The economy of the US is that system which produces, distributes, invests and consumes goods and services by individuals in any given time. The sum total of goods and services produced in the economy in a given year is the gross domestic product or GDP. The liberals refer to trickle-down economics and they criticize it extensively as not working. This type of economics refers to tax cuts and using those additional expenditures to stimulate the economy, increase GDP and create jobs believing that tax revenues will be increased as a result of increased business activity even though tax rates have been cut. Those who promoted trickle-down or supply-side economics, however, proved to be wrong in the end. On the other hand liberals do not usually favor tax cuts because they want to grow the size of government with the tax revenue instead of channeling it back into the private economy. Keynesian economics refers to a short-term strategy to address business cycles and frequently involves deficit financing( spending in excess of revenue) to stimulate the economy. The other side of the Keynesian economic equation is monetary policy which deals with interest rate manipulation by buying or selling government securities on the open market, changing reserve requirements at federally chartered banks or increasing the re-discount rate on member banks. Again the device is one of the fed’s manipulation and not free market economics.
An important part of Mr. Trump’s economic policy is to reduce corporate taxes from 35% to 15% for the purpose of incentivizing US foreign affiliated corporations to repatriate approximately in excess of $2 trillion being held overseas back to the United States at the lower tax rate of 15%. This would be a dynamic economic tool in that it would rely on what is known as the “multiplier effect” to increase investment in the US several times over. One must assume that the entire $2 trillion less the 15% tax would be eligible for investment but let’s say $1 trillion is actually invested. The multiplier effect tells us that any increased investment will generate some multiple of the sum invested and thereby magnify itself in the creation of GDP and jobs. As that money enters the economy individuals receiving it will spend a portion based on their marginal propensity to invest/consume. Assuming the marginal propensity to invest/consume is three out of every four dollars or 75% that $1 trillion will multiply itself by four times thereby resulting in GDP of $4 trillion plus millions of new jobs . Trumps plan is therefore dynamic not static as it reverberates throughout the economy and stimulates investment and job creation at a number of different levels.