Donald Trump has been formally nominated as the presidential candidate for the Grand Old Party, otherwise known as the Republican Party, for the November 8, 2016 presidential elections in the US. Fifty of America’s most senior Republican national security officials have signed a letter warning that Donald Trump is “dangerous”. They further warned that Donald Trump “lacks the character, values and experience” to be president and “would put at risk our country’s national security and well-being”. I am not a national security expert, so I will leave national security matters to the experts and 50 have spoken.

I understand finance and economics, and I wish to render an opinion on Donald Trump’s economic plan.

The difficulty with appraising an economic plan is when good ideas are mixed with bad ideas the weighted average of the ideas is not easily discerned. In other words, how good are the good ideas and how bad are the bad ideas. And will the good ideas supplant the bad ideas or vice versa?

Some of Trump’s good ideas are his recognition that past trade deals were badly done. I daresay stupidly done. And he has pledged to renegotiate or revoke some of these deals. The drive for globalisation is a senseless pursuit pioneered by the one per cent who stand to benefit the most. Trump has realised the folly of that pursuit and he has promised to refocus on America. The fact of the matter is that all economics is local. People live where they live and they need a livelihood. The economic quest cannot be about the seeking out of the lowest-cost producer — as if it is only the lowest-cost producer who should be permitted to live. There are a number of variables that go into determining the cost of a good or service, including the cost of living where one lives, the size of the population, geographical and climatic conditions, among other things. The relentless quest for cheapness is misguided. This is done at the expense of income. People will have to decide which matters — cheap things or good income. They cannot have both. Trump seems to have recognised that.

Trump’s idea to reinvest in America’s infrastructure is good and sensible. It is long overdue. But how will he finance this good idea in the face of his proposed massive tax cuts? The poison in Trump’s economic plan is his massive across-the-board tax cut! There are tax cuts and there are tax cuts. There are tax cuts that can grow an economy and there are tax cuts that can blow up an economy. And in America’s case, when their economy blows up the world’s economy will blow up also.

The Andrew Holness tax cut to lower income earners while raising taxes on higher income earners is how tax cuts should be done. The only flaw with the Holness tax cut is that another tier, at 50 per cent, should have been imposed on people earning over $10 million. Income tax must be progressive for optimal effect. The economy works best when sufficient people have the wherewithal to create demand in the system. By using prudent taxation policy money can be more equitably distributed in the economy. Cutting taxes for the middle and lower income earners will leave them with more money to spend and they will create more demand in the system.

Cutting taxes for the owners of capital and other high income earners is a whole other matter. Tax cuts to this category will tend to result in a piling up of money with a few people who have limits on the demand they can ever place on the economy. But worse, if income tax is not sufficiently high, the owners of capital and other high earners will greedily down the earnings from an enterprise, leaving very little on the table for others, so workers tend to be poorly paid. Also, when income taxes are low economic recklessness and crookedness by the greedy become more profound.

The damaging effect of giving tax cuts to the rich is that, contrary to the belief that these people will use the extra money to create jobs, they use the money to blow up the economy. They will tend to indulge in fake methods of making money which adds very little value or demand to the economy. And they will chase assets, causing asset bubbles, which invariably burst with devastating effects. When they chase assets, such as houses and land, they drive the price of these assets out of the reach of the average person. When they chase assets such as oil and currency they impose a paralysing effect on the economy.

But it is when an asset bubble bursts — as sooner or later it does — that the economy is brought to its knees. This happened in the 1920s when US President Calvin Coolidge and his all-Republican Congress cut taxes with the revenue Acts of 1924, 1926 and 1928. When they were done, the highest marginal tax rate moved from 64 per cent on income of US$150,000 in 1918 to 24 per cent on all income of US$150,000 and above in 1929. It was this tax cut that provided the flood of money which was used to chase assets. The asset of the day was the stock market. It exploded and heralded in the greatest depression known to man. By what logic did the roaring 20s end with the greatest depression in history? The logic of asinine tax cuts!

The phenomenon of tax cuts leading to asset chasing creating bubbles occurred again in the US with the 1986 Ronald Reagan tax cut and the 1987 greatest one-day drop in the stock market. It also occurred when President Bill Clinton cut capital gains tax in 1997. The tax on capital gains moved from 28 per cent down to 20 percent. Then the capital gains tax cut was enacted in August 1997. In 1998, the NASDAQ index was at 2,192.68, and by the following year, December 31, 1999, the index was at 4,069.31 points! By March 10, 2000, the index was at an all-time high of 5,048.62. At this point the bubble burst! Consequently, the index crashed back to 1,139.9 by October 4, 2002.

The Reagan and Clinton crashes did not lead to a great depression because the Glass-Steagall Act was still in effect and banks could not have indulged in the speculative wave at the time. The moment they could, they got caught up with the speculative bubble fuelled by the George W Bush tax cuts of 2001 and 2003. And by 2007 the world was enduring its second American-induced depression caused by insane tax cuts. The money flowing from the tax cuts fuelled the asset bubble known as subprime mortgages.

The proposed Donald Trump tax cut of moving the highest marginal tax rate from 39 to 33 per cent will have the same effect as the Bush tax cut and it will — not could — have the same devastating effect. The only unknown variable is how soon after assuming office the implosion will take place.

Dorlan H Francis is a personal financial adviser and author. Among his books isThe Economic and Financial Crisis of 2007 – What Caused it : How to Avoid a Repeat.Send comments to the Observer ordhfken@hotmail.com.