WASHINGTON — Trump’s economy was growing at a much faster pace this year until it ran into unexpected turbulence that sent the stock market plummeting.
The Dow Jones Industrial Average reached an all-time high of 26,616 points on January 26, but bad weather caused the Dow Jones index to fall to more than 23,000 points.
Economic pundits politely call it a “correction” when an overly eager market is beset by doubts about how long a bull market can last or whether the global economy will spiral into a trade war over President Trump’s tariffs.
Last week, the Dow Jones fell to 23,533 points, and financial experts were still wondering what caused the market to fall so quickly and so deeply.
As far as anyone could tell, the sell-off was the result of a frantic combination of factors that could be described as a crisis of confidence.
The most crucial of these was President Trump’s decision to impose very high tariffs on steel and aluminum imports. According to entrepreneurs and economists, this was to harm our economy by raising consumer prices. This would force our trading partners to introduce tariffs on their imports, which would lead to a trade war that would not bring victory.
Another factor undermining consumer confidence has been the Trump administration’s fiscal position, namely a growing budget deficit that will hit a record $870 billion this year and approach $1 trillion within two years.
The forecast was made by five experienced budget experts from the Hoover Institution, a conservative think tank at Stanford University.
“If Congress does not act to reduce the federal budget deficit, the outstanding national debt will reach $20 trillion in just five years, from $15 trillion today,” they wrote in the Washington Post on Wednesday.
“That’s nearly a quarter of a million dollars for a family of four, or more than twice the average household wealth,” they said. “This series of steadily increasing trillion-dollar deficits is unprecedented in U.S. history.”
Coincidentally, while all this news was being broadcast and headlined, the closely watched U.S. consumer confidence index began to fall, reaching an 18-year high in February.
The index fell to 127.7 in March, from 130 in February, according to the Conference Board, a business group. Consumers said they were less hopeful about deteriorating business conditions as well as their expectations for the stock market.
On the dazzling side, however, the Commerce Department reported Wednesday that gross domestic product (GDP), the broadest measure of an economy’s growth rate, rose at a revised annual rate of 2.9 percent in the fourth quarter of last year.
That was welcome news for the Trump administration, which has forecast the tax cuts will eventually boost the nation’s economic growth rate to 3 percent or more, which would boost tax revenues and reduce the budget deficit.
Trade economists said consumer spending rose 4 percent during the same period. That’s a much better number than the sub-2 percent average GDP growth achieved during most of President Obama’s eight years in office.
The Congressional Budget Office (CBU) calculates its bloated budget deficit by assuming a paltry 1.9 percent economic growth rate over the next 10 years — a figure the White House and Republican lawmakers say is far too low.
If growth is “a little higher … over the next 10 years … then you’ll see some reduction in the deficit,” Ohio Sen. Rob Portman told reporters Wednesday. “Instead, it will lead to the ability to pay down the debt.”
This does not mean that we must rely solely on growth to reduce the debt. There are many places where we can reduce the deficit by simply eliminating or cutting wasteful, unnecessary, archaic, ineffective, fraud-ridden programs, agencies and, yes, departments.
Sadly, Republicans have taken no decisive action to address this problem.
The House and Senate should create a Search and Destruction Commission charged with investigating programs and agencies, reporting its findings annually, and passing legislation to close them down.
I’ll be writing about where we can cut the federal budget in future columns and save millions, even billions, of tax dollars. Stay tuned.
