For those of us in the business world, the myriad economic policy initiatives spewing from the White House are both confusing and at times difficult to understand. 

 

Certain policies seem to cancel each other out. Full employment while reducing immigration, drill-baby-drill to force oil prices lower while raising tariffs to increase prices? 

 

The point is that if even the professionals are having difficulty, how can those with little financial background hope to understand where the economy is going and why?

 

It appears, for example, that economic growth may be moderating as consumer spending weakens, while inflation remains stubborn. Some are calling for a recession. Others stagflation, while the president sees a golden age ahead of us.

 

After sorting through all the above and reading the statements of the president and his cabinet while ignoring the partisan rhetoric, some objectives of the Trump approach to economics have become clear to me.

 

Few would argue that over the last eight years, fiscal spending, deficit, inflation, and the size of government have exploded. As a result, the share of the economy represented by the government versus the private sector has grown lopsided. From an economic viewpoint, the present situation is unsustainable.

 

The Trump administration wants a larger private sector and a smaller share of the economy by the public sector. However, all that government spending did have some beneficial consequences. The growing gap in income and wealth between the haves and have-nots, which we call income inequality, slowed somewhat from historical levels. But it also increased inflation. Over those years, most consumers neither invested nor saved their government-fueled additional income. Instead, they spent their enlarged paychecks on another TV, a bigger car, a family excursion to Disney World, or a front-row seat to the latest rock concert.

 

Turning the direction of the world's largest economy, however, is no easy feat. It will take time and, according to the president and Scot Bessent, his Treasury secretary, will involve a period of pain and discomfort for most Americans.

 

Their first objective, in my opinion, is to slow demand in the real economy. Keynesian demand-side economics says the best way to do that is to reduce spending. Doing so, they believe, will also slow inflation. How do they do that? By distributing less money to the greatest number of people possible. That means slowing wage growth and providing fewer social services to Americans in the median income level and below.

 

Here is where Elon Musk and his DOGE efforts come in. His job, while ostensibly to reduce waste in the government, is also about cutting government employment. All department heads now have that as their No. 1 priority. That is how you generate real cost savings.

 

In addition, Congress has its marching orders. Given the ongoing budget discussions, it is certain that the Republican majorities in both houses intend to cut social services drastically. Medicaid, SNAP food assistance, school lunches, low-income housing assistance, and dozens of other programs are on the chopping block. Those cuts will impact those who are making $80,000 a year or less, which is roughly 81 percent of the population.

 

That will mean no more rock concerts, and in many cases no more jobs unless you want to replace immigrants picking tomatoes or peanuts. Once these bills are passed, it will likely take three to six months for all these spending cuts and lost jobs to work through the economy. 

 

Our income inequality problem will reverse. How will that impact a generation of populists counting on a better life in the months and years ahead? Next week, we will examine the next step in Trump's economic plan, which will center on his program to jump-start a faltering economy through a return to supply-side economics.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.