“It’s the economy, stupid.”
That’s the famous quote attributed to a top Bill Clinton
aide in 1992, when he was trying to come up with slogan for the presidential
campaign.
It is still true.
While the focus may be on immigration or President Trump’s problems, the
issue facing the U.S. and underlying the next campaign is the economy.
Trump claims and gains credit for great economic success for
two reasons.
The recovery from the deep recession has peaked in the first
two years of his term. He gets credit
for it, though the low interest rates set by the Federal Reserve and the Obama-era
stimulus got the recovery under way well before Trump took office.
Trump also is hailed for the tax cut. Devised by congressional Republicans, he
signed it into law. It stimulated
corporate profits and the stock market.
It gave taxpayers more spending money, boosting sales and cutting
unemployment to the bone. It did not pay
for itself.
Economic growth will now begin to slow. Given its size, the American economy cannot
be fine-tuned. Sometimes it heats up too
quickly, causing inflation. Sometimes,
it grows slowly or idles, causing unemployment.
The natural swings are called the “business cycle.”
It now appears that the business cycle will soon decline
from its sustained growth. Through tax
policy and the Fed’s money policy, the swing could be limited. Trump, who was a major business borrower, prefers
low rates and may be pleased with the Fed as it keeps rates down to fight the
slowdown.
Added to the business cycle is uncertainty, which worries businesses
and markets. When they cannot enjoy confidence
in economic policy, they tend to hold back, reducing activity and
investment.
Uncertainty makes planning ahead far more difficult. Because the stock market is supposed to
forecast the future, it may slump or grasp at varying signs from day to day.
Where are we now?
Trade and immigration policies are sending signals that create
uncertainty. Tax cuts have boosted the
annual federal deficit, leaving no room to deploy more of them without cutting
Social Security and Medicare, which looks politically impossible.
The U.S. has real trade issues with China, so has good
reason to be tough. But Trump seems to
think that any American negative balance in trade in goods must be ended, and against
all countries, not only with China. “I am
a tariff man,” he says.
Trump focuses on trade in goods, not services or
investment. He sees the value of
imported goods as a sign the exporting country is winning an economic war. He ignores any offsetting value of U.S.
exports. He likes tariffs, because they
bring in federal revenues, helping to offset the deficits from tax cuts.
He overlooks the impact on American exporters who
immediately face retaliation from countries whose exports must pay higher
tariffs. American farmers see their
soybeans rot and manufacturers lose equipment exports when other countries
retaliate against Trump’s moves.
When the president threatens even higher tariffs, he breeds
uncertainty among as U.S. exporters wait to see what happens. They worry about their losses. When they
worry, investors worry, and the stock market flutters and falls. Pensions are dependent on the market and suffer,
making retirement more risky.
Add the immigration situation. It is likely that a majority of Americans
worries about excessive, illegal immigration.
Stemming all immigration is a central element of Trump’s political
appeal. To prove his seriousness, he
expels long-term productive contributors to the economy as both workers and consumers.
Low unemployment is appealing, but the country is reaching
the point where jobs go unfilled for a lack of workers. Blueberries, a major Maine product, went
unharvested this year without migrant workers.
Some may worry about China displacing the U.S. as the
world’s largest economic power. Not only are there a lot more Chinese, but U.S.
anti-immigration policy would result in a gradual decline in the American
population, reducing the size of the domestic market and the ability to produce
for the world market.
Dealing with this range of economic issues is complicated
and difficult. Like it or not, the U.S.
is part of a world economy. Easy political
promises may have easy popular appeal, bringing cheers from the crowd, but may
prove impossible to fulfill. There is no
silver bullet.
Isaac Newton, the great British physicist, found that every
action has an equal and opposite reaction.
The task is to understand effects of actions.
Trump’s policy is “America First,” even if it isolates the country. The reaction to “America First” may be economic chaos and decline.