The Trump presidency would be at death’s door if not for the economy. Until now, the economy he inherited — slow but steady growth, a strong stock market, robust trade, reliable job creation — has provided him with a political cushion in a chaotic and scandal-plagued presidency. But that might not last — and if it doesn’t, President Trump (and the voters) will have no one to blame but Trump.
The Post reports: “The stock market, which does not mirror the health of the broader economy, has tripped this year amid trade fears: The S&P 500 is up 31 percent since Trump’s election, but it has slowed considerably, gaining 4.9 percent this year, CNBC notes.” Growth numbers might dive after this quarter. (“Morgan Stanley economists, for example, project 4.7 percent growth, but estimate companies stockpiling goods alone could account for 1.5 percent of that activity. In short, one bank strategist wrote in a note, ‘Enjoy the 2Q GDP number, which may be the last best’ report for ‘a while.’ “)
And worst of all, wages have dived, not soared as Trump aides assured us would happen after the tax cuts passed. (“Most significantly for Trump and his party, the metric most important to the most voters — their own paychecks — isn’t offering the same good news. Worker pay actually fell by a nearly a full percentage point in the second quarter, according to the PayScale Index, which uses private data.”)
Rather than boosting wages, employers have undertaken massive stock buybacks and gone on an acquisition and merger spree. Noah Smith of Bloomberg notes:
Huge, immediate gains for wealthy shareholders combined with tepid increases in business investment and decreases in real wages don’t paint a flattering picture of the tax cut’s impact so far. There is, however, a possibility that the tax cut has acted as a Keynesian fiscal stimulus, helping to push down unemployment.
But that’s not exactly the long-term structural improvement that the bill’s supporters advertised. And as a recent research note from the Federal Reserve Bank of San Francisco points out, fiscal stimulus in good economic times is less effective than in recessions. And growth hasn’t really sped up either — real per capita gross domestic product growth was only 1.34 percent in the first quarter, below 2017’s pace, and considerably less than in 2014 and 2015:. . . This tepid rate of growth means that the tax cut is unlikely to pay for itself. By this point, almost all economists recognize that income tax cuts no longer stimulate the economy enough to reduce deficits, as supply-siders thought they would back in the 1980s.
Conservative economists have been right about one thing: It is bad for government to pick winners and losers in the economy. Alas, that is precisely what Trump has done, with predictable results. Greg Ip explains in the Wall Street Journal:
President Donald Trump is steering U.S. economic policy in a radically new direction. From trying to revive steelmakers with tariffs to vetoing Chinese technology investments, he is using the federal government to direct which industries prosper and which don’t.
Many countries have long tilted the playing field toward favored companies and industries, a practice economists call industrial policy. American presidents have traditionally resisted this as “picking winners.”
The president has broken with that tradition, unveiling a series of actions on trade, foreign investment and energy he hopes will revive favored industries and beat back the competitive challenge of other countries—but which risk creating domestic losers.
Whether it is imposing tariffs to protect the steel industry at the expense of industries that use steel, propping up the dying coal industry or seeking to raise postal rates on Amazon (whose founder, Jeffrey P. Bezos, owns The Post), Trump has become a practitioner of industrial policy of the type conservatives traditionally have shunned — and for good reason. (“A March report by Trade Partnership Worldwide, a consulting firm, concluded the tariffs would boost iron, steel and aluminum employment by 33,000 but reduce all other manufacturing employment by slightly more, led by fabricated metals, motor vehicles and parts, while wiping out an additional 142,000 service-sector jobs. Nor would they actually help national security: Mr. Trump’s defense secretary, Jim Mattis, wrote that imports don’t impair the acquisition of ‘steel or aluminum necessary to meet national defense requirements.’ “) Unfortunately, few Republican lawmakers and too few right-leaning pundits and think tanks have taken on Trump’s destructive policies. Perhaps pleasing rich donors who benefited greatly from the Trump top-heavy tax cuts has become the driving force behind what remains of Republican economic thinking.
In short, Trump’s contributions to the economy amount to a looming trade war, a rocky stock market, misguided industrial policy and ballooning deficits — none of which are a formula for success. Couple that with real income loss for farmers whose export markets are vanishing and higher health-care costs (in part due to Trump’s sabotage of the Affordable Care Act), and you’ll see many Trump voters with less money in their pockets after 18 months of Trumponomics.
The economy is not, most economists surmise, on the brink of recession. However, rather than strengthening the Obama economy — by forging new trade deals, passing actual tax reform (not massive cuts for the rich and corporations) and attending to the knotty problems that afflict mostly rural regions that have not benefited from globalization — Trump is booby-trapping the economy. If and when a recession hits, our gargantuan deficits, relatively low interest rates (still) and depleted federal revenue will leave us without many of the tools necessary to move out of the economic doldrums.