Skip to content

Category: Trump

Published on Leave a comment on Fiscal Recklessness, 2018 Edition

I was invited to present a lecture at Middlebury this past week on "Income Tax Policy and Economic Growth." I wanted to present a picture of just how bad the projected federal deficit is for the next decade. The following graph, which shows the last 50 years of data on the unemployment rate and the federal deficit, is what emerged:

Sources: CBO, BLS

The horizontal axis is the unemployment rate, as a percentage of the labor force, and the vertical axis is the federal deficit, as a percentage of GDP. Other things equal, we would expect the line to be downward sloping -- the higher is the unemployment rate, the worse will be the deficit, as both automatic stabilizers and additional stimulus efforts kick in. Each blue dot represents the year indicated over the last 50 years, 1968 - 2018. The best-fit linear relationship indicated by the blue dots is about -1.2: for every additional percentage point of the labor force that is unemployed, the federal deficit widens by about 1.2 percentage points of GDP.

Departures from that general tendency indicate budget policy that was unusually strict (toward the Northeast direction) or unusually loose (toward the Southwest direction). The orange dots are the next 10 years of projections, based on CBO data. Note that there is no recession projected in these data -- the unemployment rate is projected to remain below 5 percent over this decade. Despite this rosy economic projection, the deficit is always about 4 percent of GDP or larger. We will have never had deficits that large as a share of GDP with unemployment that low. Relative to where we were 20 years ago with similar unemployment rates, we are running deficits 5-6 percentage points of GDP larger. That's President Trump's fiscal record.

That is the mess we are in. My main concern is intergenerational equity -- there is no ethical reason to pass along the burden of financing structural deficits to future generations. And then, eventually, there will be further concern if and when the rest of the world decides it is no longer content to allow us to roll over our debt at such favorable interest rates.

Published on Leave a comment on How Successful Was the Tea Party Movement?

Over Dartmouth's recent spring break, I made some lunchtime remarks at a meeting of the Dartmouth Club of Dallas. The theme of my remarks was that we have recently seen, or will soon see, the poor outcomes of trends that have been a long time in the making. I used some examples that have been the subject of blog posts -- the depopulation of urban areas in the Midwest that put Wisconsin, Michigan, Pennsylvania, and even Ohio in play for the Republicans in 2016; the chronic underfunding of state and local pension plans; and the impending financial consequences of the Baby Boom generation shifting from being a large, productive cohort of contributors to old-age entitlement programs to being a large cohort of program beneficiaries.

On this occasion, I added a new outcome that we should have expected based on recent events. The election of Donald Trump represents the culmination of the Tea Party movement. Here's what I said:

As much as the media fomented stories about discord between the Trump campaign and the Republican establishment, Steve Bannon and Reince Priebus – reflecting the insurgent and the traditional elements of the Republican Party – were working together on Trump’s campaign since at least August 15th.
In light of this, I think we have to acknowledge that the Tea Party is one of the most electorallysuccessful political movements in our lifetimes. I say electoral success – this does not necessarily imply ideological or policy success. And it has achieved its success without much formal, top-down mobilization. Recall that this movement began in February 2009 in opposition to Obama’s early policies, particularly his announced plans to give financial aid to bankrupt homeowners but also including the stimulus bill and eventually Obamacare. Some elements appear to be for a smaller public sector and lowering the public debt, but others have shown up to town hall meetings with, shall we say puzzling, slogans like, “Keep your government hands off my Medicare.” (In fairness, though, we do refer to Medicare as an “entitlement program,” so eventually people might start believing that.)
As an aside, lest you think it matters as much to Trump supporters as it does to his critics, you may have been reading in newspapers this week articles with sensational headlines that contend that Trumpcare or Trump’s budget will disadvantage areas that voted for him. This is more misunderstanding of the phenomenon. Recall the origin of the movement – in opposition to a government handout that would have sent money to some of these same areas. I would argue that “nothing is the matter with Kansas” – it just doesn’t always vote its pocketbook. (We might even note that there are some positive social aspects of that approach.)
The Tea Party’s first victory was to strongly influence the outcomes in the 2010 midterm elections, flipping the House back to Republicans, which the Republicans have held since. The House turns over every two years, the Senate every six. In the first three Senate elections following the Tea Party’s formation, the Republicans picked up 13 seats: +6 in 2010, -2 in 2012, and +9 in 2014 to regain control before giving 2 back while retaining the Senate in 2016.  Given how many seats the Democrats will have to defend in 2018, the Democrats are unlikely to retake the Senate, despite what we are observing in Washington these days. 
And in 2016, the Tea Party elected a president. Much of what Trump considers to be his agenda – national security and sovereignty, economic nationalism, and (using Steve Bannon’s language) the deconstruction of the administrative state – appeals to the Tea Party movement. I don’t see how the other elements of the Reagan coalition – pro-business, libertarian, evangelical – can find their way back to power until, first, the Trump coalition organized around these nationalist themes surrenders its narrow Electoral College majority to a Democratic administration and, second, the population is ready to move on from that administration.

I made these remarks on March 17, before the debacle of the failure to move the AHCA the following week. What I take from that episode is that 2016 is this culmination of the Tea Party movement is also the peak of its electoral success. The rhetoric of criticism of the Obama administration was ill preparation for the realities of governing. Conor Friedersdorf describes the unraveling in riveting detail in the Atlantic yesterday. Save for appointments to the Supreme Court, President Trump is unlikely to accomplish anything fundamental that requires the Congress to participate. That includes the budget, walls on the border, and many other planks in his campaign platform. And the reason isn't that the Democrats refuse to cooperate -- it is that the Republicans will be unwilling or unable to move these initiatives along.
 

Published on Leave a comment on Republican Budget Policy, A New Look

At the Inauguration Panel on Tuesday, I noted that Mick Mulvaney, President-elect Trump's nominee for Director of the Office of Management and Budget, was considerably more of a deficit hawk while a Representative than was the Republican leadership in the House. This AP article from last month describes his time in the House well:

Mulvaney quickly came to oppose Boehner’s leadership before Boehner was pushed out in 2015. In 2013, Mulvaney declined to support Boehner’s re-election to the post. That year, Mulvaney unsuccessfully pushed for amendments to reduce Pentagon funding and proposed broad across-the-board federal cuts, including for the military.

He was an early backer of Trump during the presidential campaign, noting that the Republican billionaire had tapped into a populist sentiment dissatisfied with Washington.

“If you want to know, members of Congress, why you have Donald Trump, go look in the mirror, because we’ve over-promised and under-delivered for so long,” Mulvaney said in February.

The problem with the Republican Party on the budget in recent years is that it likes to portray itself as fiscally responsible, but when it actually comes time to impose budget discipline, its leaders lose their nerve. They either don't vote for grand compromises like Simpson-Bowles that balance expenditure reductions with revenue increases, don't run a budget process that offers a disciplined budget even when they control both houses of Congress, or confuse tax cuts with budget cuts.

In a report today, The Hill describes the budget being contemplated by the incoming administration. It specifies reductions of $10.5 trillion over a decade in federal spending:

The proposed cuts hew closely to a blueprint published last year by the conservative Heritage Foundation, a think tank that has helped staff the Trump transition.

Similar proposals have in the past won support from Republicans in the House and Senate, who believe they have an opportunity to truly tackle spending after years of warnings about the rising debt.

Many of the specific cuts were included in the 2017 budget adopted by the conservative Republican Study Committee (RSC), a caucus that represents a majority of House Republicans. The RSC budget plan would reduce federal spending by $8.6 trillion over the next decade.

[...]

“Mick Mulvaney and his colleagues at the Republican Study Committee when they crafted budgets over the years, they were serious,” said a former congressional aide. “Mulvaney didn’t take this OMB position to just mind the store.”

“He wants to make significant, fundamental changes to the structure of the president’s budget, and I expect him to do that with Vought and Gray putting the meat on the bones,” the source added.

That would be a genuine change in Republican policy, as implemented. It also suggests how the Trump administration would make good on promises to leave entitlement programs largely intact while restoring some balance to the budget without significant tax increases. It remains to be seen whether Congressional Republicans will go along.

Published on Leave a comment on Inauguration Week Panels at Dartmouth

This week, we are hosting four panels on opportunities and risks facing the new Presidential administration. My contribution was to yesterday's panel on domestic issues, focusing on budget policy. Here is how I opened my remarks:

Stated plainly, our federal budget policy has been a mess since our first modern experiments with tax cuts in the 1980s. A favorable combination of factors restored some sanity to it in the late 1990s. Our second modern experiment with tax cuts in the 2000s messed it up again.

All the while, the aging of the Baby Boom generation through its peak earnings years made our old-age entitlement programs temporarily less expensive to fund. Its continued aging into retirement and thus beneficiary years will cause Social Security and Medicare to switch to large and growing annual deficits.

So there is serious work to be done, and we haven’t been close to being up for the challenge in at least 6 years. 

The video is available here:

And the other three panels, focusing on global issues, health care, and energy and the environment, can be livestreamed or viewed here.

Enjoy!

Published on Leave a comment on An Unfortunate Night at the Theater

By now, you have likely seen or read a report of VP-elect Mike Pence's trip to see Hamilton last evening. There were two moments that deserve comment.

The first is that Pence was booed by some noticeable portion of the crowd in attendance when he arrived. I guess when people pay exorbitant prices for theater tickets, they feel entitled to behave this way.  I don't have more attention than three lines of blogging to offer them.The second is that the cast of the show took time after the production for this impromptu monologue. Both moments are included here:

True confession. My wife picked up the soundtrack for the musical after she saw the show some months ago. (The rest of us are waiting for the ticket prices to come down.) We love the story. We love the music. I suppose we are smart enough to have understood the relevance of the story and music for the world we live in today.

Guess what. Mike Pence is, too. Is there some other reason the cast thinks he showed up last evening? Is there some reason why the cast members of Hamilton think so little of their own talents and artistry, their ability to convey this relevance on the stage, that they have to deliver a sanctimonious monologue at the end? Theater works better when we let the work speak for itself.

If the cast wanted to follow up with the VP-elect, they could do it privately in a way that encourages him to take a second step, not publicly in a way that dissolves the goodwill that should follow from his first step. And if anyone wants to protest and resist the incoming administration, the best advice comes from my MIT classmate, Luigi Zingales, in yesterday's New York Times op-ed, The Right Way to Resist Trump.

Addendum: A similar argument, made with more credibility, from Steven Van Zandt.

Published on Leave a comment on What Makes a Swing State Swing?

An article by my friend and former Bush Administration colleague Chuck Blahous provides a defense of the electoral college based on the claim that it focuses the presidential candidates on swing states. Here's the essence of the argument:

In an electoral college system, however, the campaigns are induced to focus less on the sheer size of a state and more on its political moderation.  The so-called swing or battleground states are those states with roughly equal numbers of voters potentially willing to back different candidates, such that an extra successful effort by one candidate could tip the balance.  This is not a theoretical concept, but rather an observable phenomenon. For example, this year the candidates repeatedly visited swing states such as Florida, Pennsylvania, North Carolina, Ohio and New Hampshire.  Tiny New Hampshire, with its mere four electoral votes, received more candidate attention than California with its 55.  Why?  It is because New Hampshire was open to being persuaded by either candidate, whereas California was not.

As I noted to Chuck in some Facebook comments, I don't think this is true.  A state can be a "swing state" because it contains a lot of voters who are political moderates and thus swing voters. But a state can also be a "swing state" because it contains a roughly equal number of Democratic voters and Republican voters, who are no more persuadable than their counterparts in other states that have less equal numbers. In the latter case, the "political moderation" benefits of the electoral college don't materialize. From my experience, the Democrats in New Hampshire (where I work) are just as partisan and no more open to persuasion to vote for a Republican than the Democrats in Vermont (where I live). Chuck is correct that candidates respond to incentives and deluge the New Hampshire media market with advertising, but these advertisements may simply be efforts to turn out their base of partisans in larger numbers than their opponent's base of partisans.

To add some further support to my hypothesis, I would note that the political advertising done in New Hampshire during the general election was not particularly targeted to swing voters. All the negativity seemed like an effort to drive turnout by the candidate's base or to depress turnout by the opponent's base. I cannot recall an advertisement that tried to appeal to moderates who might be undecided (e.g. here's a problem we need to solve in a way that respects the valid points on both sides of the political spectrum.)

Much of Chuck's article is about what would happen in the counterfactual case where the national popular vote determined the winner. He is right that candidates would likely gravitate to their strongholds to try to drive turnout by their base. (President Bush remarked, when queried about his failure to capture the popular vote majority in 2000, that if that was the objective, he would have campaigned in Texas and "run up the score.") My simple model of what candidates are doing, now and in the counterfactual, is to devote their resources where the "price per vote" is the lowest. The price they pay is with their own time and with advertising. Population density matters for economizing on their time, but I presume that media buys are more expensive when they reach more people, so that it is not clear that media dollars would flow to the largest markets. Further, the media buys presumably depend on total population, not "total population likely to be sympathetic to your message." In this case, more politically diverse areas -- swing states -- would be further disadvantaged.

Addendum: How sad, I have finally repeated a post title without realizing it. Fortunately, the message is consistent.

Published on Leave a comment on Five Suggestions for the President-Elect

By now, if you are reading this blog, you know that Donald Trump is the President-Elect. This is not an "I told you so" post, for two reasons. First, of all the subjects for a blog, the horse race aspect of politics is among the least interesting to me, and there were plenty of more qualified experts to get things wildly wrong. Second, I haven't been blogging much over the last few years. Unlike when I started blogging 12 years ago, the blogosphere is now quite crowded. Just as importantly, around the start of 2015, in response to some life events and in anticipation of how unpleasant I thought this campaign would be, I just decided to focus on some other things and give myself the gift of not paying much attention in real time.

It didn't get nearly as unpleasant as I thought it would. We should actually consider ourselves a bit lucky.

For the record, I am a Republican, but I did not vote for Trump. I voted for John Kasich in the Vermont primary and Gary Johnson in yesterday's election. I simply refuse to vote for any candidate who gives clear signals that he or she will abuse power. For different but self-evident reasons, that disqualifies both Trump and Clinton. I would have voted the same way if I lived across the river in New Hampshire, where my vote might actually have mattered.

But I was also not part of this #NeverTrump movement among my fellow Republicans. Now that Trump is President-Elect, he needs support to govern from everybody. That includes me. I'll try to offer my best ideas and most thoughtful reflections from the blog, with greater frequency than during the long campaign. I will start with five ideas.

First, Trump should announce that he expects the Senate to vote on Merrick Garland's nomination before the session ends. He should not tell them his preference for whether Garland is confirmed or not. He should further scold the Republicans for not having acted on it sooner. Draining the swamp requires him to shine a light on political opportunism, regardless of which party exhibits the bad behavior. He owes no particular courtesy to Republicans who shied away from endorsing him, and so he should not spare them the criticism they deserve.

Second, he should acknowledge that our federal budget is on an unsustainable path. He should be clear with the new Congress that he expects a compromise like Simpson-Bowles, or something better, to be on his desk by Day 100. The problem is the baseline. Simpson-Bowles addresses that problem. Resetting the baseline so that it is sustainable does not absolve the Congress of its other fiscal duties, to modify the baseline annually to better reflect priorities as they evolve. This is an issue where we need to act sooner rather than later, and Presidential involvement is absolutely essential. Plus, his involvement gives Congress cover to do something politically unpopular but fiscally prudent. They might actually appreciate it. I make this suggestion in full recognition of the next one.

Third, he needs to recognize that his election coincides with a peak of the labor market, and things are only going to get more challenging from here. He needs to be thinking of rebuilding our decrepit infrastructure as a jobs program for the labor market dislocation that is sure to come. I have been preaching this for nearly 9 years now, most recently here, so I won't repeat all the details. Just make the process of setting priorities as transparent as possible.

Fourth, he should announce that he plans to have national or international summits on key policy issues for each of his first twelve months, led by his newly appointed cabinet officials and senior aides. Bringing the country together, and bringing it together with our fellow nations, requires a distinct forum for putting ideas into discussion. There is no shortage of topics -- race relations, immigration, international trade, education, surveillance, cooperation in the Americas, what's left of NATO, energy security, environmental degradation, homeland security, ... you name it. He should task his Vice President with organizing all of them, with the expectation that the lessons learned from each will inform his policy agenda over the coming years. (Yes, I am envisioning him in his role on The Apprentice as I write this.)

Fifth, he should get up to speed, like yesterday, on potential terrorist threats. The upheaval of this election is just what ISIS ordered. He needs to surround himself with a diversity of experts and listen to what they have to say.

More ideas and reflections to come.

Addendum:  A colleague points me to this recent book, The Politics of Resentment, claiming "Kathy Cramer got it right all along."