Trump Hasn’t Prepared Us for the Inevitable Economic Slowdown

Larry Summers:

Trump hasn’t prepared us for the inevitable economic slowdown, Washington Post: President Trump regularly and proudly takes credit for the U.S. economy’s strong performance. And with rapid growth during the second quarter, the stock market strong, the unemployment rate back below 4 percent and the midterm elections looming, Trump’s rhetoric and that of his supporters will probably escalate in coming months.

In fact, however, the president receives more of a boost from the strong economy than the other way around. This conclusion will only be reinforced if Trump’s current steps toward a trade war retard U.S. economic performance, as is increasingly feared. ...

Fiscal stimulus is like a drug with tolerance effects; to keep growth constant, deficits have to keep getting larger. Some combination of gathering foreign storm clouds, the end of growing fiscal stimulus and the delayed effect of tightening monetary policies may converge to slow or end the expansion. 

The choices this administration is making invite foreign retaliation against U.S. exporters and use up fiscal capacity — even as the economy is growing rapidly. Because of this, and because there is limited room for monetary policy, the country will not be in a position to respond strongly if a downturn comes. All the more reason, therefore, to avoid pulling demand forward. 

This is all quite dangerous. The president has taken credit for far more economic success than he deserves. He will disproportionately be blamed when the downturn comes. What follows will be a test of our democracy.