By Kevin Judge | June 24, 2018
When candidate Trump announced his plans to achieve 3% economic growth, the conventionally wise scoffed. They almost doubled over in laughter when Trump opined that he felt they could achieve much more than that, at least 4%. This amateur clearly does not know that we have a new normal of 2% growth. Please, someone explain “structural stagnation” to this dunce!
Well, under Trump we have been running a little short of 3% growth. However, a flurry of projections from the likes of Goldman Sachs and the Atlanta Fed are saying the second quarter nearing conclusion should end up at 4%. Will miracles never cease!
Strong reports on all aspects of employment are consistent with these results. The unemployment rate is down to a mere 3.8%, but that number can be misleading because it does not consider people who have given up on finding work. However, the good results are buttressed by an increase in the labor participation rate and a sharp decline in unemployment claims. Reversing a disturbing trend from the Obama years, disability claims are at the lowest level in decades.
Some would like to give Obama delayed credit, but in the real world we are seeing business being invigorated by Trump’s pro-business policies, including deregulation, tax cuts and investment incentives.
Former Google Chairman Eric Schmidt, a prospective Democrat candidate for President, said that the United States needs sustained 4% growth in order to deal with the looming debt and entitlement crisis. The baby boomer generation, folks like me, are becoming eligible for Social Security and Medicare and are going to break the bank within the next decade or so if things do not change.
Spending restraint, conspicuously absent these days, will still be necessary but such growth would be a huge help. Perhaps are only hope of avoiding a fiscal cliff.
Problem is, Mr. Schmidt is a lone voice among Democrats. The liberal base of the party is enamored with policies high tax, high regulation and government centric approaches that are more likely exacerbate the debt problem and slow economic growth.
There are head winds looming that could slow growth, creating an opportunity for a moderate Democrat to outflank Trump on the economy much the way Bill Clinton was able to in beating Bush the Elder in 1992. Clinton exaggerated the severity of a very mild recession and played on the fears of regions struggling to adjust to changes in the economy.
So far, rising interest rates and Trump’s protectionist trade policies have not hurt the economy. But they will be a drag, no doubt about it. The only questions are how much of a drag and how soon will we feel the effects?
Like many things, Trump is wrong on a lot of things he says about trade but is right about the issue. China uses trade not only to enrich itself but as weapon in a global power struggle. Americans have overlooked the protectionist practices of our allies because of the necessities of the Cold War and War on Terror, but Trump senses the times are a changing and our trade policies need to change with them.
Trump is a disrupter and disruption is needed to make changes in the long run. Unfortunately, the short-term impact of disrupting the status quo on trade could slow the economy. This could prevent a second Trump term necessary to cement changes for the long run. That would require a Bill Clinton or an Eric Schmidt to be embraced by a party currently enamored with the likes of Socialist Bernie Sanders.
As Trump likes to say, we’ll see what happens!