Today, 22nd December 2017, U.S. President Donald J. Trump signed into a law a massive tax overhaul. I also just finished my new book titled New Macroeconomics. So, it is not a mere co-incidence that both these events occurred at the same time. In this blog, we shall try to understand whether these new tax cuts will lead to a revival of American economy.
My new book contains a whole chapter on the future of the technology industry. Trump’s tax overhaul has some clear implications in this discussion. The massive tax cuts are going to raise the optimism of the stock market. Hence, we could see the stock market soar to new highs. In the chapter Stock Market and Macroeconomics in New Macroeconomics, I explain the impacts of macroeconomic policies on the stock market. However, it is not all very rosy scenario. In December 2017, we also observed Obama era rules of Net Neutrality repealed by the new FCC chair, Ajit Pai. That decision also has a lot of significance on the expected growth of stock market.
At the end of 2014, I endorsed President Obama’s regulations because U.S. does not have free market capitalism. Since that hasn’t changed, I believe the repeal of Net Neutrality will further strengthen the Internet monopolies. That will in turn lead to less innovations and growing dominance of a few companies hurting the growth of small businesses due to lack of competition.
The new direction of tax rules will have the similar impact on the tech Industry. We observed a similar phenomenon during President Ronald Reagan’s Tax overhaul back in 1980s. I forecast that just like Intel had to shutdown its factories back in 1985 after tax cuts went into effect in 1981, tech industry will see a similar crisis in the very near future. The optimism of growth in stock market would last maximum until October 2018 after which U.S. could see a real depression like the 1930s. The reason for this is the lack of competition in U.S. economy which fuels efficiency and economic growth.
While I had some hope for the impact of President Trump during his 2016 campaign, I am very sad to see the macroeconomic policies that are being endorsed by the President. In February 2017, I did a face-to-face Interview with Economist Ravi Batra titled Trumponomics on Trial. Click on the image below to see the complete interview:
Hence, my forecast is that the stock market and the tech industry would see huge optimism from this tax overhaul. The Bitcoin and block chain frenzy that is driving the stock market mimics that dot.com bubble and U.S. stock market is headed for a huge rise in short run. However, since the real fundamentals of macroeconomic growth are absent in Trumponomics, we may experience a notable crash in stock market under his Presidency either towards the end of 2018 or in early 2019.
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