An economic crisis completely caused by Trump
Finally something his supporters can legitimately claim he accomplished
It’s something of a truism that politicians have relatively little impact upon the economy. Democrats like me love to point out that most economic indicators since Trump was elected are comparable — or lower — than the economic indicators under Obama.
Obama, however, was the beneficiary of the mother of all recessions at the beginning of his administration. As a result, the economy had nowhere to go but up.
The economy did crash under Bush. But, many of the root causes of the financial crisis, in the form of financial deregulation, occurred under Clinton.
That said, I do think Democrats have something to crow about when it comes to economic stewardship relative to Republicans, and it has to do with inequality. As I have blogged about ad nauseum, our economy’s vast inequality is entirely driven by policy. On that point the data are clear: inequality goes down under Democrats, even if slightly, and goes up under Republicans.
Overall, though, the impact a President can have on the economy is minimal. There are certain things the President can do that indicate good economic stewardship: reducing inequality, reducing the budget deficit, spending on infrastructure and education, protecting the freedom of markets, for example. But overall, Milton Friedman was right: government’s role in running the economy is limited.
One way the government can impact the economy is through its taxing and spending. By reducing taxes and increasing spending government can stoke the fire of an economy that is underperforming. That is what Keynes told us.
Despite the fact that Republicans like to fashion themselves as acolytes of Friedman’s rather than Keynes, we have Trump and Mitch McConnell to thank for proving Keynes right. Last year was actually an impressive year economically. We can thank Trump’s tax cut and deficit spending for that, as well as low interest rates on a historic basis from the Fed. More and more, however, it appears that this stimulus was just a sugar rush, and that the economy is settling back into the pattern Obama set.
So from a policy standpoint, Trump did manage to goose growth somewhat last year. But that stimulus was short-lived, as evidenced by the Fed’s recent rate cuts in response to Trump’s pressure.
So while the President’s ability to positively impact the economy is limited, there is a lot he or she can do to mess things up. There Trump is unequaled.
Remember that one of the ways government can impact the economy is by protecting free markets. The biggest free market, of course, is world trade. Here, Trump has thrown a wrench into the gears.
For the last seventy years since the end of World War II, the United States has led a global free trade regime. Although certainly not perfect, and as with any policy, there are always winners and losers, overall this policy has resulted in global economic growth as well as our own spectacular wealth.
So what does Trump do when things are going well? Mess it up.
As I stress to my students, the biggest concern businesses have is risk. That’s why they buy insurance or hedge investments, to reduce their exposure to risk. One thing business has been able to count on for the last seventy years has been the American commitment to free markets. Not so much anymore.
We have heard much about Trump’s trade war with China. To be sure, this trade war is causing real world problems. China’s economy has slowed dramatically, largely as a result of this trade war, and their currency has declined in value as a result. The impact? Slowing of world growth, including our own, higher cost for goods in the United States (despite what Trump claims), hardship imposed upon farmers, and now shocking losses in the stock markets.
These losses and hardships can be blamed entirely on Trump’s trade war. Congratulations Trump supporters. This is something your guy deserves credit for.
One might argue that things can bounce back quickly once the trade war is resolved with China, but now businesses and governments worldwide are wary of the United States. It will likely take years to rebuilt the trust Trump has damaged with his whims.
Just think how our closest allies who have been targeted with tariffs by Trump feel: Canada, Mexico, Europe. These are the countries that stood by us to defeat communism, and volunteered to help us when we were attacked on September 11. Now they will look at us sideways until we show them that we can be trusted. That will take time.
So in the short run, the President can have some impact upon the economy. The President can also have a greater impact upon certain aspects of the economy, like inequality. But when he sets his mind to it, the President can do a lot of damage to the economy. And in this respect, Trump is without peer.
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