The Columbus Dispatch

Revved-up economy runs risk of overheatin­g

- By Don Lee

For President Trump and Republican lawmakers, economic prospects may never look better than today.

The economy is poised for what most analysts expect to be the best performanc­e in years — a rare moment of synchroniz­ed global growth that has been lifting U.S. manufactur­ing and demand at home.

Mere anticipati­on of the Republican tax plan, which won final approval on Wednesday, has given a “Trump bump” to stock prices and business confidence.

“If we can’t sell this to the American people, we ought to go into another line of work,” Senate Majority Leader Mitch McConnell of Kentucky told reporters early Wednesday morning after the tax bill passed his chamber.

McConnell was referring specifical­ly to the tax bill, but his words apply to the overall economic picture, as well: Events have handed Republican­s an economic gift. Their inability, so far, to convert that good economic news into political gains is almost without precedent.

Now, with the tax bill’s passage, the positive

economic news comes wrapped around a kernel of worry: It could turn out to be too much of a good thing, economic analysts warn.

The worry is not about the details of the tax package, controvers­ial and uncertain as they are. Rather, it is the very robustness of the American economy.

No expansion lasts forever. The current surge is 8½ years old. By spring, it will be the second longest expansion in American history.

With the tax cuts, U.S. growth may get an extra short-term boost, accelerati­ng to as much as 3 percent across the year in 2018, a figure not reached in a dozen years.

But extra fiscal stimulus, coming at a time when the economy already is perking, could quickly lead to overheatin­g, the analysts say.

“Simply stated, we are adding substantia­l stimulus to an economy already operating near full capacity,” Northern Trust economists Carl Tannenbaum and Ryan Boyle said in a research note Tuesday evening, shortly before the Senate approved the tax bill 51 to 48, strictly along party lines.

Mark Zandi, chief economist at Moody’s Analytics, issued a similar caution: The poor timing of these tax cuts, which are financed largely by increasing the federal deficit, “washes out most of the benefits,” he said.

As labor markets tighten, many employers will increasing­ly struggle to find workers, putting upward pressure on wages.

That, in turn, could lead to faster inflation, higher interest rates and a tightening of the business cycle – pushing the country toward a recession.

So, Trump and GOP lawmakers may want to enjoy the moment while it lasts.

Most of what makes the current economy so strong is a matter of inheritanc­e. Aside from recoveries in Europe, Japan and even Russia and Brazil, the U.S. is benefiting from the result of decisions made years ago about how to get the country out of the 2008 financial crash — the worst economic crisis since the Great Depression.

Most experts say that quick government action in late 2008 and early 2009 staved off immediate disaster and saved major industries and tens of thousands of jobs. Creative but careful monetary policy in the following years led to a slow but steady recovery.

The results of those efforts would have been inherited by any president, Republican or Democrat.

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