Economy up, stocks volatile – who gets credit, blame?

 

The American economy remains in one of its longest recoveries in history. Does President Trump deserve the credit?

The memory of the 2007 financial meltdown fades. Unemployment is down. Incomes are beginning to increase. Consumer spending, the driver of the economy, is picking up. The recovery, begun years ago, remained strong during Trump’s first year in office.

A close look reveals a far more complicated explanation for the recovery in which Trump plays only a surprisingly small part.

Government is a player in the economy, but does not drive it. Businesses and individuals decide on its direction. Their actions don’t all head the same way at the same time. In a free enterprise society, the big decisions are not made by government, though it provides incentives and controls.

Government economic action is composed of two elements, fiscal policy and monetary policy. The president and Congress manage fiscal policy – taxes and spending, while the Federal Reserve, independent of the president, runs monetary policy – interest rates and the supply of money.

From the moment he took office in 2009, President Obama tried to boost government spending to stimulate the economy. At first, he was successful, and Congress agreed to a $787 billion stimulus. Republicans opposed any added government efforts, arguing they would increase the national debt.

Fiscal policy would go no further, leaving recovery to the Federal Reserve. Under recently departed Fed chair Janet Yellin and her predecessor, interest rates were cut close to zero and the money supply expanded. The Fed made it easier for people to borrow and then spend to boost the economy.

Yellin’s team managed to promote growth without high inflation. While personal income did not grow much, neither did prices.

Most presidents reappoint a Fed chair to a second term even if he or she is a member of another party. But Trump wanted to put his own stamp on the office. He picked a person remarkably similar to Yellin, but who might give Trump some room to claim credit for the appointment and for monetary policy.

Trump’s contribution to recovery was limited to his signature on a tax cut bill entirely developed by others, the congressional GOP. The bill created expectations that money saved on taxes will grow the economy, thus producing more tax revenues. Meanwhile, it increases the national debt far more than Obama’s proposal would have.

Trump has taken credit for economic gains, including some under Obama. The same positive statistics he scorned as a candidate, because they made Obama look good, he now claims have become accurate under his regime.

Putting presidential politics aside, Yellin deserves more credit for the recovery than either president.

Government spending sets the priorities for only a portion of the economy. Obama’s effort promoted basic developments like roads and hospitals. Tax cuts allow companies and people to set their own priorities, which do not usually include public works. That’s why more money will be needed for those purposes.

Consumer spending may increase, but what people buy may be more expensive. Trade policy is beginning to have the effect of raising the price of imports, which are a large part of our shopping carts.

One other problem with the recovery is that its benefits are uneven. Most economic gains have gone to the top 10 percent, while incomes for others have been relatively flat. Even if the 90 percent is beginning to see some progress, they have a long way to go to close the gap.

The same kind of gap also exists between urban and rural areas. Gains have been going to areas classified as urban and not to rural America. According to the census, Maine has fewer people living in urban areas than any other state. So many Mainers still await the chance to catch up.

Beyond taking credit for the economy, Trump has boasted of the big increases in stock prices, the “Trump Bump.” However, despite impressive gains, the stock market’s future is unclear. It is quite different from the economy. Speculation, normal in investing, is unlike decisions about what goes in the shopping cart.

The stock market can swing rapidly. Investors are now worried about higher interest rates and wage growth that will boost prices, causing inflation, and harming some corporations.

A president’s risk in claiming credit for the economy or stock market that he or she doesn’t really control puts the president in line for the blame when either declines, which is inevitable.

Modesty, now in short supply, would be a good idea.

Politicians use jargon to disguise the truth

 

“If you can’t convince them, confuse them.” President Truman supposedly said that.

It still seems to apply to the way the federal government communicates with us voters. To clarify a bit, here are some things politicians say and what they mean.

Congress adopts a “continuing resolution” when it cannot agree on a budget. A continuing resolution extends the previous year’s spending temporarily for a few weeks or months. The current budget year began last October, but we are still “temporarily” living hand-to-mouth with a previous budget.

“Regular order” means Congress acts normally by holding hearings and debates and then working out compromises between the House and Senate. Sen. McCain famously asked for it, and Sens. Collins and King want it. But congressional leaders push bills through using speeded up procedures.

“Democratic republic” is what we supposedly have, which should allow any member of Congress – they’re all equal, right – to bring up a bill. Only two people can allow a bill to get to a vote, the Speaker of the House and the Senate Majority Leader.

The “Freedom Caucus” is the strongly conservative group in the House that opposes government spending. It has enough votes to deny the House the freedom to vote on many proposals, because of Speaker Ryan’s practice, explained next.

The “Hastert Rule” isn’t a rule but a Republican practice begun by an earlier speaker, saying that no bill will reach the House floor unless “a majority of the majority” GOP supports it. Speaker Ryan adds to it by requiring that no bill may reach the floor unless it can pass with only GOP votes.

“Cloture” means getting the 60 votes it takes to allow a bill to face the final simple majority vote in the Senate. That can give the minority, now the Democrats, some influence in it. President Trump wants the “nuclear option” that would end the 60-vote requirement, but the GOP worries about when it will be the minority.

“The [Obamacare] individual mandate is now gone” said President Trump. The mandate was not repealed. The penalty for violating it was cut to zero. Some will obey it anyhow, thanks to government subsidies for insurance premiums. By the way, we obey the flag code and there’s no penalty for violating it.

“The bill is a thousand pages long” implies that Congress lets matters get too complicated for average people. Any time even one word of a section of law is amended, the whole section must be printed. Small changes can take many pages.

“An obscure law” means a law that the writer never heard of. Most laws are, by nature, obscure. One is the Logan Act, banning private citizens from carrying on foreign relations for the government on their own. Nobody has been prosecuted in 200 plus years. That makes it “obscure,” when perhaps it has simply been obeyed.

“The American people want” is a phrase based on polling. But, because of the way the GOP has designed congressional districts in many states, the Democrats have to be well ahead in the polls to hope to gain control of the House. Polling meets political game playing.

“Russian attempts to influence the election” are illegal, because foreigners cannot participate in or contribute to campaigns. This is mixed up with “collusion,” working with foreigners. It’s possible that, even without working together, merely knowing about foreign activity and accepting it should be rejected.

“Bipartisanship” is what candidates promise but don’t produce. They claim they are ready “to work across the aisle,” doing the public’s business through compromise with members of the other party. The Freedom Caucus is exempt from this promise. Candidates say this, because that’s what voters want, but it doesn’t happen.

“Compromise” is thought to mean that each side makes concessions to the other to achieve a result. For many in the GOP majority, it means they are willing to accept Democratic support for their positions, but won’t make any concessions. The Dems reciprocate and “compromise” remains as rare as the dodo.

‘Switzerland” is what some call Sen. Susan Collins’ office. That makes it neutral territory for Republicans and Democrats who like to consider themselves moderates to try to reach agreement on immigration and force the Senate Majority Leader to allow a vote on their deal.

What Collins is doing is positive. The would-be moderates need first to agree and then stick together to insist they carry as much weight as the Freedom Caucus. Then, we voters might get some of the bipartisanship we were promised.

Congress fails, allows presidential rule

Suppose you ran a business and, when checking your employees’ job performance, found they only got an average 20 percent score.

You might decide that, with more employee effort or some new workers, your business would run more successfully. You would probably consider firing at least some of them.

Well, you are the boss, and the people you have hired to run your business only receive that low score. You are an American voter, and the Congress you have elected only receives a favorable rating from about one-fifth of voters. Democrats do better than the GOP, but both parties score badly.

While each party plays the blame game with the other about the federal government shutdown, voters say they focus more on the inability of Congress to produce any result. Partisan warfare has blocked compromise. The majority GOP believes the Democrats should admit defeat, while the Democrats try to use the little power they have.

The Constitution places Congress first among the three branches of government. Instead of playing its prime legislative role and forcing presidents to decide to accept or reject bills it has passed, legislators have turned over most of their power to the president.

Just two days before the last government shutdown, GOP Senate Majority Leader Mitch McConnell told the media, “As soon as we figure out what he [Trump] is for, I would be convinced that we were not just spinning our wheels.” In short, the GOP Senate majority leader won’t lead, unless the president approves the plan in advance.

This attitude makes the president both executive and legislature, leaving Congress to try to come up with bills that please the White House.

In this year’s version of that process, President Trump has made the role of White House as legislator even more difficult by sending highly conflicting messages about what he wants.

Arizona GOP Sen. Jeff Flake, no friend of the president, concluded, “We can’t wait for the White House anymore.”

Congress should do its constitutional job and present the president with bills produced in the normal legislative process, almost certainly with some bipartisan support. Then, as a separate branch of government, it would be in a stronger position to press the president not to veto a bill, rather than assuming his veto in advance.

The failure of Congress to function by producing legislation to send to the White House is one reason why voters give it low grades. That failure results from its virtually total focus on politics rather than policy.

Members of Congress believe they can win re-election if they push policies that pander to their core constituents or can be sold to them by simply being labeled authentically conservative or liberal.

What they miss is what the polls always show. Most voters care more about having a functioning government than about specific policies. That view is especially true for independents, who can provide the margin of victory in presidential or Senate elections.

These swing voters may be ignored because many congressional districts are designed to produce guaranteed winners. Through this “gerrymandering” process, state legislatures create districts to be won mostly by big GOP majorities. Members of Congress cater to these pre-set majorities.

Instead of functioning like the lead branch of government, as the Constitution intends, Congress cares more about party positioning for the next election than about passing urgently needed legislation.

Party unity leads Republicans to try to please their president, though Trump is turning out to be hard to please. But the GOP, despite its earlier more constructive positions on immigration, now seems to be falling in behind him on the issue. Still, they have trouble following his daily moves on Twitter, and they don’t have enough votes to win.

At times, the Maine Legislature provides a better model. Because state law requires both passing a budget and, usually, a bipartisan two-thirds vote to adopt it, the Legislature can play its constitutional role. Such bipartisanship will be under challenge this election year.

Right now, Republicans control the U.S. Senate and House as well as the presidency. While not all Republicans agree, they may be capable of reaching a broad consensus among a large majority of them. If they then gave just a little ground to the Democrats, Congress could function.

Having control of both the presidency and Congress, the GOP risks being held accountable for failing to produce results. With an erratic president, who turned out not to be a dealmaker after all, Congress is missing the chance to reassert its equality with the president.