Larry Kudlow told reporters no second wave of Coronavirus is coming.00:01Wow look at the growth rate is only up a00:08little bit we’re like one and a half00:10percent growth that number was 4045 yeah00:18but way below the original we do and you00:25know I didn’t hear the interview but youknow there’s six or eight or nine statesthat have massive declines in case ratesI don’t have time to go through with youI’m sorry the fatality rate continues tofall we don’t see any upturn I think thehots we’re going to have hot spots noquestion we have a now and you knowTexas and parts of the South theCarolinas Arizona we just have to liveat that that’s I think part of the storyof the defining impact of the virus butit does like you’re an investor but we01:00do have tools if you talk to our help01:02people I’m not the expert01:04we have tools now dpp-4 a PPE for01:08example and01:11you know the face mask if van leis said01:14we didn’t have those tools and we didn’t01:16have the experience so we’re going to01:17see these things but the economy is not01:20going to be closed down again01:22there may be certain places where there01:24is that’s up to the local authorities I01:26don’t deny but fatalities are still down01:30and there’s a lot of positive defines in01:33cases just as there are negative defines01:35in cases but no we’re not01:43below 10% by years yet that’s a lot01:47different from what01:53I don’t think so01:55I’ll check them I’m pretty sure that’s01:58that’s very close but fiscal year but02:00they’re in by the end of this county and02:03that’s a lot of private economists are02:06saying that we’re still looking for a02:07strong second after he found us and by02:10the way today’s unemployment that we02:12found qualify himself02:13twelve straight week and continuing fine02:19I dropped by02:23I like what I see on hat look we’re02:26gonna struggle through this02:29but I’m still02:31thank you
Hannity. Rush. Dobbs. Ingraham. Pirro. Nunes. Tammy. Geraldo. Doocy. Hegseth. Schlapp. Siegel. Watters. Dr. Drew. Henry. Ainsley. Gaetz. Inhofe. Pence. Kudlow. Conway. Trump. We salute the Heroes of the Pandumbic. #DailyShow #TrevorNoah #Coronavirus
NEW HAVEN – Blinded by a surging stock market and a 50-year low in the unemployment rate, few dare to challenge the wisdom of US economic policy. Instant gratification has compromised the rigor of objective and disciplined analysis. Big mistake. The toxic combination of ill-timed fiscal stimulus, aggressive imposition of tariffs, and unprecedented attacks on the Federal Reserve demands a far more critical assessment of Trumponomics.
Politicians and pundits can always be counted on to spin the policy debate. For US President Donald Trump and his supporters, the art of the spin has been taken to a new level. Apparently, it doesn’t matter that federal deficits have been enlarged by an estimated $1.5 trillion over the next decade, or that government debt will reach a post-World War II record of 92% of GDP by 2029. The tax cuts driving these worrying trends are rationalized as what it takes to “Make America Great Again.”
Nor are tariffs viewed as taxes on consumers or impediments to global supply-chain efficiencies; instead, they are portrayed as “weaponized” negotiating levers to force trading partners to change their treatment of the United States. And attacks on the Fed’s independence are seen not as threats to the central bank’s dual mandate to maximize employment and ensure price stability, but rather as the president’s exercise of his prerogative to use the bully pulpit as he – and he alone – sees fit.
There are three basic flaws with Trump’s approach to economic policy.
- First, there is the disconnect between intent and impact. The political spin maintains that large corporate tax cuts boost US competitiveness. But that doesn’t mean deficits and debt don’t matter. Notwithstanding the hollow promises of supply-side economics, revenue-neutral fiscal initiatives that shifted the tax burden from one segment of the economy to another would have come much closer to real reform than the reduction of the overall revenue trajectory has. Moreover, the enactment of fiscal stimulus in late 2017, when the unemployment rate was then at a cyclical low of 4.1% (headed toward the current 3.6%), added froth to markets and the economy when it was least needed and foreclosed the option of additional stimulus should growth falter.
Similarly, Trump’s tariffs fly in the face of one of the twentieth century’s greatest policy blunders – the Smoot-Hawley Tariff of 1930, which sparked a 60% plunge in global trade by 1932. With foreign trade currently accounting for 28% of GDP, versus 11% in 1929, the US, as a debtor country today, is far more vulnerable to trade-related disruptions than it was as a net creditor back then.
Ignoring the cascading stream of direct and retaliatory taxes on consumers and businesses that stem from a tariff war, Trump extols the virtues of tariffs as “a beautiful thing.” That is painfully reminiscent of the 1928 Republican Party platform, which couched tariffs as “a fundamental and essential principle of the economic life of this nation … and essential for the continued prosperity of the country.” Trump ignores the lessons of the 1930s at great peril.
The same can be said of Trump’s recent Fed bashing. The political independence of central banking is widely regarded as the singular breakthrough needed to achieve price stability following the Great Inflation of the 1970s. In the US, passage of the so-called Humphrey-Hawkins Act of 1978 gave then-Fed Chairman Paul Volcker the political cover to squeeze double-digit inflation out of the system through a wrenching monetary tightening. Had Volcker lacked the freedom to act, he would have been constrained by elected leaders’ political calculus – precisely what Trump is doing in trying to dictate policy to current Fed Chair Jerome Powell.
2) The second critical flaw in Trump’s economic-policy package is its failure to appreciate the links between budget deficits, tariffs, and monetary policy. As the late Martin Feldstein long stressed, to the extent that budget deficits put downward pressure on already depressed domestic saving, larger trade deficits become the means to fill the void with surplus foreign saving. Denial of these linkages conveniently allows the US to blame China for self-inflicted trade deficits.
But with tariffs likely to divert trade and supply chains from low-cost Chinese producers to higher-cost alternatives, US consumers will be hit with the functional equivalent of tax hikes, raising the risk of higher inflation. The latter possibility, though seemingly remote today, could have important consequences for US monetary policy – provided, of course, the Fed has the political independence to act.
Finally, there are always the lags to keep in mind in assessing the impact of policy. While low interest rates temper short-term pressures on debt-service costs as budget deficits rise, there is no guarantee that such a trend will persist over the longer term, especially with the already-elevated federal debt overhang projected to increase by about 14 percentage points of GDP over the next ten years. Similarly, the disruptive effects of tariffs and shifts in monetary policy take about 12-18 months to be fully evident. So, rather than bask in today’s financial-market euphoria, politicians and investors should be thinking more about the state of the economy in late 2020 – a timeframe that happens to coincide with the upcoming presidential election cycle – in assessing how current policies are likely to play out.
There is nothing remarkable about a US president’s penchant for political spin. What is glaringly different this time is the lack of any pushback from those who know better. The National Economic Council, established in the early 1990s as an “honest broker” in the executive branch to convene and coordinate debate on key policy issues, is now basically dysfunctional. The NEC’s current head, Larry Kudlow, a long-standing advocate of free trade, is squirming to defend Trump’s tariffs and Fed bashing. The Republican Party, long a champion of trade liberalization, is equally complicit. Trump’s vindictive bluster has steamrolled economic-policy deliberations – ignoring the lessons of history, rejecting the analytics of modern economics, and undermining the institutional integrity of the policymaking process. Policy blunders of epic proportion have become the rule, not the exception. It won’t be nearly as easy to spin the looming consequences.
More than 20 years ago, Harvard’s N. Gregory Mankiw, who would later serve as George W. Bush’s chief economic adviser, published the first edition of his best-selling Economics 101 textbook. Early in the book, trying to explain why economists are often perceived as disagreeing about everything, he wrote about the role of “charlatans and cranks.” When economists appear to be at odds, he wrote, you should be aware that sometimes the apparent dissent is coming from “some snake-oil salesman who is trying to sell a miracle cure.” He was referring to the people who told Ronald Reagan that cutting taxes would pay for itself, above all a guy named Art Laffer. As Mankiw noted, the charlatans and cranks were wrong: Reagan’s tax cuts sharply reduced revenue. And the same thing has been true every time tax-cut proponents have promised a miracle. Most recently, the 2017 Trump tax cut has led to a precipitous collapse in corporate tax receipts, twice as much as projected. Yet decades of being wrong again and again has done nothing to reduce the influence of tax-cut cranks on the G.O.P. On the contrary, their grip has gotten ever tighter. Even supposed Republican moderates like Maine’s Susan Collins justified their support for the 2017 bill by saying that it would pay for itself. And on Wednesday, Laffer will receive the Presidential Medal of Freedom. To be fair, Laffer is known for other things besides his utter faith in the miraculous power of tax cuts. He’s also known for warning about the dire effects of the Federal Reserve’s efforts to fight the financial crisis: “Get ready for inflation and higher interest rates,” he thundered a decade ago. Actually, no: Inflation has stayed low, and interest rates are close to their lowest levels in history. Now, anyone with a long career of making economic pronouncements will have made some bad calls. God knows I have. But what makes Laffer and others like them so special is both the utter consistency of their wrongness and the fact that their influence just keeps rising despite that wrongness. Or maybe I should say that their influence grows because of their wrongness. Constantly predicting great results from tax cuts for the rich and catastrophe should top tax rates go up is a bad way to devise economic policy but a very good way to ingratiate yourself with wealthy political donors. Attacking any policy that might have helped the economy while a Democrat was president was a pretty good career strategy too. What’s striking is that at this point the G.O.P. apparently has no use for economists who aren’t snake-oil salesmen. There are serious economists — like Mankiw — who happen to be conservatives, out of some combination of personal values and judgements about the proper role of government. I can respect their positions, even when I disagree. But they have no political home. Laffer’s medal, like the appointment of the fundamentally ludicrous Larry Kudlow as chief economist and the attempt to install Stephen Moore at the Fed, is like putting up a sign saying “Only charlatans and cranks need apply.”