US budget Low unemployment, steady growth, large deficits. Is President Trump’s booming an economic miracle or purely a mirage?
From the creation of a US Space Command to a new design for the exterior of the Air Force One government plane (unchanged since President Kennedy) and the development of a hypersonic weapon – the budget presented by US President Trump on Monday evening is aimed at to speak to the imagination. But he is also tough: from cutting into Medicaid, the health insurance scheme for the poorest, less support for students, including the disabled, to reducing the international aid budget by a fifth.
Trump: America ‘now has the best economy’ in US history
It is very unlikely that Trump’s budget will continue unscathed. The American House of Representatives has the last word in many cases, and the Democrats have the majority. The willingness to compromise was already small and will not have increased in recent months.
Yet the leeway is limited. The American state is more modest in size than Europeans are used to. Public spending in the eurozone is typically around half the gross domestic product. In France, it is 54 percent, in Germany 46 percent, in the Netherlands 43. In the US, the total government spends only 36 percent of GDP. Around 16 percentage points of this are borne by states and cities, which in principle must keep their budget balanced. The US federal state, which Trump and Congress are about, makes up just over 20 percent of the economy.
That puts the American budget deficit in a different light. Trump’s budget proposal assumes a deficit of $ 1,000 billion, on federal spending of $ 4,800 billion. From every federal dollar that is spent, 21 cents is borrowed. In other words, the United States borrows more than its annual defense budget of $ 740 billion – although so does many other countries.
The Said Doom Scenario Took Another Turn
Trump’s budget came about a week after his annual speech to Congress, the State of the Union. In it he sang about the power of the American economy. That economy continues to do much better than most economists expected shortly after Trump took office. First, there was the doom scenario that the stock markets would plummet if he were chosen in November 2016. The opposite happened: the rates went up. This was followed by a tax reduction in 2018 with an emphasis on the more prosperous Americans. The expectation at the time was that this intervention would have relatively little effect and that this effect would decrease after a year. Whether it was will, calculation or luck – the economy continued to do relatively well. The trade war with China would then take its toll. That too was not so bad so far.
Trump’s approval rating, according to opinion poll Gallup, is now at 49 percent – its highest so far. No less than 63 percent of the Americans surveyed now think that they are good for the economy. Last week it appeared that 225,000 jobs were added in January, almost one and a half times more than expected. Unemployment rose slightly to 3.6 percent but remained close to a record low. The slight increase was explained by higher labor participation. Hourly wages increased on average by 3.1 percent.
There is more favorable news. The United States is working on an unprecedentedly long period of expansion. Determining this is not a purely statistical activity. A government thinks tank, the National Bureau for Economic Research, has a real committee for it: the business cycle dating committee filled with economists. It determines when there is a trough and also declares the peak. The new official message from this committee has never been so long. The previous one, which established the fall of a recession, dates from June 2009 (apart from a false alarm in September 2010).
Since then, no official recession has occurred. The expansion of the American economy takes, as of February 2020, now already 128 months. Since 1854, the earliest year that has been calculated, the economic climate has never been as positive for a long time as it is now. At number two, with 120 months, comes the boom of the nineties, which began in March 1991 and ended in March 2001. Number three took place, with 106 months, in the period from February 1961 to December 1969. Incidentally, ended these two previous cyclical records with setbacks against the free market, the anti-globalization movement, and the hippie movement respectively. Not so much imagination is needed to detect a conservative version of it in Trump’s trade offensive in the aftermath of the current record economic situation.