Trump, the Fed, and the Economy

More simplism from the WH.

Via the NYT:  White House Blames Fed for Slowing Economic Growth

“Had the Fed not mistakenly raised interest rates, especially since there is very little inflation, and had they not done the ridiculously timed quantitative tightening,” Mr. Trump wrote on Twitter on Friday, “the 3.0% GDP, & Stock Market, would have both been much higher & World Markets would be in a better place!”

[…]

On Thursday, the Commerce Department revised its growth estimates for 2018, saying the economy — as measured from the fourth quarter of 2017 to the fourth quarter of 2018 — stands at 3.0 percent, down a bit from the initially reported 3.1 percent. That is still enough to allow Mr. Trump to claim to have achieved the first year of 3 percent growth since 2005.

I am insufficiently expert to say with any authority what GDP growth might have been with lower rates, but I would suspect it would not have been much different. One also wonders what the numbers would look like if Trump didn’t insist on fighting global trade wars.

Beyond any of that, we are still stimulating the economy with record deficits and whatever effect the tax cut had on an already healthy economy.  We remain in a large economy growth period that started when Trump was inaugurated in the first term of the Obama administration.  When the economy does, inevitably, turn downward again, the federal government is going to find itself  with precious little in the way of tools to address the situation.

It should be noted that while Trump promised 4% GDP growth during the campaign, we have not seen such numbers since the Clinton administration during the tech bubble.

Of course, since Trump gets most of his advice, both political and economic, from cable news (to the point of his chief economic adviser having come from cable TV and his likely next Fed appointee being a pundit), none of this is a surprise.

FILED UNDER: Economics and Business, US Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is Professor of Political Science and Dean of the College of Arts and Sciences at Troy University. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. Ben Wolf says:

    When the economy does, inevitably, turn downward again, the federal government is going to find itself with precious little in the way of tools to address the situation.

    Increased spending. Balance sheet reduction. All the tools one needs.

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  2. gVOR08 says:

    Every Prez wants the Fed to ease for his re-election. Trump’s being more open about it. And setting the Fed up as his fall guy.

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  3. Hal_10000 says:

    Trump just wants to boast about “his” economy. If all this stuff results in a crash after he leaves, that’s not his problem. I’m reminded strongly of the late-70’s, early-80s. The Fed had been feeding inflation to give the illusion of economic growth. Volcker tightened down, we had a severe but short-lived hangover. Right now, we’re drunk on deficit spending and low interest rates. The hangover is coming.

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  4. Kathy says:

    @gVOR08:

    And setting the Fed up as his fall guy.

    If he loses in 2020, I’m willing to lavishly spread credit as widely as possible.

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  5. Ben Wolf says:

    @Hal_10000:

    Right now, we’re drunk on deficit spending and low interest rates. The hangover is coming.

    The hypothesis eternally unconfirmed.

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  6. Gustopher says:

    @Ben Wolf: Do you have a historical counter example you would like to share with the class?

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  7. Guarneri says:

    “I am insufficiently expert to say with any authority what GDP growth might have been with lower rates…”

    No one knows. An economy has too many intertwined moving variables for short term pronouncements. Trump is making a political statement, like all presidents do. You teach political science, right?

    “One also wonders what the numbers would look like if Trump didn’t insist on fighting global trade wars.”

    No one knows that one either. There are short term winners and losers. But the bigger picture is that for several decades we have created an unbalanced economy by employing managed trade to eviscerate certain US sectors, especially manufacturing. It’s not healthy or sustainable. Rectifying it will be messy.

    “Beyond any of that, we are still stimulating the economy with record deficits…..”

    As we have for decades.

    “We remain in a large economy growth period that started in the first term of the Obama administration.”

    The relevant fiscal policy legislation was passed while Bush was still president. Further, money was basically free Obama’s whole term. Without those, Barack “The 2% Kid” Obama might have been the 0 or 1% kid.

    “It should be noted that while Trump promised 4% GDP growth during the campaign…”

    A politician made optimistic promises? Well blow me over.

    “Of course, since Trump gets most of his advice, both political and economic, from cable news…..”

    C’mon, man. Don’t cheapen yourself. You’re the last sane one here.

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  8. An Interested Party says:

    Of course, since Trump gets most of his advice, both political and economic, from cable news…..

    Perhaps someone would care to explain how the above statement is not true…

    You’re the last sane one here.

    So James and Doug aren’t sane…

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  9. OzarkHillbilly says:

    @Guarneri:

    You’re the last sane one here.

    Which notably, leaves out you.

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  10. @Guarneri:

    “Of course, since Trump gets most of his advice, both political and economic, from cable news…..”

    C’mon, man. Don’t cheapen yourself.

    A couple of things.

    1) Have you noticed the number of former cable news types in the administration? Here’s a partial list.

    2) Have you ever noticed the degree to which Trump is prone to tweet things (and even make decisions) based on things that were on cable news at about the same time he tweeted them? (For example).

    3) I noted this in the original post about Moore:

    Earlier this week, Trump spoke to National Economic Council Director Larry Kudlow. The president had seen a column in The Wall Street Journal, co-written by Moore, with the headline: “The Fed Is a Threat to Growth.” In it, Moore argued that the “last major obstacle to staying on this path [of economic growth] is the deflationary monetary policy of the Federal Reserve.”

    Trump asked his top economic advisor whether he had seen the column. Kudlow replied that he had and “liked it a lot.”

    “Why isn’t [Moore] the Fed chairman?” Trump asked rhetorically.

    After Kudlow answered that the Fed board had two openings, the president asked his advisor to talk to Moore about one of the posts. Kudlow asked whether Moore was interested, and he said he was. Trump offered Moore the Fed board job, which will not become official until he goes through a vetting process.

    Note that Kudlow’s prior job was a cable TV talking head (ditto John Bolton, btw).

    And for kicks, via USAT: Report: President Trump and Sean Hannity talk nearly every weeknight

    My claim has some significant empirical basis.

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  11. @Guarneri:

    No one knows. An economy has too many intertwined moving variables for short term pronouncements. Trump is making a political statement, like all presidents do. You teach political science, right?

    Yep, and as a political scientist I can assert that yes, he is lying to his supporters about how the economy works that they won’t blame him for the ridiculous promises he made about 4% growth as well and the unfounded promises made about what the tax cuts and trade wars would produce.

    As a political scientist I fully understand what he is up to.

    The question them becomes if you understand this as well, why are you defending it?

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  12. Jay L Gischer says:

    Put me down as thinking the Fed was a bit eager to raise rates last year. There was no real sign of inflation, but they did it anyway.

    As to the deficit, and deficit spending, a lot of that deficit came from the big tax cut for rich guys and corporations. This does not result in much kick for the economy because rich guys and corporations tend to just put it in a sock, or buy stuff offshore. As opposed to if we had, for instance, decided to spend a bunch of money upgrading roads and bridges and stuff.

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  13. Teve says:

    from vox, Trump seems to think that if we stopped all trade with Mexico, the US will somehow make money. I keep waiting for the business community to finally say fuck this idiot.

    During a brief news conference he held at Mar-a-Lago on Friday afternoon, President Donald Trump claimed that closing the border with Mexico would be a “profit-making operation” because of the United States’ trade deficit with its southern neighbor.

    “I’ll just close the border, and with a deficit like we have with Mexico and have had for many years, closing the border will be a profit-making operation,” Trump said, after he announced the departure of Small Business Administrator Linda McMahon, which was the press conference’s main purpose.

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  14. mattbernius says:

    @Steven L. Taylor:

    The question them becomes if you understand this as well, why are you defending it?

    Is he?

    I mean, yes, @Guarneri attacks your argument. But I don’t see him actually defending Moore anywhere. I’ve asked in the other thread if he thinks Moore is qualified and I’ve yet to get a response.

    Honestly, outside of a few times, I’m not sure I’ve ever actually seen him actively support Trump’s policies.

    I could be wrong, but I think he falls into the category of realizing how bad Trump is but not wanting to miss out on any chance to pwn the libs.

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  15. @mattbernius: You make a valid point–he isn’t very clear about his position in any direct way. He does across as excusing Trump, however.

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  16. JohnMcC says:

    @Hal_10000: I especially loved the part where the Federal Reserve forced the VietNam war to be fought without taxes to pay for it and then — MON DIEU! — convinced OPEC to embargo petroleum. Brilliant!

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  17. mattbernius says:

    @Steven L. Taylor:
    I suspect that many people who “excuse” Trump internalize that as being different than “defendingmatt” him (or at least actively “supporting” him).

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  18. mattbernius says:

    @mattbernius:

    defendingmatt

    I don’t think I’ll ever understand the rhyme or reason behind when the “edit this post” button appears and when it doesn’t. Either way, I cannot fix that typo.

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  19. @mattbernius: I will say that across various comment threads, the commenter in question comes across to me as defending (although often by excusing).

    And we have had ongoing trouble with the editing function.

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  20. mattbernius says:

    @Steven L. Taylor:
    Fair.

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  21. Just nutha ignint cracker says:

    @Steven L. Taylor:

    The question them becomes if you understand this as well, why are you defending it?

    Because it annoys the squatter in his head, AKA Michael Reynolds?

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  22. Just nutha ignint cracker says:

    @Teve:

    from vox, Trump seems to think that if we stopped all trade with Mexico…

    I was in the wholesale produce business for 15 years, but that was a generation ago and thing may have changed some, and the first thing that came to my mind was “okay, but what are we going to eat from November through March or so if we do this.”

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  23. Ben Wolf says:

    @Gustopher: What’s in it for me?

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  24. Tyrell says:

    The Federal Reserve is too powerful and secretive. There is a bill that would authorize a complete audit of the FR, but it remains stalled. Why? It is time for transparency. It is time to pull back the curtain on the Forbidden Kingdom. Senator Warren rails against the powerful banks and huge corporations. Fine and good. But she remains silent about the Fed, the most powerful bank there is. Why is that, Senator?
    Some time ago the Fed seemed to have lost track of some trillions of dollars. Senator Sanders and Senator Grayson tried to look into that but hit a stone wall.
    See: “What happened to the missing trillions?” Senator Sanders grills Chairman Bernanke.
    Also: “Banking system for dummies” amazing, shocking

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  25. @Tyrell: As I recall, the whole “audit the fed” thing was some kooky Ron Paul/Rand Paul bit and it has conspiratorial connotations.

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