Trump’s favourite story on eco­nomic re­cov­ery doesn’t make sense

Calgary Herald - - FINANCIAL POST - JARED BERN­STEIN

Given ev­ery­thing go­ing wrong in the United States, the old Bill Clin­ton cam­paign line “It’s the econ­omy, stupid” might be less true today than it once was. Eco­nomic is­sues will play a role in Novem­ber, of course. But they’ll also be com­pet­ing with COVID-19, racial in­jus­tice and press­ing ex­is­ten­tial ques­tions about the ba­sic func­tion­ing of our democ­racy, which feels aw­fully bro­ken right now.

But eco­nomic con­di­tions — or, more specif­i­cally, peo­ple’s per­cep­tions and ex­pec­ta­tions about their liv­ing stan­dards — will still be prom­i­nent. I think I see what’s com­ing: Trump will point at trends and ig­nore the lev­els. That is, he’s go­ing to tell a story about things get­ting bet­ter to dis­tract from the truth, which is that ev­ery­thing will still be much worse than it was or should have been.

As of this writ­ing, we are in a down­turn that, by some top-line met­rics, like the un­em­ploy­ment rate, is as deep as the Great De­pres­sion. I was an econ­o­mist in the Obama ad­min­is­tra­tion dur­ing the last re­ces­sion, and I vividly re­call be­ing hor­ri­fied by monthly job losses of 800,000 in March 2009 alone. Well, in April 2020, pay­roll em­ploy­ment fell by more than 20 mil­lion — in one month.

For those of us who track such num­bers, that’s an unimag­in­able loss, but it also makes sense. In the in­ter­est of virus con­trol, we largely shut down the econ­omy. Un­like the last re­ces­sion, when we were all try­ing to fig­ure out how crea­tures like “syn­thetic col­lat­er­al­ized debt obli­ga­tions” blew up the econ­omy, it’s crys­tal clear what hap­pened this time around.

As we’re now see­ing in real time, what was shut down can be started back up. That means all those vari­ables that fell off a cliff just months ago — jobs, spend­ing, GDP — will soon start climb­ing back. It’s im­pos­si­ble to say how quickly they’ll as­cend, as the rate at which they’ll rise de­pends on how ef­fec­tively the virus is con­tained, the ex­tent of test­ing and trac­ing and what the econ­o­mist John May­nard Keynes called “an­i­mal spir­its” — by which he meant, peo­ple’s rel­a­tive con­fi­dence or cer­tainty about the fu­ture.

But for what they’re worth, which isn’t noth­ing (not a ring­ing en­dorse­ment, I ad­mit), ev­ery fore­cast I’ve seen has the econ­omy start­ing to bounce back by the sec­ond half of this year. And “bounce back” is no idle metaphor here: The mod­els treat the econ­omy like a ball. If you lightly drop a ball on the ground, it hardly bounces at all. If you slam it down, it bounces back hard.

All the forecasts re­flect this dy­namic, to dif­fer­ent de­grees. The case of pay­rolls, shown be­low, pro­vides a good ex­am­ple. Gold­man Sachs forecasts the big­gest losses fol­lowed by the big­gest gains; the rest show smaller losses and less of a bounce. But in each case, two no­table ob­ser­va­tions pre­vail. First, at some point in the sec­ond half of this year, the forecasts pre­dict his­tor­i­cally large monthly gains. For ex­am­ple, in the last quar­ter of this year, the Con­gres­sional Bud­get Of­fice pre­dicts we’ll be adding 1.8 mil­lion jobs per month. For con­text, note that the av­er­age monthly job gain over the pre­cri­sis ex­pan­sion (2010-19) was about 190,000 per month.

The sec­ond com­mon fea­ture across these forecasts is much less favourable for Trump: They all have him “un­der­wa­ter” on all the key vari­ables — which is to say things look worse than they did be­fore his elec­tion. In the quar­ter be­fore Trump took of­fice, the un­em­ploy­ment rate was 4.8 per cent. Ac­cord­ing to these four forecasts, the un­em­ploy­ment rate will be be­tween nine and 12 per cent in the quar­ter when Trump seeks re-elec­tion. The level of fore­cast pay­rolls is an av­er­age 10 mil­lion jobs be­low the level when Trump took of­fice. La­bor mar­ket data back to the 1940s re­veal that no pres­i­dent has been re-elected amid such losses.

Whether vot­ers will re­spond pos­i­tively to the trends or neg­a­tively to the lev­els will be a func­tion of which nar­ra­tive pre­vails. Trump, who is al­ready fram­ing the eco­nomic re­open­ing as a “tran­si­tion to great­ness,” won’t be shy about his pre­ferred story: Ev­ery­thing is get­ting bet­ter and he’s responsibl­e — for the good stuff, at any rate. The story he’s al­ready shap­ing and will be shout­ing from the rooftops as the cam­paign car­ries on, has a three-act struc­ture. In the first, Trump had the econ­omy hum­ming. Then, in the sec­ond, China gave us the “very bad gift” of

“coro­n­avirus,” which tem­po­rar­ily in­ter­rupted the great­ness. Now that he’s van­quished this enemy in the third act, we’ll quickly get back to where we were.

None of this bears any re­sem­blance to re­al­ity. As eco­nomic com­men­ta­tor Steve Rat­tner points out, Trump in­her­ited a re­cov­ery that failed to ac­cel­er­ate on GDP, jobs or real wages. His première eco­nomic pol­icy — cut­ting US$2 tril­lion in taxes, mostly for the wealthy — had no vis­i­ble im­pact on in­vest­ment but did raise the public debt level such that it was more than twice its his­tor­i­cal av­er­age go­ing into a re­ces­sion. His trade war has demon­stra­bly hurt in­vest­ment and growth.

Fur­ther, his feck­less, chaotic and mis­lead­ing re­sponse to the health cri­sis has costs thou­sands of lives and, ac­cord­ing to in­ter­na­tional com­par­isons, made the re­ces­sion much deeper than would other­wise have been the case. Ger­many, for ex­am­ple, im­ple­mented poli­cies to keep work­ers con­nected to their jobs and thanks to those ef­forts, their job­less rate has hardly budged, while ours, prop­erly mea­sured, has gone from around four to around 20 per cent.

Fi­nally, there’s sim­ply no get­ting back quickly to where we were. Keynes-will­ing, we’re on the cusp of a grad­ual re­cov­ery, and if gov­er­nors get their test­ing act to­gether while the rest of us main­tain safe prac­tices, the pre­dic­tions of big monthly job gains will come to fruition. But those months can only be­gin to re­cover what’s been lost. Full em­ploy­ment is years away.

There will be no “tran­si­tion to great­ness.” Trump and his team will con­tinue to do noth­ing to con­trol the virus or pro­mote the re­cov­ery. They sat on the side­lines while the house was burn­ing, and now, as peo­ple start to re­build, they’ll re­main on the side­lines, tak­ing credit for the gains. If the virus flares up again, this dam­ag­ing, de­press­ing, and even fa­tal cycle will re­peat.

Their only play is to use their prodi­gious ma­nip­u­la­tion skills to cre­ate an al­ter­na­tive re­al­ity. The costs to our na­tion of al­low­ing that process to con­tinue are fi­nally com­ing due, and, to put in mildly, they are un­ac­cept­ably high.

The Wash­ing­ton Post

Bern­stein, chief econ­o­mist to for­mer vice-pres­i­dent Joe Bi­den, is a se­nior fel­low at the Cen­ter on Bud­get and Pol­icy Pri­or­i­ties.

EVAN VUCCI/AP FILES

U.S. Pres­i­dent Don­ald Trump sat on the side­lines while the house was burn­ing, and now, as re­build­ing be­gins from COVID-19, he’ll stay on the side­lines, tak­ing credit for the gains, says Jared Bern­stein.

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