Deficit Man and the 2020 election
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.