Tuesday, October 27, 2020

Trump banks on the economy - and his reelection prospects - rebounding quickly without more government help

Jun 05. 2020
President Trump
President Trump
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By The Washington Post · Robert Costa, Ashley Parker · NATIONAL, BUSINESS, POLITICS 

WASHINGTON - For much of his presidency, President Donald Trump's greatest political strength was a robust economy - and now his best electoral hope is that it comes back quickly.

But as more devastating jobs reports are released, Trump's recovery plan largely amounts to optimism that as pandemic restrictions are loosened, the nation's economy will turn the lights back on by itself, according to White House officials and the president's advisers.

Inside the West Wing, Trump is reticent to pursue a new stimulus package and confident about a revival even as economists and the Federal Reserve chairman push the president and Congress to spend more to address the economic carnage, according to these people.

They said conservatives are urging Trump to hold off on providing relief to states that have been battered by the coronavirus pandemic and telling him to instead focus on securing tax breaks for businesses, reducing regulations and fighting his trade war with China.

And Trump is increasingly irate and dismissive of working with Democrats in Congress and in state capitols because they have sharply criticized him for his response to the pandemic and his handling of mass protests following the killing of a black man, George Floyd, by a white police officer in Minneapolis.

"I feel more and more confident that our economy is in the early stages of coming back very strong," Trump tweeted this week. "Not everyone agrees with me, but I have little doubt." He added, "Look at the Stock Market NOW!"

Just months ahead of this year's elections, Trump's approach amounts to a high-risk strategy that has Republicans on edge and economists alarmed that the administration could be caught flat-footed if the economy does not bounce back swiftly. 

Still, Trump's commitment to this strategy is privately seen as soft and pliable, both among his aides and his allies on Capitol Hill, who are already preparing for the president to suddenly shift toward another stimulus package if the economic pressure mounts and his polling numbers keep slipping against former vice president Joe Biden, the presumptive Democratic presidential nominee.

"He could go from saying 'I'll do nothing more' to saying 'I'll do $1 trillion more' in a second if he thinks it helps him with beating Biden," said a longtime Trump adviser who, like others, spoke on the condition of anonymity to share their views and discussions with the president.

There are calls from a few Republicans for Trump to seize the moment and embrace more government spending and cast himself as a jobs president who is using all available tools to keep Americans financially stable.

"Coming out of this, you can't have local governments falling apart in the states that have been hit the hardest. Places in New York State, New Jersey, and other places are just going to go under," said Rep. Peter King, R-N.Y. "You've got to get money back into the states, back into the cities."

But Trump's critics and some Republicans say being a jobs president requires having a jobs plan - and Trump is so far resisting rolling out his own legislative proposal.

"It would seem to be that if anybody has an incentive to get another big stimulus package through Congress soon, it's Donald Trump, who's facing voters in November," said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. "I can't tell if this is just a negotiating tactic on his part or if he's listening to some of the hard liners in the White House. It's really baffling."

The Labor Department reported on Thursday that 1.9 million Americans sought unemployment aid last week. While those jobless claims were the lowest weekly total since the pandemic started spreading widely back in March, they further compounded a crisis that already rivals the Great Depression in its severity. Over 40 million Americans have filed unemployment claims across the country since many businesses began to close or temporarily shutter months ago due to public health restrictions put in place by the government.

And on Friday, the monthly jobs numbers for May will be released. Many economists believe the unemployment rate could near 20 percent - and said that new data will reveal bleak economic realities for minority communities.

Larry Kudlow, Trump's top economic adviser, said in an interview that he recognizes the hardship facing Americans who are out of work and struggling, but said he also sees "numerous other signs that the economy is beginning to improve - glimmers of hope and growth," and pointed to millions moving "off of unemployment insurance."

The Labor Department noted in its report this week that gig and self-employed workers filed fewer initial claims last week - 620,000 compared to 1.2 million the previous week - under the expanded federal program that grants them benefits.

Trump and Kudlow have also touted the stock market's return to form in recent weeks after sliding during the early days of the pandemic. This week, the S&P 500 staged its strongest-ever 50-day performance and the Dow Jones industrial average has surged above 26,000.

"My sense of the stock market, which has been pretty buoyant recently, is that it's betting on getting a vaccine in very short order," said Greg Mankiw, an economics professor at Harvard University who served in the George W. Bush administration.

Yet uncertainty abounds. Among economists, there is no sense of when commerce will resume at the scale it existed at late last year, or whether there will be a second wave of the virus in the fall and winter. The Congressional Budget Office released economic projections this week showing that it doesn't expect the United States to recover fully from the crisis until 2030.

The protests around the country and Trump's response have also added a new level of tumult and unease.

Kudlow said Trump's plan for the moment is to keep encouraging governors to reopen their states' economies and to wait and see how congressional talks develop rather than unveiling a new jobs bill, with Trump touting his ideas and meeting with business leaders.

"We are going to come up with a plan when talks with Congress start formally," Kudlow said. "The basic thrust of the plan is to keep small businesses going and getting people back to work. Most of it you've heard already from the president. We could also have an employment bonus to get people back to work, but no final decisions are being made at this point."

Directly giving workers a government bonus for several weeks would be largely unprecedented in the United States, although it has been done in other countries. Kudlow also said the president continues to eye the payroll tax as an item to cut as a way to put more money in workers' pockets.


Kudlow listed additional tax deductions as possible policies to be sought by the White House, including "major tax deductions for restaurants" and other sectors, from tourism to the sports industry. Providing liability protections to businesses related to the coronavirus is another priority, he said.

Trump has spoken regularly in recent months with Sen. John Barrasso, R-Wyo., about the need for an infrastructure package that would include revamping the nation's roads, bridges, tunnels and ports, but those talks are nascent and Senate Majority Leader Mitch McConnell, R-Ky., has been cool to the idea.

Democrats have balked at the White House's conservative and business-friendly approach, which they argue mostly ignores the needs of workers and consumers, and fails to address the fiscal crisis in states dealing with the pandemic's fallout. So, too, have economists who say that Trump needs to engage Congress and pass another spending package.

"The jobless rate, even if it declines, I believe is going to stay extremely high through the end of the year," former Federal Reserve chair Janet Yellen. "It's absolutely essential to have another package that will extend unemployment benefits beyond the summer. That's going to be tremendously needed." 

Trump told GOP senators during a closed-door lunch meeting in May that he opposes extending a weekly $600 boost in unemployment insurance for laid-off workers affected by the pandemic that will expire this summer, according to White House officials familiar with his remarks.

A Senate Republican aide, who was not authorized to speak publicly, said Trump is not facing much pressure from GOP leaders to propose economic stimulus ideas and said most congressional Republicans are grumbling about the trillions of dollars included in previous aid packages rather than clamoring for more spending.

The aide added that new White House Chief of Staff Mark Meadows, a conservative, has helped Republican leadership keep Trump from being tempted to support another spending deal and hope for the best this summer as businesses reopen.

"Our economy has been clobbered by this, but the unknown here is are restaurants going to come back? Are leisure activities and sporting events going to come back?" asked David Hamilton, a professor at the University of Kentucky who has written about the Great Depression. "The question is to what extent has there been permanent damage?" 

But, he said, "because this crisis has not been rooted in the banking and financial system, it may be possible to have a quicker return."

The president has for weeks predicted a rapid economic recovery, saying in early April it will take off "like a rocket ship." 

"I think they're forecasting a very fast bounce back. I mean, I see great optimism," Trump said last month.

The standoff of between House Democrats and Senate Republicans over what, if anything, to do next has led the White House to concentrate its efforts on using the levers of the executive branch to roll back regulations rather than work with lawmakers - and to make its trade war with China a keystone to its economic program.

White House trade adviser Peter Navarro has been in charge on that front, and last month he spearheaded the administration's decision to award a $354 million contract to a Virginia startup that will produce a variety of generic drugs and their ingredients - including medicines used to treat covid-19 - at advanced manufacturing facilities in the United States.

"You can't solve an underlying structural process solely with Keynesian stimulus," Navarro said in an interview, referring to the economist John Maynard Keynes who advanced the idea of using government spending and tax cuts to counter economic downturns. "Going forward, to address the structural issues associated with the pandemic, we need a significant increase in manufacturing jobs as the centerpiece of our economic program."

Like Trump, Navarro also takes a sunny view of the economy despite the grim unemployment numbers.

"There's no point in looking in the rear view, the economic lockdown mirror," he said. "This was manufactured unemployment to keep people safe from the China virus, not any symptom of underlying weakness. President Trump, over three and a half years, built the strongest economy in modern history, and he can do it again."




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