The word “recession” is suddenly on everyone’s lips, including those of the president, who isn’t doing his reelection chances any favors by talking and tweeting about an economic downturn and preemptively assigning blame for a calamity that hasn’t happened yet.
If Donald Trump has learned anything from August (which he most assuredly has not), it should be that if you’re even a little bit concerned about the economy, the last thing you want to do is let 64 million people on Twitter know about it.
The second-to-last thing you want to do if you’re worried about a possible deceleration in growth, is publicly demand emergency rate cuts from the Fed because, as the latest read on consumer sentiment made abundantly clear, that’s just the kind of behavior that scares people out of spending money.
(The number of media stories featuring the word “recession” has spiked recently – Bloomberg)
But Trump will be Trump, which means he’s managed to put Americans on edge about an impending downturn that, based on most of the data, isn’t actually impending.
Behind the scenes, the president is said to be “rattled” and quite a bit of digital ink has been spilled this week documenting the administration’s internal discussions around more tax cuts, whether in the form of a payroll tax break aimed at helping middle-earners, or a move to index capital gains to inflation, a strategy that would ultimately hand some $100 billion to the wealthy.
On Wednesday, Trump was characteristically vague, telling reporters that tax cuts are always under discussion and that nothing is imminent.
Fast forward to Thursday evening and Larry Kudlow showed up on Fox News to discuss the economy and taxes. Predictably, it was a clinic in supply-side sophistry.
(If the video does not load, please refresh your page – full clip here)
“Well look, we’re not formulating tax policy for some kind of near-term action, we don’t believe in the recession talk”, Kudlow began. Again, quite a bit of the “recession talk” emanates from Trump himself, as evidenced by tweet after tweet proactively blaming a hypothetical downturn on the Fed, the media and Democrats. It’s also worth noting that Mick Mulvaney reportedly told a group of GOP donors earlier this week that a recession may be in the cards, albeit a shallow one.
Larry flagged a “lull” in capex but quickly said the “evidence” shows there’s a comeback. That’s true, depending on what evidence he’s referencing, although don’t forget that on Thursday we got the first contractionary manufacturing PMI print since 2009 from IHS Markit. Kudlow went on to tease “tax cuts 2.0”. He expounded on that as follows:
“I think the first round of tax cuts has reinvigorated [and] rebuilt the economy”, Kudlow claimed, falsely. As ever, we would point out that while Trump’s economy has indeed been strong, there is absolutely nothing anomalous about growth under this president. If you can find the economic “miracle” on the right-hand side of the following chart, you’ve got a sharper eye than we do:
Also, when Kudlow says “we’re growing at close to 3%”, that is, at best, an exaggeration. The economy grew at a 2.1% annualized clip in the second quarter, which isn’t anywhere near 3%, and the revision that accompanied that data showed the Q4-to-Q4 growth rate in 2018 was actually 2.5%, not 3%.
“So, there’s no reason why we shouldn’t be developing – and again, we are – tax cuts 2.0”, Larry went on to explain, using a series of lies about what “tax cuts 1.0” accomplished in order to justify a dubious sequel.
If you’re looking for reasons “why we shouldn’t be developing” tax cuts 2.0, you might ask the CBO, which this week revised its fiscal outlook to show the US running a $1 trillion deficit starting next year, two years earlier than originally forecast. In 2016, then candidate Trump promised to balance the budget quickly if elected by “cutting the numbers by two pennies and three pennies”. Suffice to say that hasn’t worked out, and one of the reasons why the outlook is now so dire is because supply-side tax cuts never, ever “pay for themselves with growth”, despite the loud promises of those who promote them. This is just the latest example.
In any event, when pressed, Kudlow said you might see “tax cuts 2.0” prior to election. “In fact”, he continued, “you might see additional incentives, additional tax cuts for middle-class folks [and] blue collar workers and you might see that during the campaign”.
Sure, “you might”. But then again, “you might” not see a campaign at all if Trump manages to talk the US into a recession on Twitter, or if you do, it will be centered entirely around recriminatory bombast and deep state conspiracies, which he’ll claim are responsible for America’s problems.
Sadly, his base will believe it.