President Trump will get his wish: no further rate cuts. However, the larger problem for him and the Republican Party remains. As a political matter, if 2019 and 2020 turn out to be minimal growth years, leading wages and job creation to stagnate, the sole “accomplishment” for Trump — the economy — could well become a hindrance, not a help, next year.
As a more substantive matter, it’s time to call foul on the GOP’s economic theory, which justifies giving tax cuts to the rich and to corporations while driving up the debt. Trump said that the tax cuts would pay for themselves; on the contrary, the deficit is heading for a record high. Trump said that the tax cuts would somehow fundamentally alter the economy, kicking us into a permanent mode of 3 percent growth. That’s not in the cards.
Moreover, Democrats and some Republicans will argue that the slowdown is Trump’s doing — the inevitable result of running up huge deficits, starting a trade war, and failing to invest in infrastructure and workers. Indeed, Federal Reserve Chair Jerome H. Powell suggested that now is a poor time to pick fights with trading partners:
Now we see a situation where the European economy has slowed substantially and so has the Chinese economy, although the European economy more," he said in response to a question from CNBC’s Steve Liesman. “Just as strong global growth was a tailwind, weaker global growth can be a headwind to our economy.”
One definitely gets the sense that we are seeing the possible end if not substantial tapering of a 10-year recovery. (“In its post-meeting statement, the [Federal Open Market Committee] characterized the labor market as ‘strong’ but said the ‘growth of economic activity has slowed,’ a U-turn from January when the FOMC said activity ‘has been rising at a solid rate.’ ”)
Whatever the magic formula might be, it was Trump who guaranteed 3 percent growth. It’s Trump who will be held accountable, just as his bragging about the stock market made him politically vulnerable when the market hit the skids at the end of last year.
Democrats should be restrained in their reaction. The economy is not in a recession (yet), and unemployment remains low, by historic standards. The better political argument is the honest policy assessment: You cannot have a strong economy over the long haul by accelerating income inequality, starving government of adequate revenue to promote long-term investments and going to war with trading partners. In other words, economic policies that Trump specifically adopted (in a reversal of President Barack Obama) may be the very things that foreshorten the recovery.
Economist Jared Bernstein, formerly a senior adviser to Vice President Joe Biden, told me, “As fiscal stimulus fades, I expect growth to slow this year. But I still don’t foresee a near-term recession.” He said that for now, “the labor market and the consumer are still in solid shape.”
Democrats should not cheer the end of good times. They should say that Trump failed to deliver and then propose their own policies that promote growth, invest in workers, repair infrastructure and lessen the gap between rich and poor.
So have we put a stake in supply-side economics, which has never permanently altered the economy’s growth trajectory? Bernstein joked, “If facts could kill supply-side economics I’d have given its graveside eulogy decades ago. It is a zombie ideology that lives on because its beneficiaries hire politicians to believe it.” We will take that as a “no.”