Trump administration: U.S. Economy 2019 Chapter III

Written by  //  July 4, 2019  //  Economy, U.S.  //  1 Comment

Trump’s two new Fed nominees – One, Chris Waller, should be a “no brainer” for confirmation; he has taught at Notre Dame & the University of Kentucky & since 2009 has been at the St. Louis Fed, most recently as EVP & Director of Research (at possibly the most research-oriented Federal Reserve Bank) & is a known ‘dove’. The other, Judy Shelton, may be a longer shot and not for a lack of educational qualifications (she has a Ph.D. in Business Administration), nor because she is such a blatant Trump acolyte. But her thinking seems for sale : while during the Obama years she criticized low interest rates, in the Trump era she’s in favour of them and, while once she advocated free trade, she now supports the trade war on China. Moreover, she’s a gold “nut” who earlier this year went on record as saying she was hoping for “a new Bretton Woods -style conference where countries would agree to a return to the gold standard” (& “if it takes place at Mar-a-Lago, that would be great”). All of this combined should be deemed, & hopefully will be seen, by the Senate as limiting her scope for being a productive Federal Reserve Board Governor. —Nick Rost van Tonningen Gleanings 815

26 June
Trump Redoubles Attacks on Fed Chair, Saying ‘I Made Him’
(NYT) A day after Federal Reserve Chair Jerome H. Powell asserted his independence from the White House, President Trump responded by suggesting that nobody had heard of Mr. Powell until Mr. Trump tapped him to run the Fed and implying that the head of Europe’s central bank was making better decisions. Mr. Trump also voiced jealousy over Europe’s monetary policy. Last week, he criticized Mario Draghi, the head of the European Central Bank, for saying the bank was prepared to prop up Europe’s economy unless it improves. Mr. Trump said Mr. Draghi was trying to push down the value of the euro to give Europe an unfair advantage. … On Wednesday, Mr. Trump directed all his fire at Mr. Powell, whom he accuses of not doing enough to help boost the American economy. Mr. Trump, who has pinned his re-election hopes on economic growth, has blamed Mr. Powell for working at cross-purposes with his policies, including his $1.5 trillion tax cut and increased government spending.

19 June
Trump honors Reagan economist Arthur Laffer with Medal of Freedom
(CNN)President Donald Trump on Wednesday honored economist Arthur Laffer, a former adviser to Ronald Reagan who is known as the father of supply side economics, with the Presidential Medal of Freedom.
“Few people in history have revolutionized economic thought and policy like Dr. Art Laffer. He developed a brilliant theory, shaped unprecedented economic reforms and helped turn a severe recession into a remarkable boom,” Trump said during an Oval Office ceremony to award Laffer with the nation’s highest civilian honor.
The President also claimed that Laffer’s work “spurred economic reforms around the world and helped lift untold millions out of poverty,” though other factors contributed to tax cutting and deregulation around the globe at that time.
Accepting the medal, Laffer — who was also the first chief economist of the Office of Management and was a consultant to the Treasury and Defense departments — thanked his family and many of his “teammates,” which include several Trump administration economic advisers and Cabinet members, as well as former Vice President Dick Cheney and economist Milton Friedman.

4 June
Trump Is Slowing US Economic Growth
By Robert J. Barro
The current state of US macroeconomic policymaking across four key areas does not bode well. Although the 2017 tax legislation has done its job in promoting faster growth, rising trade tensions, persistent regulatory burdens, and a lack of investment in infrastructure all threaten to limit the US economy’s potential.
(Project Syndicate) As for infrastructure, the potential benefits to US productivity from increased investment are real. Yet nothing has happened. The situation is best encapsulated by an April meeting between Trump and congressional leaders. According to media reports, Trump began by proposing to spend $1 trillion on infrastructure, whereupon the Democrats countered by suggesting $2 trillion. Trump apparently agreed to that with little hesitation. All in all, the exchange confirms, once again, that both parties have come to regard government spending as a free lunch, at least when it is financed by debt or the creation of new money. Perhaps it is actually for the best that “Infrastructure Week” never goes anywhere.

7 May
Trump has reached an inflection point in his presidency
By Marc A. Thiessen
(WaPo) On Friday, we learned that the economy added 263,000 jobs in April — exceeding the 190,000 that economists predicted. This came on top of the news, a week earlier, that the U.S. economy grew at an annual rate of 3.2 percent in the first quarter, far exceeding predictions of 2.5 percent growth. Unemployment is at the lowest level in five decades. In fact, America’s biggest economic problem is that, according to The Post, “the United States has more job openings than unemployed people” to fill those jobs.
Not only are people finding work, but their paychecks are growing. In April, wages rose 3.2 percent, the ninth straight month of above 3 percent wage growth. And the Wall Street Journal reports that wages for Americans without a high school diploma rose more than 6 percent last year, outpacing all other groups.
Here is the bad news for Trump: While approval for his handling of the economy reached a new high of 56 percent, his overall job approval is still a dismal 45 percent, according to a CNN poll. Despite the booming economy, a 54 percent majority still disapprove of Trump’s presidency.
…  Trump needs to focus on a positive agenda to improve the lives of Americans, draw attention to his accomplishments rather than his controversies, and reach out and try to work with Democrats. He needs to keep the economy moving, which is why the $2 trillion infrastructure package he announced with “Chuck and Nancy” is so appealing to the president. For Trump, it is a win-win — blue-collar jobs and Keynesian economic stimulus.

30 April
It’s Infrastructure Week!
Mr. Trump, here’s a fight worth having.
(NYT editorial board) On Tuesday, a dozen Democratic lawmakers, including the House speaker, Nancy Pelosi, and the Senate minority leader, Chuck Schumer, headed to the White House for a frank talk with President Trump about the “I” word: infrastructure. … Ms. Pelosi proclaimed her team “very excited about the conversation” and cheered Mr. Trump for agreeing that a “big and bold” plan was needed. Mr. Schumer called the meeting “constructive” and noted approvingly that the president had been “eager” to push funding up to $2 trillion. “This was a very, very good start,” Mr. Schumer told reporters.
As part of branding himself an economic populist, Mr. Trump campaigned in 2016 with a vow to spend $1 trillion to make America’s roads, airports and transit systems the envy of the world. He blew into office with grand visions of launching development projects across the nation. …  But, thus far, Mr. Trump has proved very bad at building. Highways, bridges, pipelines, water systems, even beautiful steel border walls — all have turned out to be more complicated than he anticipated. Infrastructure policy was repeatedly pushed to the side during his first year in office, turning the phrase “Infrastructure Week” into a sad joke. And his administration’s 2018 plan fell flat. The $1.5 trillion package provided a paltry $200 billion in federal funding, relying heavily on public-private partnerships and state spending. No one in Congress was interested in championing it. Even the president publicly questioned its feasibility.

25 April
Political gridlock blocks infrastructure progress and costs our economy
(Brookings) Infrastructure talks are heating up again. In just the last week, 2020 presidential candidate Amy Klobuchar pitched a trillion-dollar infrastructure proposal while the Trump administration and Congress continue to flirt with major infrastructure packages. This kind of thinking reflects clear public support for greater investment. While these concepts and conversations suggest bipartisanship could deliver infrastructure reform, the current state of national politics delivers anything but an infrastructure boost. Put bluntly, when political discord leads to infrastructure failure, it doesn’t just deepen our distrust of government—it also takes our economy down with it.
This administration’s trade and tariff policies serve as a potent example of self-inflicted economic harm. Since the Trump administration applied tariffs on imported steel and aluminum, the cost index for steel mill products alone rose by almost 14 percent from March 2018 to January 2019. This directly impacts our state departments of transportation, their local peers, and water authorities who all rely on steel and aluminum to construct major capital projects. As Mark Niquette at Bloomberg reported, states from California to Michigan to Virginia have already seen certain project costs jump by millions of dollars. Meanwhile, steel and aluminum manufacturers in the U.S. have been hit hard by the costs, needing to lay off workers to close budget gaps.

2 April
Trump Vows to Close Border, Even if It Hurts the Economy
“Sure, it’s going to have a negative impact on the economy,” Mr. Trump said, adding, “but security is most important.”
“Security is more important to me than trade,” he said.
Republican lawmakers, economists and business groups largely disagree with that assessment and warned this week that closing the border could cripple the flow of goods and workers and devastate American automakers and farmers, as well as other industries that depend on Mexico for sales and goods.
“Closing down the border would have a potentially catastrophic economic impact on our country,” Senator Mitch McConnell, Republican of Kentucky and the majority leader, said in an interview. “I would hope that we would not be doing that sort of thing.”
Mark Zandi, the chief economist at Moody’s Analytics, said that “a full shutdown of the U.S.-Mexican border of more than several weeks would be the fodder for recessions in both Mexico and the U.S.”
Avocado shortages, virgin margaritas: Border shutdown would hit American palates

22 March
Jonathan Chait: Trump Nominates Famous Idiot Stephen Moore to Federal Reserve Board
(New York) Stephen Moore’s career as an economic analyst has been a decades-long continuous procession of error and hackery. It is not despite but precisely because of these errors that Moore now finds himself in the astonishing position of having been offered a position on the Federal Reserve board by President Trump.
Moore’s primary area of pseudo-expertise — he is not an economist — is fiscal policy. He is a dedicated advocate of supply-side economics, relentlessly promoting his fanatical hatred of redistribution and belief that lower taxes for the rich can and will unleash wondrous prosperity. Like nearly all supply-siders, he has clung to this dogma in the face of repeated, spectacular failures.
He is capable of writing entire columns that contain no true facts at all. He made so many factual errors he achieved the rare feat of being banned from the pages of a Midwestern newspaper. He has sold his policy elixir to state governments which have promptly experienced massive fiscal crises as a direct result of listening to him. … And yet, for all their extravagant ignorance, Moore’s beliefs on fiscal policy are actually more sophisticated and well-developed than his views on monetary policy. It is the latter that he would be in a position to influence as a Federal Reserve governor.

11 March

Trump Proposes a Record $4.75 Trillion Budget

The new Trump budget is a horror show
(WaPost) the Trump administration just released contains enormous cuts to Medicare and Medicaid, not to mention domestic programs. In a word, it is positively savage. Some of the highlights:
The Trump budget would cut about $845 billion from Medicare over 10 years
It cuts $241 billion from Medicaid
It would push Medicaid toward block grants which cap the amount each state would receive, which when the money runs out would result in pared-back benefits, recipients being tossed off the program or both
It would eliminate the Affordable Care Act’s expansion of Medicaid, which would mean millions would lose their health coverage
It would cut $25 billion from Social Security
It would impose work requirements on recipients of food stamps, Medicaid and housing assistance, forcing them to navigate a bureaucratic maze or lose their benefits
It would cut $220 billion from food stamps
It would cut $1.1 trillion from domestic discretionary programs, which do not include Medicare, Medicaid or Social Security
It would cut the Department of Housing and Urban Development by 16 percent and the Education Department by 12 percent
It would cut the Environmental Protection Agency by 31 percent
Trump’s budget is heartless and whackadoodle
(WaPost) …based on this latest statement, Trump’s priorities continue to be redistributing wealth ever upward, from poor to rich, and selling the public more fantasies and lies.
Federal deficits have widened immensely under Trump’s leadership. This is striking not only because he promised fiscal responsibility — at one time even pledging to eliminate  the national debt within eight years — but also because it’s a historical anomaly. Deficits usually narrow when the economy is good and we’re not engaged in a major war.
Trump’s own policies are to blame for this aberration. Specifically, the 2017 tax law, which gave two-thirds of its benefits to the top income quintile last year, added $1.9 trillion to deficits over the coming decade. A grand-bargain spending bill last year that increased funding for both defense and nondefense programs — here the Democrats deserve a share of the blame — also spilled plenty of red ink.
Trump’s plan for addressing these issues? Extend the plutocratic tax cuts (currently slated to partially expire in 2025), which would add $1 trillion to deficits; double down on defense spending increases (and money for his border wall); and then balance the budget on the backs of the nation’s most vulnerable.
and, of course:
Trump calls for cutting National Science Foundation funding by $1 billion

8 March
The tax cuts will make fighting future recessions complicated
(Brookings) … The tax cuts will also hamper the ability to fight recessions in other ways. With higher deficits, political leaders will be more reluctant to engage in discretionary stimulus programs to boost the economy. By making some typical instruments, such as expensing, part of the tax code, the tax cuts reduce the number of tools that policymakers can use to fight downturns. A recent paper by two economists with the Joint Committee on Taxation shows that the subsidies for foreign derived intangible income operates in a procyclical fashion by rising during booms and falling during recessions, precisely the opposite of how automatic fiscal stabilization should work.
In one way, it is fitting that the 2017 tax law has poor cyclical properties. Indeed, the deficit financed tax cuts were enacted and implemented at a time when the economy was already doing very well, exactly the opposite of how strong stabilization should work.

12 February
Debt surpasses $22 trillion for first time
“This milestone is another sad reminder of the inexcusable tab our nation’s leaders continue to run up and will leave for the next generation,” said Judd Gregg and Edward Rendell, co-chairman of the debt watchdog group Campaign to Fix the Debt.
Deficits have soared under President Trump, spurned on by the GOP tax law, bipartisan spending increases, and the forward momentum of mandatory spending programs such as Medicare and Social Security. Tuesday’s estimate put the total outstanding public debt at $22.013 trillion,

11 February
Trump Trade War Helps Push Farmers Into Record Number Of Bankruptcies
Dairy farmers were counting on China milk buyers before the trade war. “The problem is both nations have stubborn leaders,” an industry analyst said.
(HuffPost) Twice as many farmers in Illinois, Indiana and Wisconsin declared bankruptcy last year compared to 2008, according to statistics from the 7th Circuit Court of Appeals, the Journal reported. Bankruptcies in states from North Dakota to Arkansas leaped 96 percent, according to figures from the 8th Circuit Court of Appeals.
Farmers are being battered by sinking commodity prices — and stiff tariffs from China and Mexico in retaliation for Trump’s tariffs on imports.
The new 11-nation Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) treaty last year slashed tariffs — but not for U.S. farmers since the Trump administration pulled out of negotiations. That drove customers to farmers and ranchers in competitive countries, like Australia, serving another dunning blow to American operations.

6 February
Middle Class Dads Freak Out About Trump Tax Hike
(Yahoo)…some people have already managed to file their taxes. And among those early birds, many in the middle class have been shocked to find that instead of the nice little chunk of change they were expecting with their return, they actually owe money to Uncle Sam…. It stems from President Trump’s tax reform, which was passed in 2017 and was touted by Trump and the GOP as a win for the middle class. However, with the new tax system now in place, Americans are discovering that most of the tax relief from the bill is actually being experienced by corporations.
Meanwhile, many people are seeing an increase in taxes due to the bill eliminating many of the deductions that were used by middle-class families in order to lower the amount of taxes they were required to pay. Most notably, the tax reform placed a cap on deductions for taxes on both state and local levels.

28 January
Government shutdown cost US economy $11bn
Annual growth forecast revised down 0.2%
Congressional Budget Office says full effect may be larger
(The Guardian) According to the CBO, the shutdown hurt economic growth because it affected roughly 800,000 workers and delayed federal spending on goods and services.
Much of the money will be recouped now the government is open again but the CBO calculates $3bn will never be recovered and the full impact of the closure – which left hundreds of thousands of federal workers and contractors without pay – may be larger.
The CBO warned “all of the estimated effects and their timing are subject to considerable uncertainty”.
The five-week shutdown delayed approximately $18bn in federal discretionary spending for compensation and purchases of goods and services and suspended some federal services.
As a result of the delay in wages and spending, the CBO expects the level of gross domestic product (GDP) – the broadest measure of economic growth – to fall by 0.2% in the first quarter of the year.
$1.5 trillion U.S. tax cut has no major impact on business capex plans: survey
(Reuters) The Trump administration’s $1.5 trillion cut tax package appeared to have no major impact on businesses’ capital investment or hiring plans, according to a survey released a year after the biggest overhaul of the U.S. tax code in more than 30 years. “A large majority of respondents, 84 percent, indicate that one year after its passage, the corporate tax reform has not caused their firms to change hiring or investment plans,” said The National Association of Business Economics’ President Kevin Swift.
Shutdown Damage Will Persist Long After U.S. Government Reopens
From science and parks to natural disasters, damage to linger
‘Loss of a workforce that is not interested in public service’
(Bloomberg) The government may be reopening, but the consequences of the longest federal shutdown in U.S. history are likely to linger for national parks, forests, the federal workforce and cutting-edge scientific research. Some may even be permanent.
Many fire crews missed their window for controlled burns to prevent wildfires. Irreplaceable relics may have been damaged in unguarded national parks. Science experiments were abandoned. And a generation of talent may now think twice about signing up for government, while workers returning to a month of unopened emails and missed meetings will have to decide which of their priorities to sacrifice this year.
The shutdown could also make it harder for the government to find contractors with the skills it needs, said David Berteau, president of the Professional Services Council, a group that represents federal contractors. “Many of them may begin to look for — and will take — jobs in the private sector,” he said.

23 January
CEOs sour on Trump policies, warn they hurt business, investment
(Reuters) Foreign investment in the United States, which includes cross-border mergers and acquisitions and intra-company loans, fell about 18 percent in 2018 from the prior year, according to the United Nations Conference on Trade and Development (UNCTAD).
That is close to the 19 percent year-on-year drop in foreign investment globally. But it is notable given the deregulation and tax cuts that might have otherwise fed into inward investment. In January of last year, at Davos, many executives said they planned to spend money in the U.S. in 2018.

16 January
Shutdown bites economy, U.S. Coast Guard, as talks to end impasse stall
(Reuters) – The U.S. economy is taking a larger-than-expected hit from the partial government shutdown, White House estimates showed on Tuesday, as contractors and even the Coast Guard go without pay and talks to end the impasse seemed stalled.
With the shutdown dragging on, federal courts will run out of operating funds on Jan. 25 and face “serious disruptions” if the shutdown continues, according to a court statement.
While the shutdown hit about one-quarter of federal operations, a Reuters/Ipsos poll released on Tuesday found that nearly four in 10 U.S. adults said they were either affected by the impasse or know someone who is. Fifty-one percent of those polled blamed Trump for the shutdown.
The Trump administration had initially estimated the shutdown would cost the economy 0.1 percentage point in growth every two weeks that employees were without pay.
But on Tuesday, there was an updated figure: 0.13 percentage point every week because of the impact of work left undone by 380,000 furloughed employees as well as work left aside by federal contractors, a White House official said.
Shutdown raises the risk of recession
(Politico) The partial federal government shutdown could be the kind of shock to consumer and business confidence that helps nudge the economy toward the next recession, according to a leading economist who served under former President Barack Obama.
Historically, government shutdowns have had limited impact on the overall economy. But the duration and severity of the current impasse, now more than three weeks old, has led some economists to suggest it could cause deeper damage.
Shutdown’s Economic Damage Starts to Pile Up, Threatening an End to Growth
(NYT) The partial government shutdown is inflicting far greater damage on the United States economy than previously estimated, the White House acknowledged on Tuesday, as President Trump’s economists doubled projections of how much economic growth is being lost each week the standoff with Democrats continues.
The revised estimates from the Council of Economic Advisers show that the shutdown, now in its fourth week, is beginning to have real economic consequences. The analysis, and other projections from outside the White House, suggests that the shutdown has already weighed significantly on growth and could ultimately push the United States economy into a contraction.
While Vice President Mike Pence previously played down the shutdown’s effects amid a “roaring” economy, White House officials are now cautioning Mr. Trump about the toll it could take on a sustained economic expansion. Mr. Trump, who has hitched his political success to the economy, also faces other economic headwinds, including slowing global growth, a trade war with China and the waning effects of a $1.5 trillion tax cut.

4 January
US national debt rises $2 trillion under Trump
(CNN) The US national debt stood at $21.974 trillion at the end of 2018, more than $2 trillion higher than when President Donald Trump took office, according to numbers released Thursday by the Treasury Department.
The national debt has been rising at an accelerated rate in the aftermath of the 2008 financial crisis, when Congress and the Obama administration approved stimulus funding in order to keep the economy afloat.
The debt began to level off at the beginning of Trump’s term, but bounced up again last year as the tax cuts passed at the end of 2017 took effect and the dramatically lower corporate tax rate lowered Treasury revenues.
As a candidate, Trump promised to “get rid of” the national debt, telling the Washington Post in 2016 that he could make the US debt-free “over a period of eight years.”
According to the Congressional Budget Office, total public debt stood at 78% of America’s gross domestic product in fiscal year 2018, the highest percentage since 1950. The deficit — or the difference between what the government spends and what it takes in over any one year — jumped to 3.8% of GDP in 2018, up from 3.5% in 2017.
That’s particularly unusual in such a strong economy without major new expenditures. If no changes are made, the CBO projects that public debt will rise to 96% of GDP by 2028. A big chunk of that — $1.9 trillion between 2018 and 2028 — will be due to the Tax Cuts and Jobs Act, the CBO reported last April. [See Jan 16 Comment from Christopher Goodfellow below]

One Comment on "Trump administration: U.S. Economy 2019 Chapter III"

  1. Diana Thebaud Nicholson January 16, 2019 at 1:10 pm · Reply

    Christopher Goodfellow on Facebook:
    He doesn’t care but you should. You will pay for it through inflation. A great effort should be made to balance the budget and bring it into surplus. Remember 100$ million spent on infrastructure brings many economic spinoffs. 100$ spent on bombs yield nothing. If we do not tax to cover expenditures and just print money to pay the interest, it will not end pleasantly.

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