Donald Trump assumes office with perhaps the lowest favorability ratings of any modern president. According to the New York Times,
Mr. Trump’s approval rating is only 40% among all adults and just 46% among likely voters.
But a recent CNN poll reports that 48% of adults think he’ll do a good job as president and 61% think he’ll bring back well-paying jobs to economically depressed areas.
Contrast this with Barack Obama’s latest poll ratings:
According to Gallup Mr. Obama leaves office with an approval rating of 57%.
But Rasmussenreports that only 35% of likely voters think the country is heading in the right direction (with 55% saying that we’re headed in the wrong direction).
I interpret this to mean that the country is largely turned off by Mr. Trump’s crude speech and sleazy behavior, while still liking his economic program. On the other hand, voters like Mr. Obama personally while disapproving of many of his policies and accomplishments.
All of this leaves Mr. Trump in an amazingly good political position:
With unemployment currently at a relatively low 4.7% and the economy fully recovered from the Great Recession, even modest reform in tax policy coupled with energy, healthcare and financial deregulation could provide a significant boost to long stalled economic growth.
He is criticized for having no clear cut political philosophy but this means he is free to do whatever makes good sense regardless of ideology. This will be a huge advantage in working with both parties to get things done.
He has nowhere to go but up in the polls. Such an increase in personal popularity will create the semblance of forward momentum.
Andrew Jackson in 1828 moved the locus of political power sharply down the socioeconomic scale.
Abraham Lincoln in 1860 preserved the Union, freed the slaves and turned the South into essentially a third world country for the next 100 years.
William McKinley in 1896 ushered in an era of almost unbroken Republican dominance which lasted until the 1930s.
Franklin Roosevelt in 1932 who overcame the Great Depression and greatly expanded the reach and power of the federal government.
Ronald Reagan in 1980, constrained by a solidly Democratic House, was less transformational than the four presidents above, even though he ushered in the era of Great Moderation which lasted until the Great Recession hit in 2007-2008.
Barack Obama in 2008 took office with strong Democratic majorities. However the last eight years have proved a disaster for the Democratic Party. They lost the House in 2010, the Senate in 2014, and Republicans now control most governorships and state legislatures as well.
Now consider Donald Trump’s strong political position as he takes office:
The Republicans hold a big majority in the House and a small majority in the Senate. And ten Democratic Senators in states carried by Mr. Trump are up for re-election in 2018.
He was elected to change the self-serving ways of Washington and owes little to the political establishment.
His cabinet picks, many with excellent qualifications, signal profound changes in government policy, especially lower tax rates and a regulatory environment more friendly to business.
Conclusion. Mr. Trump has excellent prospects for achieving faster economic growth and therefore rising incomes for the blue-collar workers who provided his victory margin. If he can also improve life in the inner cities, as he has promised to do, he and the Republican Party will be unbeatable for many years to come.
The U.S. spends 18% of GDP (and rising) on healthcare, public and private, almost twice as much as any other developed country. The Affordable Care Act, passed by Congress and signed by President Obama in 2010, increases access to healthcare in the U.S. but does nothing to control its cost.
President-elect Donald Trump and the Republican Congress want to repeal the ACA and replace it with a more effective and less expensive alternative. An excellent plan for doing this, “Transcending Obamacare” has been proposed by Avik Roy, the President of the Foundation for Research and Opportunity. Mr. Roy’s Universal (and refundable) Tax Credit Plan will:
expand health insurance coverage well beyond ACA levels without an individual mandate
improve the quality of coverage and care for low-income Americans
achieve permanent solvency of U.S. healthcare entitlements
reduce the federal deficit without raising taxes
reduce the cost of health insurance for individuals and businesses
Here are the main elements of the Universal Tax Credit Plan:
Premium assistance. The Plan repeals the ACA’s individual mandate and expands access to health savings accounts. By lowering the cost of insurance for younger and healthier individuals, the Plan would expand coverage beyond ACA levels.
Employer-sponsored insurance reform. The Plan repeals the ACA’s employer mandate, thereby offering employers a wider range of options for subsidizing workers’ coverage.
Medicaid reform. The Plan migrates the Medicaid acute-care population onto the reformed private individual insurance market, with 100% federal funding. The Plan returns to the states full financial responsibility for the Medicaid long-term care population.
Medicare reform. The Plan gradually raises the Medicare eligibility age by four months each year (forever), allowing younger retirees to remain on their existing plans.
Veterans’ health reform. The Plan gives veterans the option of private coverage via premium assistance.
Medical innovation is encouraged by the Plan.
Conclusion. The Universal Tax Credit Plan is a big improvement over the ACA because it expands access, improves quality and dramatically lowers costs for both individuals and the country as a whole. Check it out!
Reviving the economy after the Great Recession. This was done but the recovery has been unnecessarily slow with annual growth averaging just 2% of GDP ever since June 2009. In fact, stagnant middle-class and especially blue-collar incomes are the reason Donald Trump eked out a victory over Hillary Clinton.
A giant step towards national healthcare. Even if the Affordable Care Act is repealed, its replacement will be much more universal than before. Unfortunately, however, the ACA increases access but does nothing to control the cost of healthcare (now 18% of GDP) which continues its steady rise. This is what has to change.
A global pact to combat climate change. Global warming is real but our response should be more circumspect. China has only pledged to reduce carbon emissions after 2030. India has 300 million people off the electric grid. It also has an abundant supply of coal. Heroic efforts by the developed world alone will have little effect on worldwide C02 levels.
A rash of new financial and environmental regulations. Both Dodd-Frank and new EPA regulations have contributed significantly to the economic slowdown which is why they are likely to be modified by the Trump Administration and Congress.
The Iran nuclear deal. The problem here is what will happen when the 10 – 15 year deal expires. Iran then will have a green light to develop nuclear weapons unless China and Russia agree to new sanctions which is unlikely.
American retreat from superpower status. Obama deposed a dictator in Libya but walked away from the aftermath. His premature decision to leave Iraq allowed ISIS to spring up. He let the civil war in Syria run out of control. A “reset” with Russia did nothing to prevent Putin from invading Ukraine and annexing Crimea.
A year ago, I examined “The Obama Legacy” from a general point of view. I simply looked at his record after seven years in office:
Stagnant Economy, growing at an anemic 2.1% annual rate ever since the end of the Great Recession in June 2009.
Massive Debt, at 74% of GDP (now 76%), the highest since the end of WWII.
Chaotic Middle East, the rise of ISIS in Syria, Iraq and North Africa and the resulting refugee crisis in Europe is the result of weak U.S. leadership.
Hyper-partisan Political Atmosphere, especially because of the above failures, leading to the rise of populist political candidates such as Bernie Sanders and Donald Trump.
Now, a year later, as he prepares to leave office, all of the above conditions are still true. The only major change is that the conservative, not the liberal, populist, Donald Trump, will succeed him in office. Admittedly, the election outcome was a fluke. Trump’s electoral margin was provided by a slim popular vote victory of 100,000 votes combined in the battleground states of Michigan, Pennsylvania and Wisconsin. Such an outcome was totally unpredicted and represents a miscalculation by the Clinton campaign.
In other words, the election easily could have gone the other way, in which case the Obama legacy would have had a four year period of protection by a Hillary Clinton presidency. Nevertheless, according to the Democratic pollster, Stanley Greenberg, the Obama presidency was deficient in several fundamentally crucial ways:
More than 1000 state and national Democrats lost their elections during his two terms. Republicans now have total (legislative and governor’s office) control in 25 states.
The economic recovery from the Great Recession morphed into bailouts – bank bailouts, auto bailouts, insurance bailouts, rather than directly addressing the continuing economic struggles experienced by a majority of Americans.
Approximately 40% of the Democratic base of minority, unmarried female and millennial voters disapproved of how President Obama was handling his job in 2010 and 2014, and many of these voters stayed home during the 2016 election as well.
Conclusion. The fate of Mr. Obama’s major achievements of the Affordable Care Act, the Iran nuclear agreement and committing the nation to address climate change are all now at risk of being overturned by the new presidential administration.
As I have previously stated, I voted for Hillary Clinton because Donald Trump is so crude and sleazy even though our country will now greatly benefit from the change which Mr. Trump represents. This is the way the political process often works.
Consider that after eight years of George Bush we had:
Ongoing war in Iraq and Afghanistan, of which the Iraq war was an unnecessary mistake.
$2.5 trillion of additional debt, even after Mr. Bush started out with a budget surplus, compliments of Bill Clinton.
An expensive new Medicare Part D prescription drug plan which just makes overall Medicare even less affordable than it already is.
The Financial Crisis of 2007-2008 which the Bush Administration could have seen coming if they had been more vigilant.
Under such political circumstances, the 2008 election of the Democratic nominee, Barack Obama, over the Republican nominee, John McCain, was almost inevitable. But then in the next eight years we have experienced:
Slow economic growth averaging only 2% per year, ever since the end of the Great Recession in June 2009. The unemployment rate has fallen to 4.9% but there is still a lot of slack in the labor market which holds wages down. This is the main reason for the huge support Mr. Trump had from white blue-collar workers in the election.
Massive debt, now 76% of GDP (for the public debt on which we pay interest), the highest since right after WWII and double the debt in January 2009 when Mr. Obama entered office. Such a high debt level means greatly increased interest payments as soon as interest rates go up which they are likely to do anytime. The high annual deficits contributing to the debt mean little budget flexibility for new programs.
Conclusion. Democrats like to say that slow economic growth is “the new normal” which can only be overturned with budget busting new fiscal stimulus. This is a pessimistic point of view which refuses to consider other alternatives. This is what led to Ms. Clinton’s defeat on November 8.
The readers of this blog know that I focus on what I consider to be the two biggest problems affecting our economy: 1) slow growth averaging just 2% per year since the end of the Great Recession and 2) our massive debt now equal to 75% of GDP (for the public part on which we pay interest) and predicted to keep growing steadily under current policy.
I have also made it clear that I am not pleased with the economic policies of either of the two main candidates for president, Hillary Clinton or Donald Trump. Whichever one of them is elected, our best hope for the future is that she or he will have to work with the Republican House of Representatives which has an excellent plan, “A Better Way,” for renewal. But, of course, the next president will take up where Barack Obama has left off. The current issue of the Economist has an essay, “The Way Ahead,” in which Mr. Obama identifies several challenges:
Boosting productivity growth. The above chart from his essay shows how much productivity growth has declined in the last ten years. He claims that the corresponding lack of investment is caused by an anti-tax ideology which rejects new funding for public projects, which in turn can be blamed on a fixation on deficits in spite of our skyrocketing debt problem. The House plan correctly identifies tax and regulatory reform as what are needed for progress.
Combatting rising inequality. An expanded Earned Income Tax Credit will definitely help here but mainly what is needed is overall faster economic growth.
Insuring that everyone who wants a job can get one. Wage insurance and better retraining programs for laid off workers are good ideas. But again, faster economic growth is what is really needed.
Building a resilient economy which is primed for future growth. Mr. Obama says that “America should also do more to prepare for future shocks before they occur.” This is exactly why we urgently need to start shrinking our debt now before the shock of higher interest rates leads to huge increases in interest payments on our rapidly growing debt.
Conclusion. Let’s give Mr. Obama credit for avoiding another depression after the Financial Crisis. But his poor policies are to blame for the very slow rate of recovery ever since.
I have no antagonism for Barack Obama. He was elected because of the unpopularity of the Iraq War and George Bush who started it. He inherited the Financial Crisis and pulled us out of it without another depression. He has put us on the road to universal healthcare even though the structure of the Affordable Care Act does little to control costs. But overall, the negatives of his presidency outweigh the positives. Consider the situation we are currently in:
Stagnant Economy. The annual rate of growth of GDP since the end of the Great Recession in June 2009 has been an anemic 2% compared to our historical growth rate of 3% since the end of WWII. Although the official unemployment rate is down to a respectable 5%, there are millions of unemployed and underemployed people who have stopped looking for work. Obama and the Democrats in Congress have little interest in the tax reform and deregulatory measures which would boost economic growth.
Massive Debt. Our public debt (on which we pay interest) has doubled to over $13 trillion on Obama’s watch. As the Federal Reserve begins to raise interest rates to ward off inflation, interest payments on this debt will increase enormously. It is absolutely imperative to begin to substantially shrink our annual budget deficits. The Democratic Party, under his leadership, has expressed no willingness to do this.
Chaotic Middle East. The rise of ISIS in Syria, Iraq and North Africa, and the resulting refugee crisis in Europe is the result of weak U.S. leadership in the Middle East. Peace and stability depends on a strong U.S. presence in all trouble spots around the world. We neglect this responsibility at our peril.
Hyper-partisan Political Atmosphere. Stalemate in addressing these and other serious problems has led to the rise of extremist presidential candidates like Bernie Sanders and Donald Trump. Moderate candidates with successful experience in elected office are unable to gain political traction.
Our country is in a big mess. We are being guided by ideology rather than common sense. I am optimistic by nature. But it’s awfully easy to be pessimistic about our future.
As we are just getting started on what so far is a confusing presidential election campaign, it would be easy to forget how incredibly lucky we are in America. Our country is very strong and we are isolated from many of the world’s problems. The terrorist attacks in Paris over the weekend are a grim reminder of this fact. But we still have responsibility for much of what is happening around the world.
George W. Bush’s biggest failing is not the Iraq War, draining Medicare funds with a new drug benefit or ramping up deficits with tax cuts that lose revenue. His biggest failing is not foreseeing the financial crisis and at least mitigating it if not heading it off entirely. His financial advisors (Greenspan, Bernanke, Geithner, Paulson) were asleep at the switch. As the Economist makes clear in its latest issue, “First America, then Europe. Now the debt crisis has reached the emerging markets.”
Barack Obama’s biggest failing is not the stagnant economy or massive debt buildup which occurred on his watch, although he could have eased their burden with smarter policies. His biggest failing is his unwillingness to assert sufficient power in the Middle East to head off the chaos we observe today. The enormous European refugee crisis with all of its attendant horrors is largely the result of his inadequate intervention in Iraq, Libya and Syria.
The main concerns of this website are the internal fiscal and economic problems faced by the U.S. We have to figure out amongst ourselves how to address these very serious issues. But, like it or not, what we do affects the whole world. If we fail to meet our responsibilities, the whole world, including us, will suffer with the consequences.
The Budget Committees for both the House of Representatives and the Senate have now passed plans to achieve balanced budgets within a ten year period. My last two posts have discussed the compelling need to get deficit spending under control and an overall rationale for how to approach this difficult task. Today I will take a look at the major differences between the Obama budget and the House and Senate budgets. The two congressional budgets are quite similar and will surely be reconciled into a single budget. Here are the major differences:
Revenue. The President wants to raise taxes by $3 trillion over 10 years to pay for more spending while the Republicans wants revenue-neutral tax reform in order to increase economic growth.
Spending. Under current policy the government will spend $48.6 trillion over the next ten years which represents a 5.1% annual rate of spending increase over the present. The President wants to spend an additional $1 trillion over this time period on new initiatives. The Republicans propose spending about $5.4 trillion less, or $43.2 trillion, which still works out to a 3.3% annual rate of increase over the present.
Deficits. Under current policy the deficit would start to increase, as a percentage of GDP, in 2018. The President proposes to stabilize the deficit at 2.5% of GDP. The Republicans would balance the budget within ten years by shrinking the deficit down to zero.
Public Debt. Under current policy the public debt (on which interest is paid) will increase to 79% of GDP by 2025. The President’s budget would stabilize the debt at the current level of 73% of GDP. The Republican’s balanced budget would shrink the debt to 57% of GDP by 2025.
There are stark differences between the President’s proposed budget and the Republican alternative. Which is the better route to progress and prosperity? Is it to raise taxes, increase government spending and only stabilize the debt or is it to streamline taxes, slow down the growth of spending and shrink the debt? This is a fundamental question of government policy which will not be quickly resolved. But at least the question is being raised in a dramatic way!