There is nothing like a national health crisis to expose Republican economic orthodoxy for the fraud it is and the realization that economic growth for the past three years was in spite of Trump administration policies, not due to them. Consider the following.
Since the beginning of time, conservative economists have praised the value of monetary versus fiscal policy. For those unfamiliar with the difference, monetary policy involves changing interest rates (the cost of borrowing money). Proponents of monetary policy hail it as a stimulus in bad times and a way to tamp down inflation in good times. In contrast, fiscal policy revolves around public revenues and expenditures, the argument being lower taxes and public investment (e.g. the Civilian Conservation Corps during the great depression) puts money into individuals’ pockets when the market economy sags. To be fair, both monetary and fiscal policy can be misused to benefit other than the public interest.
If you tuned into CNBC around 2:00 p.m. this afternoon, you witnessed something that was beyond imagination four weeks ago. A panel of the channel’s regular pundits, long-time critics of fiscal policy including the stimulus package which helped ease the economic pain associated with the 2008 financial industry meltdown, said it was time for public works expenditures by the Trump administration. You know, a stimulus package.
When “Power Lunch” host Melissa Lee asked Steve Liesman, “Would a 100 basis points reduction in the federal reserve rate help,” the answer was “unlikely.” (NOTE: 100 basis points is the equivalent of a one percent decrease in the cost of borrowing money.) And in one fell swoop, Liesman either wittingly or unwittingly admitted Donald Trump’s actions throughout his time in the Oval Office had set the stage for what another commentator referred to “as the chickens coming home to roost.
Liesman’s argument goes as follows. If the national economy was a strong as Trump claimed, cutting interest rates over the past 12 months was contrary to sound monetary policy. And prodding Federal Reserve chairman Jay Powell to impose the emergency rate cut on March 4 only made things worse. Why? Because you want future rate cuts to stimulate borrowing and investment. But if rates are already so low (1.00 percent as of today), another cut does not represent much of an incentive. Want to know who it helps? Companies with highly leveraged assets. Can you say, “The Trump Organization.” They can refinance debt at the lower rates to decrease debt service.
Yet, that is only half the story. Liesman’s and others’ new found affinity for fiscal policy remedies which involve public investment and tax cuts comes at a price. Raising questions whether the already ballooning Fiscal Year 2020 deficit could absorb more debt without causing further long term damage to the U.S. economy. The annual deficit has increased by 68.5 percent since Barack Obama left office ($984 billion in 2019 versus $585 billion in 2016).
So all those Trump syncophants and conservative pundits who did not want to heed media warnings their leader was a “day trader” with no interest in the long-term impacts of his policies, hopefully now understand it was not “fake news.” Squandering the fiscal benefits of 10 consecutive years of economic growth lands us where we are today, without the resources that should have been there to counteract the next economic downturn regardless of whether it was a result the normal business cycle or a global health crisis.
On July 4, 2019, I posted an article to this blog titled, “Eco-NO-mics.” The central point was to highlight how a period of consecutive years of economic growth which began or was sustained by every Democratic president since 1952 subsequently ended under the succeeding Republican administration. I pondered how long it would take for Trump to bring an end to the Obama recovery. Now we know. Approximately three years and two months. Once again, it’s time to bring back the Democrats to clean up one more Republican disaster. But don’t be surprised when Trumpists complain the Democrats do not care about deficits. For a party whose symbol is a elephant, they have a VERY short memory.
For what it’s worth.