Sat. Apr 4th, 2020

Trump presses the panic button | Economy

Donald Trump has celebrated the 9/11 anniversary by repeating several lies about what he did that day. But that was not his only concern. He also spent part of the day writing a series of tweets vilifying the Federal Reserve authorities, which he called "hollow heads", and demanding to implement immediate emergency measures to stimulate the economy (emergency measures that normally only apply to a serious crisis).

Trump's tirade It was revealing for two reasons. The first is that it is now evident that he is in total panic mode because his economic policies do not give the promised results. And the second is that he has no idea why his policies don't work, or anything else related to economic policy. But before moving on to the economy, let's talk about one of Trump's indicators of ineptitude: his comments on federal debt.

In addition to demanding that the Reserve cut interest rates below zero, Trump declared that "then we should start refinancing our debt," because "the United States should always pay the lowest interest rate." He left the observers dumbfounded and wondering what he was talking about.

But in reality, it is quite evident. Trump believes that federal debt is like a business loan, which you can pay early to take advantage of lower interest rates. It is clear that he does not know that the federal debt actually consists of bonds, which cannot be paid in advance (which is one of the reasons why the interest rates on the federal debt are always lower than, say, types on real estate mortgages). That is, he imagines that government finances can be managed as if the United States were a casino or a golf course, and it has never occurred to him to ask someone from the Treasury if this is how it works.

But returning to the economy, why has Trump panicked? After all, although the economy is slowing down, we are not in a recession, and it is far from clear that one is glimpsed on the horizon. There is nothing in the data that justifies a radical monetary stimulus, a stimulus, by the way, that Republicans, Trump included, disapproved during the Obama era, when the economy really needed it. Moreover, despite Trump's assertions that the Reserve has somehow done something far-fetched, the truth is that monetary policy has been more flexible than Trump's own economic team expected when he made his promising forecasts. In the summer of 2018, the economic forecasts of the White House predicted that, this year, the three-month rates would reach an average of 2.7%, and now stand at 1.9%.

But although there is no economic urgency, apparently Trump has the impression that he is facing a political emergency. The president expected a buoyant economy next year, and if it seems likely now, the economic results are, at best, mediocre, he has a serious problem.

Recall that Trump's two most prominent economic policies have been his tax cuts in 2017 and the rapid escalation of his trade war with China. The first one was supposed to lead us to a decade or more of rapid economic growth, while the second one would resurrect American industrial production. But in reality, the fiscal cut gave rise, at most, to a couple of quarters of higher growth. The huge exemptions have not triggered, as promised, wages or business investment; rather, they have been used to repurchase shares and pay higher dividends.

On the other hand, the commercial war has turned out to be an important burden for the economy, stronger than many people, including me, foresaw. Until last fall it was generally expected that Trump would deal with China in the same way he has done with Mexico: make a few changes, mainly cosmetic, in the current agreements, sing victory and move on to something else. However, once it became clear that he was very serious about the confrontation, business confidence began to fall and dragged investment into it. And voters have realized: Trump's approval rating in economics, although still higher than his approval in general, has begun to get worse. Hence the frantic demands on the Reserve to go for all.

But although Trump is aware that he is in trouble, there are no signs that he understands why. It is not the kind of person who ever recognizes, even before himself, that he has made mistakes; His instinct is always to blame another while insisting on his failed policies.

Even the measures that suggest a slight political relaxation, as your two week postponement announcement in the application of some of the tariffs to China, they denote a deep ignorance of the problem, which has as much to do with its whims as with the tariffs themselves. Their blows in politics, even if they imply the postponement of tariffs, only increase the uncertainty about whether or not to do something, which is leading companies to defer investments.

So what will happen next? Trump could change course and do what most people expected a year ago, which is to reach an agreement with China that more or less restores the status quo. But that would be tantamount to admitting defeat and, at this point, it is not clear that the Chinese trust that they will comply with that agreement after election day. The truth is that, when it comes to economic policy, Trump has put himself in a good quagmire.

Paul Krugman He is a Nobel Prize in Economics. © The New York Times, 2019. Translation of News Clips.

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