Living the high life
The American people overall give the President high marks on his handling of the economy (54% rate it as good or excellent based on a recent CNBC poll). But what has he actually done on the economic front? He has followed the simple principles taught in macroeconomics 101─if you want low unemployment, kick up spending through either cutting taxes or increasing government spending.
Pay now or pay later
The problem with this “policy” is analogous to the country going on credit card spending spree and ignoring the fact that we eventually have to pay for it. When the country spends more than it takes in taxes it runs a deficit and has to borrow the money through bonds sold to the American people as well as many foreign countries such as China. Paying for today’s bills in the future ends up comprising a greater share of our spending over time, crowding out spending on programs like Medicare.
I am a believer in deficit spending as a tool to dampen the negative effects of economic down turns. I do not support as a tool to buy America’s votes for the mid-term elections.
Sky rocketing deficits
The Congressional Budget Office (CBO) estimates that “If current laws remain generally unchanged, CBO projects, federal budget deficits and debt would increase over the next 30 years—reaching the highest level of debt relative to GDP in the nation’s history by far”. In April CBO estimated this year’s deficit to be 804 Billion and it is now projected to go over 1 Trillion dollars. This debt will get added to our current 20 trillion dollars in accumulated debt which is nearly the size of the expected GDP for 2018. As Market Watch shows. our accumulate national debt began to flatten finally in 2015 after rapidly rising during (and after) the recent recession. With the recent tax cut, we are back on the path of rapidly rising debt.
Our economic outlook
President Trump’s economic policy is not sustainable. What is going to happen? In the short run, there is growing pressure on prices as demand grows which puts pressure on inflation. When combined with Trump’s tariff wars, these conditions are leading half the economists surveyed last month by the National Association of Business Economics to foresee a recession starting in late 2019 or in early 2020, and two-thirds are predicting a slump by the end of 2020 (USA today).
In the long run, we face three options none of which will be popular. We can (1) raise taxes, (2) cut government spending which will require deep cut to social programs such as Medicare and probably social security or cutting the military budget, or (3) continue this folly until our debt balloons, our bonds our further downgraded so no one will lend to us, austerity is forced on us, and we have 10 to 20 years of a stagnating economy as we struggle to right the ship.
In the end, Mr. Trump does not have a coherent economic policy. But rather, it is a political strategy to keep Republican control of the House and Senate. It is like giving children all the candy they could possibly want and the giving them more. They take it, because they like it now. After November, you might just be sick to your stomach.