Deficit Man and the 2020 elec­tion

The Fresno Bee (Sunday) - - Opinion - BY PAUL KRUG­MAN

Can a suf­fi­ciently ter­ri­ble pres­i­dent lose an elec­tion de­spite a good econ­omy? That is, in fact, the test we’d be run­ning if the elec­tion were to­mor­row.

On one side, Don­ald Trump wastes no op­por­tu­nity to re­mind us how aw­ful he is. On the other side, he pre­sides over an econ­omy in which un­em­ploy­ment is very low and real GDP grew 3.2% over the past year.

But the elec­tion will be

15 months from now. Trump’s char­ac­ter won’t change, ex­cept pos­si­bly for the worse. But the econ­omy might look sig­nif­i­cantly dif­fer­ent.

The Trump tax cut caused a huge rise in the bud­get deficit, which the ad­min­is­tra­tion ex­pects to hit $1 tril­lion this year, up from less than $600 bil­lion in 2016. This tidal wave of red ink has taken place de­spite fall­ing un­em­ploy­ment, which usu­ally leads to a fall­ing deficit.

Now, the ev­i­dence on the ef­fects of deficit spend­ing is clear: It gives the econ­omy a short-run boost, even when we’re al­ready close to full em­ploy­ment. If any­thing, the growth bump un­der Trump has been smaller than you might have ex­pected given the deficit surge, per­haps be­cause the tax cut was so badly de­signed, per­haps be­cause Trump’s trade wars have de­terred busi­ness spend­ing.

For now, Deficit Man is beat­ing Tar­iff Man. As I said, we’ve seen good growth over the past year.

But the tax cut was sold as some­thing that would greatly im­prove the econ­omy’s long-run per­for­mance; in par­tic­u­lar, lower cor­po­rate tax rates were sup­posed to lead to a huge boom in busi­ness in­vest­ment that would, among other things, lead to sharply higher wages. And this big rise in long-run growth would sup­pos­edly cre­ate a boom in tax rev­enues, off­set­ting the up­front cost of tax cuts. None of this is hap­pen­ing.

I’m not fore­cast­ing a re­ces­sion. The more likely story is just a slow­down as the ef­fects of the deficit splurge wear off.

Which brings us back to the 2020 elec­tion.

Po­lit­i­cal sci­en­tists have car­ried out many stud­ies of the elec­toral im­pact of the econ­omy, and as far as I know they all agree that what matters is the trend, not the level. The un­em­ploy­ment rate was still more than 7% when Ron­ald Rea­gan won his 1984 land­slide; it was 7.7% when Obama won in 2012. In both cases, how­ever, things were clearly get­ting bet­ter.

That’s prob­a­bly not go­ing to be the story next year. If we don’t have a re­ces­sion, un­em­ploy­ment will still be low. But eco­nomic growth will prob­a­bly be meh at best – which means, if past ex­pe­ri­ence is any guide, that the econ­omy won’t give Trump much of a boost, that it will be more or less a neu­tral fac­tor. On the other hand, Trump’s aw­ful­ness will re­main.

Repub­li­cans will, of course, por­tray the Demo­cratic nom­i­nee – who­ever she or he may be – as a rad­i­cal so­cial­ist poised to throw the bor­der open to hordes of brown-skinned rapists.

But as far as the econ­omy goes, the odds are that Trump’s deficit-fueled bump came too soon to do him much po­lit­i­cal good.

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