An ace for Trump?
Voters can forgive a lot if the nation sees economic growth
President Donald Trump has easily been the most controversial commander in chief in the modern era. No president before him entered office with such low job approval ratings, because no president has ever been elected despite such widespread skepticism about his capacity to govern. And Mr. Trump has hardly improved his behavior since entering office. From the looks of it, congressional Republicans are going to be punished in the upcoming midterm election for his inability to act like the president.
But what about Mr. Trump’s future? Can he be re-elected in 2020? A lot may depend on whether the economy starts delivering for average Americans — something that, unfortunately, it has not done in many years.
The economic recovery since 2009 has been like Charles Dickens’ “A Tale of Two Cities” — the best of times, the worst of times. Unlike most recoveries, this one has been very slow, in part because of the massive debt overhang left from the housing bubble of the early 2000s.
The recovery has been very good for the wealthy. The government responded to the crisis first by bailing out the indebted financial institutions, via the Toxic Asset Relief Program of 2008. Then the Obama administration redesigned financial regulations (the Dodd-Frank bill) to govern the largest financial institutions, which in essence gave them “too big to fail status.” And the Federal Reserve has kept interest rates extremely low while pumping extra liquidity into the financial system (known as “quantitative easing”), which had the effect of boosting equity prices — hence the booming stock market.
But for average Americans it has not been so good. The economic stimulus the Obama administration passed in 2009 did not have the effect on unemployment that the administration predicted. Dodd-Frank placed heavy burdens on community and regional banks. And worst of all, wage growth has been anemic. At the peak of the economic boom of the 1990s, wages were growing at a rate of 5 percent per year. But in this recovery, it has barely cracked 3 percent.
No doubt, this is a big reason why we have seen populist movements on both the left and the right — from the “99 percent” to the Tea Party. People are frustrated by the fact that this recovery has left people behind.
But maybe that trend will soon be coming to an end. The unemployment rate today stands at just 3.9 percent. That is, for all intents and purposes, full employment. That should put pressure on wages to start increasing. The economic growth rate in the second quarter of this year was 4 percent, and right now the Federal Reserve Bank of Atlanta is predicting a similar rate of growth for the third quarter. This kind of robust economic activity should also give a boost to wages.
Of course, there are threats to growth. The biggest right now is the president’s insistence on renegotiating trade deals. That might be good in theory, but if he starts a trade war with China or the European Union, he will undermine the prospects for growth. There is also the imbalance in American fiscal policy. The federal government right now is running a massive budget deficit. This can be good for the economy when growth is sluggish, but as the private sector picks up pace, excessive federal spending could yield inflation. And of course, this economic expansion is already very long in the tooth — it is already the second longest since World War II — and sooner or later a recession is bound to hit.
Still, the indicators right now suggest that we can look forward, finally, to a noticeable uptick in wages for average Americans. For this president, that would be yuuge. Americans are willing to tolerate a lot from a president if the economy is good. Bill Clinton retained fantastic job approval ratings during the Monica Lewinsky scandal because the economy was going gangbusters. Similarly, if Mr. Trump can go back to the voters in 2020 and say, “I delivered on meaningful growth,” my hunch is that Americans would reelect him.