U.S. economic growth slowed again in the third quarter, down to an annualized pace of just 1.9 percent. Thankfully, this reading (coupled with the ultra-low unemployment rate) doesn’t yet seem to signal recession. In fact, under other circumstances, this growth rate would seem downright respectable. It’s in line with what independent forecasters at the Federal Reserve and elsewhere consider to be the long-run rate for the U.S. economy, given our aging population.
More to the point, the rate is way lower than you’d expect given the massive fiscal stimulus policymakers have been pumping into the economy. We were told that the GOP’s corporate tax cuts alone would permanently turbocharge growth to at least 3 percent.
Instead, Trump spent $2 trillion in deficit-financed tax cuts for the rich to get us basically the same growth rate we had before he took office.
The mechanism by which Trump’s signature legislative achievement was supposed to turbocharge growth, according to the tax cut’s advocates, was by stimulating business investment. Instead, business investment fell last quarter, in the second consecutive quarter of contraction.
Now, some of the problem might be due to another core plank of the Trump economic agenda: his trade wars. Trump’s tariffs have introduced tremendous new costs and uncertainty for U.S. companies whose supply chains span the globe. U.S. businesses have also seen foreign demand for their products plunge as trading partners in China and elsewhere retaliate with tariffs of their own.
Thanks to both a tax cut that underdelivered and a trade war that backfired, most Wall Street economists believe manufacturing is already in recession. Even steel plants, which were supposed to be among the biggest beneficiaries of Trump’s tariff strategy, are shuttering.
Farm bankruptcies in the 12-month period ending in September are up 24 percent from the previous year, as a result of both bad luck and bad policies (natural disasters and trade wars, respectively). What’s more, even those farms that have managed to stay in business have become increasingly, resentfully reliant on Uncle Sam to get by. Nearly 30 percent of net farm income this year is expected to come from direct government payments (including the bailouts Trump offered farmers in an attempt to buy their silence on his trade wars) and federal insurance indemnities.
Trump, for his part, has generally responded to these developments in two ways.
Sometimes he flatly denies anything is wrong, as when he tweeted just before the public release of the gross domestic product report: “The Greatest Economy in American History!” But, as the kids say, there’s always a tweet: Back in 2012, when Barack Obama was president, Trump pronounced on Twitter that a pitiful 1.9 percent pace means “The economy is in deep trouble.”
Sometimes, Trump actually acknowledges something is wrong — but blames someone else. Typically his scapegoat is the Federal Reserve, which he resumed cyberbullying on Thursday. Trump complains that the country’s real economic challenge is that interest rates are too high. Which is a strange explanation for the GDP slowdown, given that his own administration recently predicted 3.2 percent growth this year under an assumption of higher interest rates than we have now.
In other words: If anything, the Fed has been more stimulative than Trump’s own economists had forecast, and yet growth still looks lousy.
The GOP response to lackluster economic growth does seem to be changing, though. Apparently, Republicans now realize they need to show they’re doing something, anything, to shore up the economy going into the 2020 election.
And what have they settled on? Why, more tax cuts.
The White House is working with Republican lawmakers to develop “tax cuts 2.0,” as Rep. Mark Meadows (R-N.C.) told my Post colleagues. Even if such a policy couldn’t get through the Democratic House, Republicans think the idea will give voters reason to support the party come election time. It’s a peculiar strategy not just for economic reasons, but political ones, as well: Tax cuts 1.0 have had underwater approval ratings virtually every day since they were first proposed in 2017.
But hey, when all you have is a hammer, why not just bash yourself in the head?