how bad a thing is this fiscal profligacy?
it means higher debt, which will in turn reduce the “fiscal space” for responding to the next crisis. It will also crowd out investment, hurting long-run growth.
.. I’ve been seeing some people suggesting that rising deficits are going to hurt the economy in the short run, perhaps even cause a recession. Will they?
.. lot of policymakers bought into the doctrine of “expansionary austerity,” in which slashing government spending in a depressed economy would somehow lead to a big rise in private spending. But this doctrine, as I wrote at the time, depended on belief in the “confidence fairy”
- belief that somehow consumers and investors would be so reassured by the government’s willingness to inflict pain that the economy would surge.
.. why will the blowup in the deficit cause the Fed to raise rates? Precisely because it will tend to make the economy grow faster in the short run, raising the perceived risk of inflation, and the Fed will raise rates to head that risk off.
.. it will limit the magnitude of the expansionary effect, not turn it into contraction.
.. the G.O.P.’s fiscal behavior has been hypocritical, irresponsible, and reprehensible. But it won’t cause a recession.
The Trump Recession is coming
History suggests that the next recession is not far off. The current expansion, though relatively weak, has been steady since June 2009, making this the third-longest upward climb on record. Juiced by the tax cut, the United States is on track to record 107 months without a recession in April, passing the boom of the 1960s in duration. That will leave only the decade-long, 120-month run in the 1990s — when the end of the Cold War met the rise of the Internet to create a Golden Age for the U.S. economy — to be beaten.
.. Trump might ask George H.W. Bush what it’s like to have a recession arrive during a reelection campaign.
.. By delaying the inevitable, Trump’s tax cut may prove to be a double-edged sword. The recession that might have arrived in 2018 and passed like a summer storm will likely be shoved back a couple of years. If the piper presents his bill in the midst of Trump’s reelection campaign, the president better look out, because Democrats going back to John F. Kennedy score their wins when Republican presidents stumble into late-term economic woes.
.. Perhaps Trump should have followed Ronald Reagan’s example, accepting a recession early in his first term and trusting the recovery would come in time to lift him to reelection. That option is gone now. Having juiced the economy with tax cuts, Trump must either find a way to skim the froth — prod the Fed for rapid rate increases? unsettle the world with ill-advised trade wars? — or cross his fingers and power through. My prediction is that he’ll throw open the government’s liquor cabinets and pour out every stimulating drop he can get his hands on in a desperate effort to keep the party going through 2020.
What a morning-after that is likely to be.