What's going on with "the economy?" Mark Skousen demystifies.

"Overall, I think we're in good shape," says renowned economist. "But the economy is growing slowly, and there is fear of a recession. That may be one of the first challenges that Trump faces."

Despite repeated attempts by the Democratic Party to center the 2024 presidential race on Donald Trump's alleged reputation as a "dictator," voters, by and large, elected to focus on "the economy," the shortcomings of which—high inflation and high prices—they blamed largely on the incumbent Biden administration.

The Biden team, for its part, tried to deflect from this and pointed to what it said were its economic accomplishments. But when Kamala Harris, who replaced Joe Biden as the party's nominee, announced her intention to combat high prices by imposing "price controls," it led to widespread accusations of "Communism" and diminished faith in her economic agenda.

Donald Trump won the election, and all eyes are now on him to turn the economy around. But what if that does not happen, or does not happen right away? Have we misjudged how big an impact the presidency, and government, can have on the American economy?

We put these questions to Mark Skousen, professor of economics at Chapman University, and not just because he is a world-renowned, bestselling economist, but also because he is the nephew of W. Cleon Skousen, who wrote the famous book The Naked Communist, about the rise of Communist influence on global politics. Dr. (Mark) Skousen should not be expected to speak on the behalf of his late uncle, but does he believe that today's wanton accusations of "Communism" are deserved?

"Inflation" has become almost synonymous with the Biden administration, and people are counting on Trump to bring it down. But I think I've heard you say that "inflation is here to stay."

Yes. I call it permanent inflation policy. We're off the gold standard and we still have Keynesian economics. We're running deficits even when we have full employment. And whenever there's a crisis, we inject liquidity into the system. All of this is inflationary. The only thing that stops inflation is higher economic growth, more productivity.

If inflation is the result of so many different things, how fair has it been to blame the Biden administration for so much of it?

Well, the inflation that we see today actually began under Trump, during Covid, in the last year of his administration. It didn't show up until the following year because there are always lags with these things. But the money supply started growing, and the Federal Reserve was the one doing it. And because of the pandemic, you had less production, so you had more money chasing fewer goods. That's inflationary.

I admire the Fed for saying "enough" and raising interest rates in 2022. That stopped the growth of the money supply, and that's why inflation has been coming down. But it didn't help that the Biden administration kept spending money like water. You need fiscal and monetary restraint. [Editor's note: although they might appear synonymous, "fiscal" and "monetary" policy are, indeed, two separate things.]

So it's not wrong to blame the Biden administration for inflation?

They could have done more to mitigate it, and they didn't.

Some people went so far as to call them "Communists." That became a trendy term to throw around this year.

Yeah, that's nonsense. The Communists advocated the violent overthrow of the government. They also believed in total nationalization, government control of the means of production. Democrats don't advocate that. They advocate regulation and progressive taxation.

But didn't your uncle try to put us on guard against Communist influence in American politics?

Yes. He had a list of all the Communist goals, and some of them have been achieved by some administrations over the years, like control of the schools and stuff like that. But there's a lot of diversity in the Democratic Party, as there is in the Republican Party. Mark Cuban was a big advocate of Kamala Harris and campaigned for her. Is he a Communist? I believe he would deny it.

It is true that Harris's father was quasi-Marxist. I've looked at many of his writings, and they do seem Marxist in tone. Harris herself talks about the importance of equity in outcomes, which is not a good thing. It is good to have equal opportunity in the beginning, but the end result should not be income equality for all. So there are some issues there, but this excessive, extremist name-calling is inappropriate. I'm very critical of people who do it constantly, like "he's a Marxist" or "Donald Trump is a Nazi." I would rather focus on policies.

Well, the focus is now on Trump to turn the economy around, but what if that does not happen, or does not happen right away? Is that possible?

Absolutely. It happened to Reagan. In his first year, inflation and interest rates were skyrocketing. There was a recession, a bear market, all kinds of problems. We don't have as many of those right now—the economy is recovering, inflation and interest rates are coming down. But there is a business recession—B2B spending has been in decline, or up very slightly, for the last three or four quarters. So there is a fear that we might be entering the early stages of a recession, and that may be one of the first challenges that Trump faces in 2025.

Trump has a lot of good ideas about deregulation and tax cuts, things that stimulate production, but the economy is growing at a fairly slow rate. The traditional rate is 3-4%, and we're nowhere near that at this point. So I do think that there are going to be some real challenges in the first part of the year.

Do you think we overvalue the impact that the presidency, and the government in general, has on the economy? Aren't the American people ultimately responsible for their own economic future?

We have a mixed economy. In great part, yes, it is up to the people. But US policy can make a big difference. When you're running a national debt at an all-time high of $35 trillion, and your interest on the debt is the largest expenditure of the federal government, and you have regulations by the EPA and the FTC and the IRS and so forth, you can hurt the economy. If it grows at all, it's because of capitalism.

Robert Solow, the Nobel Prize-winning economist, said that 75% of all economic growth is due to technological advances. Thankfully, we're still doing a lot of those. You have the AI revolution right now that's getting people excited. So I'm not pessimistic. But I am concerned about stagflation, where you have inflation and a slowing economy at the same time. And I do believe that government could do a better job of getting out of the way.

Did you know that it is six times more expensive to build an elevator in the United States than it is in Switzerland? And Switzerland is not a cheap place, it is expensive. So why are their elevators six times cheaper than ours? Because of all the regulations and restrictions that the US imposes. Costs are high because of government regulation, and our housing market has been in a slump because of it.

Besides the size of their own wallets, how can ordinary people tell whether the economy is doing okay? What are some of the metrics that you like to look at?

I'd say business, technology, innovation, savings, and investment. All of those things are key drivers of the economy. I like to look at the stock market and how dynamic it is, because it is a leading indicator, and it's one of the few indicators that are going up. The rest of them, manufacturing and so on, are stagnating. And B2B spending, in general, is in decline.

Consumption is the effect, not the cause, of prosperity, so I don't buy into the idea that "well, consumers are doing well, so everything is fine." The last GDP statistics have showed consumption increasing, government spending increasing, and private investment flat. That's not good. You need to have private investment growing; the government, like you suggested, can only do so much. But the government can help by limiting taxes and regulations, and this is hopefully something that Trump and Congress can do: deregulate things and lower taxes, lower the cost of doing business, and get our economy growing again.

Won't that be difficult? To take on government that way?

Of course. We always talk about reducing government, but it's almost impossible to do in real life. How many agencies have ever been eliminated, or significantly downsized? Very few. The Department of Education is a classic example. Republicans are always saying that they want to get rid of it, but they never can—even Reagan couldn't do it. So I realize that it's easier said than done. But I think Trump's approach is beneficial: eliminate wasteful regulations and wasteful government spending. And I am impressed that he recruited Elon Musk, who is famous for questioning regulations and ignoring them when they don't make sense. You get into trouble that way sometimes, but I like that kind of attitude. We need people in government who will confront and defeat excessive, overburdensome regulation.

It will take time and effort. It's a tall order for sure. But we're hopeful. The stock market is already doing well following Trump's win—but now he's threatening to increase tariffs to 20%. No good economist thinks that's a good idea. Globalization, on the whole, has been a fantastic benefit to the United States and to the rest of the world.

I don't know if his base believes that. "Globalist" has become something of a dirty word in MAGA.

Right. "America First." But what if every country did that? Mexico First? Canada First? China First? That would be a problem. You need to say "liberty first," for everybody. [Editor's note: Skousen is also the founder, and longtime producer, of FreedomFest, a freedom-focused conference.]

Consumers have benefited from low prices for years because of globalization, because of the lower cost of doing things in China and Mexico and other parts of the world. I can understand trying to go after individual abuse by China and so forth, but to have a universal attack on all imported goods, I think that's a major mistake.

So you do have some objections to Trump's policies?

On the tariffs, absolutely. He keeps talking about tax cuts. Well, a tariff is a tax. I think he'll face a lot of opposition to that. You don't want to put up high tariffs and protectionism to protect American jobs. What about foreign jobs? You're going to make those people mad. "If goods don't cross borders, armies will." Ever hear that one? I don't remember who said it. [Editor's note: the quote's origins are unclear, but it is typically attributed to 19th-century French economist Frédéric Bastiat.]

What's a realistic outlook on how much the economy could improve after Trump takes office? How much could we expect inflation to go down, for example?

Well, the Federal Reserve is somewhat independent. They're going to see if they can reach a point of stability, and they are moving in that direction. If they can reach a point where the money supply is growing gradually and their interest rates are not too low and not too high, just right in the middle, that's Nirvana. Possibly, they could achieve that. If they do, we will be looking at a robust, growing economy. Things will look good again.

Many of the people I know, we're pretty bullish on the stock market, although, in some ways, it is priced to perfection. We have a possibility of a recession and maybe a bear market, but I think it will be somewhat short-term. Overall, I think we're in pretty good shape.

Anything to be concerned about?

Wars are expensive, even rumors of war. The military-industrial complex has always concerned me. Trump has promised to end the wars in Ukraine and the Middle East, but I don't know if he will be able to do it. He claimed, during his first term, that he was going to reduce the deficit, but he never did do that. He isn't always able to live up to his campaign promises, is what I'm saying. We'll just have to wait and see. I support many of the goals that he has in mind, but whether he'll be able to achieve them all is a big if.

Advice to Trump heading into his second term? What would you like to see him do?

I'd like to see him propose a total reconstruction of our tax policy. One that you could say will be our policy for the next 50 years. Hong Kong has had more or less the same tax policy for 70 years. Ours doesn't have to be just like theirs, but we need to encourage people to save and invest. Let's develop a sound tax policy that we can live with for 50 years, instead of changing it every three years, like we do now. How much planning can you do if you're always changing?

Same with the Fed. We need to encourage the Federal Reserve to adopt a stable monetary policy, not an easy-money or tight-money policy. Keep interest rates stable, at least in the short term, instead of changing them all the time.

I would also focus on the economic freedom indices, like the ones by the Fraser Institute and the Heritage Foundation. The United States used to do very well on those, but then we plunged. Trump should focus on those elements that would improve our standing: sound money, deregulation, limited government, balanced budgets, free trade, low taxes, stable tax rates. If we can do all those things, our country will just boom.

I'll conclude with another quote, this one by Ben Franklin. "A virtuous and industrious people may be cheaply governed." Do we have cheap government? Most people would say no, whether they’re Republican or Democrat.

Are we still a virtuous and industrious people?

(Laughs.) Well, that's a good question too. But yes, in general, I think we are.

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