Economy: No Where To Go But Down

Obama bequeaths to Trump an economy almost at full employment, wages on the rise, with low inflation, low interest rates, a deficit that is just 2.5% of the economy (down from 9.8% when he took office), a stock market that is doing great, low incidence of violent crime, low or almost zero net influx of undocumented immigrants (“illegal aliens”), 20 million more people with health insurance than when he took office, number of abortions at the lowest level since 1973. It’s not likely to stay this way. Things Will Get Worse, by Paul Krugman.

It will probably take at least a year for Trump’s budget, spending and tax policies to have an impact, though public confidence and optimism can quickly turn to pessimism based on a president’s statements, announced policies, and response to events, and become a self-fulfilling prophecy.

Economic growth is at about two percent. Trump seeks 4.5% economic growth annually, and promises 25 million new American jobs by 2024. He has proposed a stimulus package consisting mostly of infrastructure spending and tax cuts, but that would like grow the deficit and raise the cost of borrowing, or bring higher interest rates. If he’s no where near 4.5% economic growth in 2018, he will be in political trouble, especially if interest rates are higher.

“There’s nothing more predictable than people being in favor of deficits when their preferred political party is in power, and against them when it’s not,” writes Matt O’Brien in the Wpost.  For Republicans, hysteria about the debt is reserved only when there’s a Democratic president. They now want to bust the budget to give tax cuts to the rich, possibly instead of borrowing money at the lowest rates to invest in infrastructure.

Economist Krugman argues that “Deficits Matter Again.”

 

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