With the Republican Party in full control of the US government, fiscal stimulus will boost economic growth in the short term. But enacting large tax cuts and boosting public spending in an economy already nearing full employment implies accelerating inflation, higher interest rates, or probably some combination of the two.
LONDON – For those of us who were wrong about the United States’ presidential election, it is worth suppressing emotional reactions, at least for a month or two, and attempting a dispassionate judgment about what Donald Trump’s administration may mean for the world. So here are ten likely consequences of the Trump presidency, divided equally between the good and the bad.
The good news starts with US growth, which will almost surely accelerate well above the 2.2% average annual rate during President Barack Obama’s second term. This is because the Republican aversion to public spending and debt applies only when a Democrat like Obama occupies the White House. With a Republican president, the party has always been glad to boost public spending and relax debt limits, as it was under Presidents Ronald Reagan and George W. Bush. Thus, Trump will be able to implement the Keynesian fiscal stimulus that Obama often proposed but was unable to deliver.
The resulting deficits may be described as “supply-side economics,” rather than Keynesian stimulus, but the effect will be the same: growth and inflation will both increase. As the US economy runs into the limits of full employment, additional growth will push inflation higher, but that bad news can wait until 2018 and beyond.
LONDON – For those of us who were wrong about the United States’ presidential election, it is worth suppressing emotional reactions, at least for a month or two, and attempting a dispassionate judgment about what Donald Trump’s administration may mean for the world. So here are ten likely consequences of the Trump presidency, divided equally between the good and the bad.
The good news starts with US growth, which will almost surely accelerate well above the 2.2% average annual rate during President Barack Obama’s second term. This is because the Republican aversion to public spending and debt applies only when a Democrat like Obama occupies the White House. With a Republican president, the party has always been glad to boost public spending and relax debt limits, as it was under Presidents Ronald Reagan and George W. Bush. Thus, Trump will be able to implement the Keynesian fiscal stimulus that Obama often proposed but was unable to deliver.
The resulting deficits may be described as “supply-side economics,” rather than Keynesian stimulus, but the effect will be the same: growth and inflation will both increase. As the US economy runs into the limits of full employment, additional growth will push inflation higher, but that bad news can wait until 2018 and beyond.