receive the type of scrutiny due a serious policy proposal. Unfortunately, Kenneth Thorpe does not provide enough documentation to make an explicit comparison between his estimates and those provided in detail by the Sanders campaign. He lists his projected Federal spending per year, he fails to explain how he calculated these numbers. While this failure makes it impossible to consider his claims on a point by point basis, it is possible to extract enough from his statement to conclude that his analysis is so deeply flawed that it implies some clearly unrealistic assumptions.

Subject to the caveat that Professor Thorpe fails to provide adequate documentation, there are several clear differences between the approach he follows and that followed by the Sanders campaign (summarized in Table 1 below):

  1.  Thorpe assumes much fewer administrative savings. He assumes savings of 4.7% of national health expenditures from reduced administrative waste while Sanders has assumed 13% including saving 6% of total national health expenditures from reducing administrative expense in the private insurance industry (and in administering Medicaid) and savings of 7% from reducing administrative expenses in provider offices. Thus, Thorpe’s total savings projection is less than the savings that would be captured simply by eliminating the excess administrative overhead of the private insurance industry without considering the vast savings in provider offices. The savings from national single-payer are well documented. (See footnote 3.) For his part, Thorpe refers to a study done for Vermont when that state was considering a not-single-payer plan in a single state. The difference between the Thorpe assumption and Sanders is almost $400 billion a year, over a third of what Thorpe claims to be the excess costs of the Sanders plan.
  2.  Thorpe accepts the Sanders assumption of maintenance of effort for existing public health care programs. While he does not specify, it may be that he rejects the Sanders assumption that MOE will include an increase with increasing national health care spending. In this case, he would be assuming an extra $100 billion/year in spending for the Sanders plan.
  3.  Thorpe appears to assume an actuarial rate of 100% for the Sanders plan. Instead, it is assumed for the Sanders plan that some health care spending will be deemed optional, including some cosmetic surgery and over-the-counter medications. (See footnote 4.) The difference between the Sanders assumption of an actuarial rate of 98% and 100% is $96 billion/year.
  4. Thorpe assumes a “blended payment rate” at 105% of the Medicare rate. By contrast, the Sanders plan has factored in an increase in Medicaid rates to the Medicare level while assuming that reductions in administrative expenses would allow rates for what-is-now private-insurance provider payments to be lowered to that level as well. Because Thorpe does not include these administrative savings, his plan involves a real reduction in physician and hospital reimbursements of $68 billion a year below the Sanders spending rate.
  5. Thorpe makes no assumption about reduction in pharmaceutical prices. Sanders assumes a reduction in pharmaceutical prices would be negotiated to world levels, saving over $200 billion a year, over 3% of total spending.
  6. Thorpe assumes a reduction in the rate of health care inflation, but does not specify a number. This is a crucial issue because in the long run the largest savings will come from bending the cost curve. The Sanders plan assumes 1.1% a year, producing savings of over $200 billion/year for the first decade of the program, 2017-26. It is unclear what savings Thorpe anticipates from bending the cost curve with a single-payer program. In six of the ten years, Thorpe’s estimates imply inflation rates lower than the CMS projections, but in three he seems to imply higher inflation rates.

Beginning with Thorpe’s projection of needed additional Federal spending (his Table 1–see footnote 5 ), I have constructed Thorpe’s projected National Health Expenditures by adding projected Federal and other non-Medicaid public spending and an assumption that Maintenance of Effort for state and local Medicaid will be at the 2016 level (see my Table 2 below). It appears that Thorpe is assuming an increase in spending of $3.7 trillion over 10 years compared with CMS estimates of national health expenditures 2017-26. While this reflects his estimate of the increase in spending due to increased utilization of health services, he is assuming an even larger increase because he also accepts that administrative costs will fall by 4.7% and he assumes a reduction in rates for what-is-now private insurance. Taking these into account (see my Table 2), he is assuming increases in spending over the CMS projections of $6.6 trillion. Presumably, these are due to increases in utilization from the extension of coverage to the entire population, including the 30 million currently uninsured, and the removal of copayments and deductibles. (See footnote 6.)

After factoring out the cost of extending coverage, the utilization increase that Thorpe is assuming is 14% of currently projected spending 2017-26. (See footnote 7.) Much current spending, however, is unaffected by changes in copayments and deductibles. Medicaid, for example, does not charge these. Spending on investment and administrative tasks are also largely unaffected; and hospitalization is generally decided by physicians without regard to individual patient’s cost sharing. (See footnote 8.) After removing nondiscretionary spending, Thorpe is assuming an increase in discretionary spending of 38% a year.

Thorpe is assuming an implausibly large increase in utilization with the elimination of copayments and deductibles, and this assumption accounts for 60% of his assumed increase in spending required for the Sanders plan. Furthermore, note that the Sanders plan already assumes an overall increase in utilization of health care services of 6%, an increase of 15% in services subject to any choice.

What then remains of Kenneth Thorpe’s critique of the Sanders plan? Hidden numbers and implausible assumptions are hardly the stuff of serious policy discussion. But that may not have been the intent of a memo written by a scholar who knows that a single-payer program would be cheaper and more efficient than the current health care system; a scholar who surely knows that what he wrote is misleading.

(Footnote 1) See, for examples, See Thorpe’s analysis at  Also see his national analysis at

(Footnote 2) The Thorpe study was cited by Hillary Clinton in her debate with Senator Sanders on Feb 4, 2016. Also see Dylan Matthews, “Study: Bernie Sanders’s Single-Payer Plan Is Almost Twice as Expensive as He Says,” Vox, January 28, 2016,; Dylan Matthews, “Kenneth Thorpe’s Analysis of Bernie Sanders’s Single-Payer Proposal.,” Scribd, accessed February 5, 2016,; Paul Starr, “The False Lure of the Sanders Single-Payer Plan,” The American Prospect, February 1, 2016,; Committee for a Responsible Federal Budget, “Does the Sanders Single-Payer Plan Add Up?,” Committee for a Responsible Federal Budget, accessed February 5, 2016,

(Footnote 3) Thorpe himself anticipated much larger savings in his 2005 studies for Massachusetts (over 20%), and for the entire United States. These are much larger than the savings anticipated in the Sanders plan. David Himmelstein, “What One Critic Gets Wrong About The Sanders Health Care Plan,” The Huffington Post, accessed February 1, 2016,; David Himmelstein, Steffie Woolhandler, and Sidney Wolfe, “Administrative Waste in the U.S. Health Care System in 2003: The Cost to the Nation, the States, and the District of Columbia, with State-Specific Estimates of Potential Savings,” International Journal of Health Services 34, no. 1 (2004): 79–86; David U. Himmelstein et al., “A Comparison Of Hospital Administrative Costs In Eight Nations: US Costs Exceed All Others By Far,” Health Affairs 33, no. 9 (September 1, 2014): 1586–94, doi:10.1377/hlthaff.2013.1327.

(Footnote 4) The Sanders plan would not include some cosmetic surgery and dental procedures, some optional treatments, and over-the-counter medications.  National health expenditures include over $40 billion for over-the-counter medications, or over 1% of total expenditures; also see

(Footnote 5) Matthews, “Kenneth Thorpe’s Analysis of Bernie Sanders’s Single-Payer Proposal.”

(Footnote 6)  Ibid ( This is emphasized in Starr, “The False Lure of the Sanders Single-Payer Plan.”

(Footnote 7)  have assumed that the uninsured currently spend 55% as much as the national average on health care, and they will spend 85% as much when insured. (I expect that the lower spending because of their age distribution; the uninsured are younger and less likely to be disabled than the insured because the insured include the Medicare population.) Jack Hadley and John Holahan, “The Cost of Care for the Uninsured: What Do We Spend, Who Pays, and What Would Full Coverage Add to Medical Spending” (Kaiser Commission on Medicaid and the Uninsured, May 10, 2004),

(Footnote 8) Some insurance plans have no deductibles or copayments, and some individuals have multiple plans so that they have first-dollar coverage.  People with such policies would also be unaffected by the elimination of copayments and deductibles in the Sanders program.

Table 1.  Differences between Thorpe and Sanders projected annual spending for Medicare-for-All program, 2017-26.

Annual differences
Administrative  $        384
Drug prices  $        211
Actuarial rate  $          95
Maintenance of effort?  $        100
Utilization?  $        660
Private insurance rate reduction  $        (68)