Predictions are a treacherous business, especially when they concern Donald J. Trump. Nevertheless, I'm going to stick my neck out: Within four years, President Trump will tank the economy.
First off, a few things that I don't think will matter, since a lot of other commentators obsess over them: Trump's erratic behavior isn't going to panic the stock market, and his changes to global trade arrangements will be modest, perhaps even positive.
Worries to the contrary all make a similar mistake: They assume the wealthy and their willingness to invest is the central driver of economic action. Instead what matters is the activity of ordinary people: their trades, their purchases, their daily work, their small risks, their ongoing efforts to make life for their families a bit better. Without all that, there are no financial assets for investors to park their money in.
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This brings us to Trump and the Congressional GOP.
It's unlikely their policies will create a repeat of the 2008 financial crisis. They could if they dismantled Dodd-Frank's financial regulations, but the Republicans' majority in the Senate isn't anywhere near big enough to break a filibuster. To paraphrase Tolstoy, all happy economies are the same; all unhappy ones are unhappy in their own way.
Instead, Trump and the Republicans will gut the U.S. budget, and thus the economy, via reconciliation, a Senate procedural move that allows lawmakers to pass bills with simple majorities if they're solely concerned with budgetary questions. They'll use this tool to suck hundreds of billions of dollars out of ordinary economic activity every year, depriving Americans of spending money, shrinking business revenue, lowering investment, and cutting tens of thousands of government jobs. This will lead to even less macro-economic spending, thus sending the economy into a tailspin.
House Speaker Paul Ryan has his budget ready to go, which would take an axe to Medicaid, food stamps, housing assistance, and the rest of the safety net. Then there's another budget-slashing proposal from the arch-conservative Heritage Foundation, which is apparently serving as a basis for Trump's plans as well. As The Hill just reported, these cuts would extend far beyond the safety net, and decimate most of the government's investments in civil society.
A quick sampling: Programs at the Department of Justice that deal with civil rights and violence against women will be reduced or eliminated; energy programs to promote nuclear physics, green energy, efficiency, and more will be cut; the Corporation for Public Broadcasting would be privatized; the National Endowment for the Arts and the National Endowment for the Humanities would be wiped out entirely. Tens of billions will be cut from energy subsidies, transit, water conservation, and more.
Every safety net program is extra money in people's pockets to spend in their communities, sustaining business and the jobs they create. Every government project invested in, every staff position created, is one more person with a paycheck, who can then go out and spend, producing ripples through the private sector, and leading to more investment and more hiring. Trumps' cuts will bleed hundreds of billions of dollars out of those virtuous cycles every year.
To get a sense of the sheer scale of the change, the total reductions in the Heritage blueprint come to $10.5 trillion over the next decade. That's roughly one quarter of all federal spending. That's truly gargantuan.
Now, some of the cuts in Heritage's budget are to Medicare and Social Security, which Trump is staying away from so far. Ultimately, the GOP may even balk at repealing ObamaCare's subsidies. All of which would bring that $10.5 trillion down to $7.5 trillion or $6.5 trillion. Which is still a gargantuan sum.
On top of that, Trump's appointments to the Federal Reserve will probably slow the economy further. During his campaign, the president was all over the place on monetary policy. But he eventually settled on the standard GOP line: Tight money and higher interest rates. This would be like tying weights to the economy's back after Trump's budgets have already bled it by a thousand cuts.
One could argue that Trump's tax cuts will offset all this. They could add up to $6 trillion themselves to the debt over 10 years, though right now no one really knows what Trump is planning. But the vast bulk of those cuts would not put money back in the pockets of ordinary workers and consumers. They would put money back in the pockets of wealthy investors. Even Trump's much-ballyhooed infrastructure plan is reportedly going to be graft for big business via corporate tax cuts. All in all, spending reductions will probably far outweigh tax cuts, at least in terms of the economic activity that drives most economic growth.
It's possible this outlook is too bleak. Trump could defy his party and resist more than just the cuts to Social Security and Medicare. Or he could switch back to his old love for low interest rates. Or the Republicans themselves could just wimp out in the face of popular backlash. All of that seems unlikely, though.
My analysis might even be too optimistic. Trump is a consummate salesman but an empty vessel when it comes to policy. So he could just wind up caving to the congressional GOP's demands, and give the country the "full Heritage."
So, best-case scenario: The already-lackluster economic recovery slows even further to a bare crawl. Worst-case scenario: The policies of President Trump and the Republicans pitch us into recession sometime in the next four years.
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