It's often said that American presidents get too much credit or blame for the state of the economy. Maybe so, in the sense that presidents have to work with the congress that controls the purse strings. Furthermore, presidents have no control over the problems they inherit, and are subject to unforeseen and uncontrollable world events.
Nevertheless, the president and the U.S. Congress control fiscal policy, the tremendous taxing and spending power that greatly affects the economy. The federal government sets regulations in areas including finance, international trade, labor, and public health. Add to this the monetary policy of the "quasi-public" Federal Reserve System, and it's clear that the president, along with Congress, significantly affects the economy. In any case, the Full Employment Act of 1946 embodied in law the responsibility of the federal government to take actions to attain a fully employed economy.
The economy currently is at or near full employment, following nine straight years of steady, if unspectacular, economic growth. Inflation remains low and financial markets, notwithstanding the recent correction, remain near all-time highs.
President Trump campaigned on his version of the "American economic disaster." Shortly after his election, he quickly pivoted, claiming credit for "tremendous progress" of the economy. Ok, this is just the usual case of "success has a thousand fathers." Never mind that his inherited trajectory of economic growth and rising financial markets was well established under the Obama Administration.
Although the economy is much improved since the Bush Great Recession, problems remain. A serious remaining problem is stagnant wage growth. Income inequality continues to increase at an alarming rate.
Some citizens still don't have access to affordable health care.
Employers express difficulty in finding qualified workers for various jobs, including high-tech manufacturing jobs.
Critics worry about rising interest rates and inflationary tendencies of a fully-employed economy. Our physical infrastructure continues to deteriorate. Environmental and climate issues are of serious concern.
Whether merited or not, it's understandable that politicians claim credit for full employment, rising stock markets, and low inflation. But how about addressing remaining problems? On this, the president and the GOP-controlled Congress are asleep at the switch. Far worse is that the actions they have taken are counterproductive.
Instead of expanding access to health care, Trump and his GOP congressional lackeys have done their utmost to render the Affordable Health Care Act less inclusive and less effective. Instead of addressing environmental issues, they have eliminated regulations on toxic wastes intended to prevent water and air pollution. They have denied climate change as worthy of governmental action.
The list could go on. But among the most egregious actions of President Trump and the GOP-controlled Congress include the recently enacted tax bill, and an irresponsible budget plan, the opposite of what makes sense. These actions exacerbate the distribution of income. They consist of an untimely expansionary fiscal policy that, with a fully employed economy, risks inflation.
The same Republicans who fought President Barack Obama tooth and nail when an expansionary fiscal policy was needed during the Great Recession have enthusiastically endorsed increased deficit spending when it is not needed, and even counterproductive, such as now, during full employment.
During recession, federal budget deficits inevitably occur because tax collections fall. To compensate for deficient private spending, it makes sense to increase government spending then, even though this will further increase the annual federal deficit. Although Obama did manage to get some federal stimulus spending, it fell far short of what was needed to rapidly get out of the Great Recession. Nevertheless, economists credit that stimulus spending, along with the Federal Reserve Bank's expansionary monetary policy, as having been essential to economic recovery.
The counterpart of deficit spending during recession is to reduce annual deficits during recovery and full employment, thereby reducing the public debt relative to the size of the economy. Reduced debt relative to size of the economy enables easier service of the debt, while providing a cushion for dealing with the next recession.
In other words, now is the time to reduce annual deficits in order to provide a cushion for when deficit spending will be required to counter the next recession - which will inevitably occur.
The recently enacted Trump/GOP tax bill will increase the public debt by some $1 trillion to $1.5 trillion over the next decade. In addition, it exacerbates income inequality, throwing a few bucks to some - not all - middle-class folks, while awarding huge breaks to the top one percent.
The Trump/GOP budget plan would add $450 billion to the public debt over the next decade. Gone are the once GOP ballyhooed plans to reduce annual deficits to zero in 10 years.
The same Republicans who decried deficit spending during the Obama Administration now welcome it, as long as it is to finance tax cuts. Apologists, led by House Speaker Paul Ryan, offer the feeble argument that the tax cuts will "pay for themselves" through economic growth stimulated by corporate tax reductions. That's pure eyewash - economic snake oil. No responsible analyst asserts that any such growth will be even nearly sufficient to cover lost revenues.
The proposed increased spending, largely on defense, along with decreased revenue resulting from the tax bill, will limit the funds available for infrastructure - expenditures that should have been made during the Great Recession when the stimulus was needed and interest rates were low.
Trump's infrastructure plan reportedly relies mainly on state and local funds. How financially strapped states will come up with the massive amounts needed is unspecified.
It was wrong for congressional Republicans to oppose deficit spending during the Great Recession. But one would hope that Republicans who have billed themselves as "fiscal hawks," would hold true to that principal when restraint is warranted.
Republicans who once used government deficit spending as a convenient stick with which to beat the Democrats have emerged. They now use it as a convenient way to reward their wealthy donors.
- John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Fridays in the Monroe Times.
Nevertheless, the president and the U.S. Congress control fiscal policy, the tremendous taxing and spending power that greatly affects the economy. The federal government sets regulations in areas including finance, international trade, labor, and public health. Add to this the monetary policy of the "quasi-public" Federal Reserve System, and it's clear that the president, along with Congress, significantly affects the economy. In any case, the Full Employment Act of 1946 embodied in law the responsibility of the federal government to take actions to attain a fully employed economy.
The economy currently is at or near full employment, following nine straight years of steady, if unspectacular, economic growth. Inflation remains low and financial markets, notwithstanding the recent correction, remain near all-time highs.
President Trump campaigned on his version of the "American economic disaster." Shortly after his election, he quickly pivoted, claiming credit for "tremendous progress" of the economy. Ok, this is just the usual case of "success has a thousand fathers." Never mind that his inherited trajectory of economic growth and rising financial markets was well established under the Obama Administration.
Although the economy is much improved since the Bush Great Recession, problems remain. A serious remaining problem is stagnant wage growth. Income inequality continues to increase at an alarming rate.
Some citizens still don't have access to affordable health care.
Employers express difficulty in finding qualified workers for various jobs, including high-tech manufacturing jobs.
Critics worry about rising interest rates and inflationary tendencies of a fully-employed economy. Our physical infrastructure continues to deteriorate. Environmental and climate issues are of serious concern.
Whether merited or not, it's understandable that politicians claim credit for full employment, rising stock markets, and low inflation. But how about addressing remaining problems? On this, the president and the GOP-controlled Congress are asleep at the switch. Far worse is that the actions they have taken are counterproductive.
Instead of expanding access to health care, Trump and his GOP congressional lackeys have done their utmost to render the Affordable Health Care Act less inclusive and less effective. Instead of addressing environmental issues, they have eliminated regulations on toxic wastes intended to prevent water and air pollution. They have denied climate change as worthy of governmental action.
The list could go on. But among the most egregious actions of President Trump and the GOP-controlled Congress include the recently enacted tax bill, and an irresponsible budget plan, the opposite of what makes sense. These actions exacerbate the distribution of income. They consist of an untimely expansionary fiscal policy that, with a fully employed economy, risks inflation.
The same Republicans who fought President Barack Obama tooth and nail when an expansionary fiscal policy was needed during the Great Recession have enthusiastically endorsed increased deficit spending when it is not needed, and even counterproductive, such as now, during full employment.
During recession, federal budget deficits inevitably occur because tax collections fall. To compensate for deficient private spending, it makes sense to increase government spending then, even though this will further increase the annual federal deficit. Although Obama did manage to get some federal stimulus spending, it fell far short of what was needed to rapidly get out of the Great Recession. Nevertheless, economists credit that stimulus spending, along with the Federal Reserve Bank's expansionary monetary policy, as having been essential to economic recovery.
The counterpart of deficit spending during recession is to reduce annual deficits during recovery and full employment, thereby reducing the public debt relative to the size of the economy. Reduced debt relative to size of the economy enables easier service of the debt, while providing a cushion for dealing with the next recession.
In other words, now is the time to reduce annual deficits in order to provide a cushion for when deficit spending will be required to counter the next recession - which will inevitably occur.
The recently enacted Trump/GOP tax bill will increase the public debt by some $1 trillion to $1.5 trillion over the next decade. In addition, it exacerbates income inequality, throwing a few bucks to some - not all - middle-class folks, while awarding huge breaks to the top one percent.
The Trump/GOP budget plan would add $450 billion to the public debt over the next decade. Gone are the once GOP ballyhooed plans to reduce annual deficits to zero in 10 years.
The same Republicans who decried deficit spending during the Obama Administration now welcome it, as long as it is to finance tax cuts. Apologists, led by House Speaker Paul Ryan, offer the feeble argument that the tax cuts will "pay for themselves" through economic growth stimulated by corporate tax reductions. That's pure eyewash - economic snake oil. No responsible analyst asserts that any such growth will be even nearly sufficient to cover lost revenues.
The proposed increased spending, largely on defense, along with decreased revenue resulting from the tax bill, will limit the funds available for infrastructure - expenditures that should have been made during the Great Recession when the stimulus was needed and interest rates were low.
Trump's infrastructure plan reportedly relies mainly on state and local funds. How financially strapped states will come up with the massive amounts needed is unspecified.
It was wrong for congressional Republicans to oppose deficit spending during the Great Recession. But one would hope that Republicans who have billed themselves as "fiscal hawks," would hold true to that principal when restraint is warranted.
Republicans who once used government deficit spending as a convenient stick with which to beat the Democrats have emerged. They now use it as a convenient way to reward their wealthy donors.
- John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Fridays in the Monroe Times.
