Trump

As Trump Visits El Paso, Notes On The GOP's Erosion In The Southwest

This analysis was originally published on election night in 2018 and has been updated for release today.

As President Trump and Beto O'Rourke hold dueling political events in El Paso today, it is worth noting just how much the Southwest - an area which for the purposes of this analysis includes AZ, CA, CO, NM, NV and TX - has eroded for the GOP since Trump was nominated in 2016.  This erosion remains one of the most significant recent developments in American politics, as it involves a large region of the country which includes our two largest states. 

As background the three states which saw the biggest movement towards the Democrats in 2016 were, in order, CA (7pts), TX (6.8pts) and AZ (5.5pts). Polling throughout the 2018 cycle showed significant weakness for Trump in the region, and the bottom fell out here on election night 2018.  In Texas, Beto O'Rourke got within 2 1/2 points of Ted Cruz, helped Dems win 2 Congressional seats and many down ballot races, and held 6 GOP reps to 51% or less (TX-10, 21, 22, 23, 24 and 31).  Kyrsten Sinema became the first Democrat to win a Senate seat in Arizona since 1988, and Dems now hold a 5-4 advantage in the AZ Congressional delegation. Democrats had very good/blowout nights in Colorado, Nevada and New Mexico, so much so that there are questions about whether these states will remain in the Presidential battleground in 2020.  Democrats picked up 12 House seats previously held by Republicans in the Southwest, including 7 in California alone, a state where the GOP didn’t even have a Senate candidate on the ballot and where voters with no party preference now outnumber Republicans in registration (and the home of the two most significant GOP Presidents in the past 50 years).  We saw intensity too.  AZ, NV and TX saw more people vote early this year than voted in all of 2014, the only 3 states to see that level of increase.  All in all it was just a huge and game changing wipeout in this region for Trump.

Trump has remained extremely unpopular in the region since November 6th. According to Morning Consult's state polling project, Trump's approval was -18, -18, and -13 in Colorado, New Mexico, and Nevada in January 2019. Perhaps ever more worrisome for Rs, he was -7 in purple Arizona, and -1 in red Texas. These current ratings represent significant falls in Trump's approval even since his loss in the midterms. Compared to November 2018, his net approval today has fallen by 8 points in each of Colorado, Nevada, and Texas, and by 3 and 5 points in New Mexico and Arizona.

Over the last two years there was always this sense that while the President’s thunderous championing of white nationalist, xenophobic and anti-immigrant rhetoric and policies was hurting him in the heavily Mexican-American parts of the US, it was the key to unlock the Rustbelt and Midwest.  Given the really bad election the GOP had in the northern part of the US in 2018 that no longer appears to be true. Trump may have used the caravan to win in very red and rural places like Indiana, Missouri and Tennessee, but Democrats made significant gains in critical 2020 battlegrounds IA, MI, PA and WI. 

Trump's big play on the border appears to be a very costly failure for him and the GOP - it hasn't locked up the industrial north as they hoped, it has caused what I believe to be a structural shift against Republicans in a big region of the country and his overall poll numbers are far below where he was on his dismal election night in 2018.  Recall that as recently as 2004 Bush won AZ, CO, NM and NV and Senator Kerry didn't even contest CO that year.  Trump has accelerated the movement of the heavily Mexican-American part of the US from lean R to deep blue and purple now.  If CO, NM and NV are now gone for Republicans, and Arizona and Texas have become true 2020 battlegrounds, the political costs to the GOP of Trump's Presidency will have been significant. 

Related Writings:

Backlash To Trumpism Brewing In The Border Region - Simon Rosenberg, NDN, 5/7/18 - There is a growing body of evidence Trumpism is hurting the GOP brand in the border region. Big implications for 2018, 2020 too. 

Trump Is Right To Be Worried About Arizona (And Texas Too) - Simon Rosenberg, NDN, 8/21/17 - It is instructive that some of the most powerful opposition to Trump's agenda is coming from Arizona. He is right to be worried about it.

The GOP Should Be Worried About Texas - Simon Rosenberg, U.S. News & World Report, 10/27/16 - Texas has a higher percentage of both millennials and Hispanics today than California, suggesting that with a significant investment in the coming years Texas could indeed follow California, Colorado, Nevada, New Mexico and now Arizona from red to blue.

The Trump Economy Is Not Working For Average Americans

At his State of the Union address this evening, Trump is likely to make grandiose claims about the state of the American economy. In just the past few months, he has claimed that the economy today is better than it has ever been, and that he has accomplished more in his first two years than any President ever. However, these claims are transparently false, and indeed, the economic performance of the US economy over Trump’s first two years has not even been better than that of Obama’s last two years, much less all of American history.

First, jobs growth. Although January’s payrolls report showing 304,000 new jobs was undoubtedly strong, we can’t let this cloud the fact that jobs growth has slowed under Trump (and indeed, monthly job growth was 300k or higher 4 separate times in 2015-16, compared to only twice in 2017-19). During the last 25 months of Obama’s second term, monthly jobs growth averaged 213,000. In the first 25 months of Trump’s term, meanwhile, it has slowed to 205,000 jobs per month.

Second, real wage growth. During the first 24 months of Trump’s term, real hourly wages have increased at a monthly average (annualized) of 0.9%. By contrast, real wages increased at a monthly average (annualized) of 1.35% during the last 24 months of Obama’s term.

Furthermore, median household income (which includes both private income and government taxes/transfers) grew by 1.76% in Trump’s first year, compared to growth of 5.15% and 3.13% in 2015 and 2016 under Obama.

Third, the deficit. When the economy is near full employment, traditional Keynesian economics would prescribe a reduction in the deficit, to provide the fiscal room for stimulus in the future. As a result, the deficit as a % of GDP fell under Obama from 9.8% of GDP in 2009 to 3.1% in 2016. Trump has reversed this trend, increasing the deficit from 3.1% of GDP in 2016 to 3.9% in 2018, and a projected 4.2% in 2019. Deficits this large while the economy is strong are unprecedented in US history. Trump’s budget deficits of 3.4%, 3.9%, and 4.2% in 2017, 2018, and 2019 will be the largest deficits while the unemployment rate is under 6% since 1950.

Fourth, the trade deficit. Perhaps Trump’s most signature promise was to end the so-called “foreign theft of American wealth” that he thought the trade deficit represented. Regardless of the lunacy of such thoughts, how successful has the President been in reducing the trade deficit? In fact, Trump’s policies have led to a surge in the trade deficit, as growth in imports has increased significantly while US exports have struggled. In June-October 2018, the average monthly trade deficit was 28% larger than during Obama’s second term.

Finally, access to health insurance. Trump promised expanded access to healthcare coverage during the 2016 campaign and argued that Obamacare was stopping people from accessing quality insurance. In office, however, Trump has down the opposite, eliminating the individual mandate, reducing federal government subsidies to individuals on the exchanges, and encouraging work requirements for Medicaid that have kicked tens of thousands off of the program. As a result, 2017 was the first year that the uninsured rate didn’t fall since 2009, and the uninsured rate actually rose by 0.3% for households earning less than $100k/year. By contrast, the uninsured rate fell by an annual average of 1.6% in Obama’s second term, and by 1.7% annually for households making under $100k/year.

After two years of the Trump administration, then, how has the US economy performed? Jobs and wage growth have fallen, even in the face of a surging fiscal deficit. The trade deficit has increased significantly thanks to Trump’s own trade policies. And the most vulnerable Americans have seen their access to healthcare worsen for the first time in a decade.  

Invite: Thurs, Feb 7th - NDN's "Patriotism, Optimism"

Over the past year or so Simon has been making a big argument about the past and future of the center-left in America.  Called "Patriotism and Optimism," it makes the case that America is not in decline and is in fact doing as well as it has in any point in its history. It is meant to be an explicit rebuttal to the core argument Trump is making about America and its decline, an argument which is malevolently selling America and its people short every day. 

This primary way this argument has made itself into the world is through a 45 minute long Powerpoint deck, which has been seen in dozens of showings over the web and live in person to policy makers here in Washington and around the country. Our next showing of the deck will be Thursday, February 7th from 12:00pm to 1:15pm at our new offices at 800 Maine Avenue SW, Washington, DC. Lunch will be served. You can RSVP for the event and learn more here. For background before the showing, feel free to check out some related readings below.

Key Background Readings On "Patriotism and Optimism"

The Case for Optimism: Rejecting Trump's Poisonous Pessimism, Simon Rosenberg, Medium, 6/2/17. In an essay that originally was published on Medium, Simon argues that the great rationale of Trump's Presidency  –  that America is in decline – simply isn't true, and must be challenged more forcefully.  This is the piece that spurred the creation of the presentation. 

Chin Up, Democrats, Simon Rosenberg, US News and World Report, 1/20/17. In his column Simon argues that Democrats should have pride in their historic accomplishments and optimism about the future of their politics. This one is very relevant to the presentation itself. 

A Center-Left Agenda for the Trump Era - Simon Rosenberg, US News and World Report, 12/9/16.  In the early days after Trump's election Simon layed out a possible agenda for the Democrats centering on prosperity, security, shoring up the American led liberal order and ambitiious efforts to reform our political system. 

Additional Readings

Some Thoughts On the Caravan - By Simon Rosenberg, Medium, 10/24/18.  The Caravan, composed of 7,000 poor, unarmed, mostly Honduran Central Americans, poses no threat to the US, and illegal border crossings continue to be way down. Some thoughts on what Democrats should do to respond to Trump's farcical attacks and terrible policies.

Are We Better Off Under Trump? The Short Answer Is No - By Simon Rosenberg and Chris Taylor, NDN, 10/18/18.  Most measures of the US economy are worse today than when Trump took office. Worse still, the President’s policies have made it very challenging to manage the next recession or global economic downturn.

Challenging Trump's Tariffs - An Ongoing Series - By Chris Taylor, 10/17/18.  In a new series challenging Trump's tariffs, we argue that the President's trade policy is illegal, recklessly ignorant, damaging to the US economy, and historically unpopular. Congress must step up and rescind them in the coming months. 

Trump's Immigration Strategy Is Failing - By Simon Rosenberg, NBC News, 8/6/18.  Almost nothing the President has done on immigration and the border has worked; expect more extreme policies as the elections approach. 

Congress Must Debate The Weakening of Global Order - By Simon Rosenberg, NBC News, 5/10/18.  Few presidents have inherited a world or a nation in which more was going right. Trump seems determined to undo it all.

The Pernicious Politics of Oil - Simon Rosenberg, US News and World Report, 12/16/16.  Petro-powers are challenging the global order, and the next president seems uninterested in stopping them.

An Enduring Legacy: The Democratic Party and Free and Open Trade - Simon Rosenberg, Huffington Post, 1/24/14.  The global system created by Presidents FDR and Truman has done more to create opportunity, reduce poverty and advance democracy than perhaps any other policies in history. 

Backgrounder: Trump, Immigration, And The Border

Research and policy recommendations about our border and immigration system have been one of NDN’s most influential areas of work over the past 13 years.  We send along some of our most recent releases below, hoping they will inform your own work and thinking in the days ahead.  What is happening on the border today is not an emergency; and the crisis, if there is one, comes from the failure of Trump’s extreme immigration approach which has created an extraordinary mess on both sides of the US border with Mexico.   Responsible policy makers from both parties should use this moment to advance smart solutions to the real challenges our immigration system faces, many of them made far worse by Trump’s misguided policies.  In that vein we offer a three part plan for what the nation can be doing now to improve our border and immigration enforcement system, shore up our neighbors to the South, improve our economy, and remove this toxic debate from our politics so we the nation can move on to other more important matters. 

Finally, it is our belief that the shutdown is not about the wall, but about our democracy.  It is whether our nation has a President, or a Mad King.  The stakes here are far higher than they may appear, which is why the Democrats and an increasing number of Republicans are right to stand and fight the worrisome and increasingly authoritarian behavior of Mr. Trump.  

The Ridiculous Shutdown, A President In Decline - Simon Rosenberg, Medium, 1/7/19 - The shutdown isn't about a wall.  It is about our democracy and whether Trump is a President, or a dangerous mad king. 

Some Thoughts About The Caravan - Simon Rosenberg, NDN, 10/24/18 - The Caravan, composed of 3,000 poor, unarmed, mostly Honduran migrants, poses no threat to the US, and illegal border crossings continue to be way down. Some thoughts on what Democrats should do to respond to Trump's farcical attacks and inane policies.

Trump's Brand Is His Xenophobic Immigration Policy. That's Why He'll Go To Any Lengths To Enact It - Simon Rosenberg, NBC News, 8/6/18 - Trump's separation of kids at the border is the result of a political crisis for his administration, rather than any real immigration crisis on the ground. As Trump's immigration policies continue to fail in the face of legal roadblocks and public outrage, expect even more outrageous policies from the administration.

Rebutting Trump’s Ridiculous Attack On “Chuck and Nancy” And All Democrats - Simon Rosenberg, Medium, 11/28/17 - The Democratic Party that Trump describes - on immigration, taxes, and more - is one that exists only in his mind. The Party that he is facing everyday is one that has governed responsibly when in power, and left the country far better than they found it.

The Case For Optimism: Rejecting Trump's Poisonous Pessimism - Simon Rosenberg, NDN, 11/19/18 - Simon argues that the great rationale of Trump's Presidency  –  that America is in decline – simply isn't true, and must be challenged more forcefully. This is the piece that spurred the creation of NDN’s “Patriotism and Optimism” deck.

The Ridiculous Shutdown, A President In Decline

This essay originially appeared on Medium.

The United States government and legislature have become paralyzed because the President is demanding Congress fund something he explicitly promised the American people we would never have to pay for.  The President’s immigration ideas were rejected repeatedly by a GOP Congress these past two years.  Not content with that, seeking in essence a legislative do-over, the President shuts the government down right before Christmas after agreeing not to.  Both the Senate and House have passed bills which would re-open the government but fund DHS only through February so cooler heads could prevail and a deal on border policy could get worked out.  Even this reasonable path, supported by both parties and both chambers, has been rejected by the President.  Instead, he keeps the government shut down, causing real harm to the country

And now the President’s ransom note is becoming clearer.  $5.7b for more wall, $800m for detention facilities, controversial and potentially illegal changes in immigration law.  He is asking for all this to be passed by Congress before reopening the government without going through regular order – no hearings, no studies, no debates, no votes.  The letter and presentation the President sent to Congress justifying his demands was sophomoric, unpersuasive and reinforced how crazy his demands are.  He has still NEVER EXPLAINED why more wall is needed – where would it go? Has flow increased in those areas? Has the border been penetrated in ways it wasn’t before? We don’t have answers to these simple questions.  The legislative changes he is asking for are complicated, may violate both domestic and international law, and may be, in his hands, dangerous. Mad King George has returned to America after an absence of hundreds of years.

And please, the argument he is standing on principle and fighting to fill a campaign promise is absurd.  His promise to all of us was clear - we would get a wall without paying for it, not by spending billions and billions of dollars.  He is betraying his core promise, not keeping faith with it.  And what makes his petulant demands even more galling is that he has used a worsening deficit as a reason to freeze the pay for federal workers next year.  No modest increase in wages for workers, but billions for an unjustified wall. 

What the President is asking for was rejected by a GOP Senate and was something he explicitly promised would never happen; his demands are controversial and unpopular, and has no back up explaining why what he is proposing will address what has become a crisis on the border through his current, deeply misguided immigration policies; he wants Congress to appropriate huge sums of money and make major legislative changes without going through the process we’ve used for hundreds of years to make decisions like this.  What the President is asking for and doing is unreasonable and potentially precedent setting.  If he succeeds at using these un-democratic/authoritarian methods to get his way what will stop him from doing it again and again? Democrats are right to play the issue the way they have – it would be reckless for them to give into the President at this point given how crazy he is acting. 

The President is not winning the argument with the public.  He made these issues central to his election argument and suffered one of the worst defeats of the modern era of American politics.  He has dropped 3 points in the polls since early December, from -9 to -12.   The economy is worsening, the market is way off and volatile, his tariffs are doing real material harm to the global and US economies, the President’s legal challenges are mounting and getting far more serious, and his foreign policy performance of late has been, frankly, scary.   At this point, given all the real challenges in front of the President, the shutdown has become a reckless indulgence by a very vain and self-centered man, a diva sitting in their dressing room angry over not getting their way.  His party needs to urge him to re-open the government and then bring his ideas about the border and immigration to Congress for a debate – like every other President has done throughout our history.  His repeated insistence on creating mechanisms to go around Congress is undemocratic and must be opposed; this wild man must play by the rules and work within the system which has created the most powerful nation in the history of the world.  This is not too much to ask and is, literally, what the Democrats are asking him to do right now.  

Now that we have begun this debate about immigration, no matter how the standoff plays out, Democrats should be aggressively putting forth their vision for how they want to improve our border and immigration system.  In a recent op-ed I offered a 3 part plan: 1) Convene a regional process to address the worsening conditions in Central America, 2) put comprehensive immigration reform back on the table, 3) offer ideas on how to best improve an immigration enforcement system weakened by the President’s failed policies.  We cannot defend the immigration status quo – the President took a creaky immigration system and has broken it.  We should step up and offer plans on how to best fix it now. 

How this ends isn’t clear but what is clear is that this standoff is not about a wall.  It is about ensuring we have a functioning democracy, and a President who plays by the rules established by our Founding Fathers a long time ago, rules which have indeed made this country great long before the Trumptrain arrived in Washington. 

Trump’s Tariffs Are A Growing Threat To The American And Global Economies

This is the eighth article in a series produced by NDN challenging Trump’s tariffs.

Today there is a growing body of evidence that one of Trump’s signature policy proposals, the tax cut, hasn’t delivered the economic returns promised by the President. I will argue in this piece that his other major initiative, the protectionist trade policy, has also failed to deliver on his promises. In launching the tariffs, Trump’s promises to Americans were simple: strengthen growth, reduce the trade deficit, and help US manufacturing. By any account, each one of these has failed. Instead, the trade war is now viewed as a growing risk to the global economy, and threatens to weaken the strong economy that Trump inherited in 2017.

Risks to Economic Growth

Since mid-summer, future growth expectations for the US and global economies have rapidly declined.  In Bank of America’s November investor report, 44% of investors expected a decline in global growth in 2019, the highest number surveyed since November 2008 on the eve of the Great Recession. In October, meanwhile, the IMF reduced their forecast of global growth for both 2018 and 2019 from 3.9% to 3.7%, representing a global income loss of almost $530 billion. This weakening of the global economy is likely to put significant downward pressure on US growth as well. Goldman Sachs now forecasts that US growth will fall from 3% this year to 2% in 2019, and will hit only 1.6% in the fourth quarter of 2019. Similarly, JP Morgan estimates that growth will decline from 3.1% this year to 1.9% in 2019, and will hit just 1.5% in Q4 2019.

Trump’s trade policies, which have placed tariffs on $250 billion of Chinese imports and $50 billion of steel and aluminum imports primarily from Canada and the EU, have played an important role in this slowdown. First, higher tariffs mean that domestic companies have to pay more for intermediate inputs, putting downward pressure on jobs, income, and capital investment as firms have to account for higher costs. Second, with less access to cheap foreign goods, the purchasing power of domestic consumers falls, meaning that workers can buy fewer products for every dollar they earn. Finally, tariffs create inflationary pressures by taxing low cost goods, which forces the Fed and other central banks to hike interest rates faster, thereby tightening financial conditions in the global economy. It is no surprise, then, that in Bank of America’s November investor report that found 44% of investors expecting a decline in global growth in 2019, investors cited Trump’s trade war as the biggest risk to the global economy (35% of investors), ahead of the Fed’s rate hikes (26% of investors), and rising corporate debt (14%). Business investment, a key component of growth and something heavily affected by firms’ input prices and consumer demand, has likewise slowed significantly in the face of Trump’s trade policies. Non-residential private investment rose only 2.5% in Q3 2018, compared to an average of 10.1% in the first half of 2018 and 6.3% in 2017. Furthermore, new durable goods orders have fallen for two straight months and are down 1.2% since June, significantly lower than the 2.3% growth seen in January to June 2018.

Worsening of the Trade Deficit

The six months since June have also seen a large widening of the trade deficit, and the US today is running its largest trade deficits since 2008. Since the tariffs were enacted, the trade deficit has increased by 18.1%, compared to economic growth in that period of 1.8%. Since June, the trade deficit has averaged $50.8 billion per month, which is 5% higher than its Jan-May 2018 average, 10.4% higher than its 2017 average, and 21.4% higher than its 2016 average under Obama. Given that one of the biggest impetuses behind Trump’s tariffs was to reduce the trade deficit, the policy as a whole seems to have faltered.

Driving the increase in the trade deficit, firstly, has been a decline in US exports. Exports have fallen at a 0.6% annualized rate since June, compared to an increase of 8% (annualized) in Jan-June 2018, 7.8% in 2017, and 4.1% in 2016. Secondly, US imports have skyrocketed since the tariffs were enacted, even though one of their major purposes was to encourage the substitution of imports with domestic production. Imports have risen at a 12% annualized rate since June, compared to 0.2% (annualized) in Jan-June 2018, 9.7% in 2017, and 4.5% in 2016. These trends are unsurprising given the effects of Trump’s tariffs. Almost $150 billion of US exports have had retaliatory tariffs enacted against them by our trading partners, and crucial intermediate inputs like steel and aluminum have seen their prices rise by over 20%, making American products uncompetitive abroad and at home.

Harms to US Manufacturing

Outside of the major macro-economic goals of improving growth and reducing the trade deficit, the tariffs were also primarily crafted to help US manufacturing. Instead, however, American manufacturing companies have been strongly hurt by the tariffs, and the auto industry in particular has seen its global competitiveness weakened. Since June, the S&P 500 Industrials index (which covers industrial companies within the S&P 500) has fallen by 5.1%. By contrast, it rose at an annualized rate of 11.8% from January 2017 to June 2018 and by an annual average of 14.2% during Obama’s 2nd term.  

GM, meanwhile, has seen a 15.2% decline in its stock price since June and earlier this week announced the layoff of 14,000 workers in North America and the closure of five plants. This is on the back of the company losing $1 billion in earnings in 2018 alone as a result of Trump’s steel and aluminum tariffs, and a 15% decline in GM’s sales in China in October as a result of worsening trade tensions. Similarly, Ford’s stock price has fallen 20.1% since June and the company last month announced likely layoffs of 12% of its global workforce (24,000 workers). Ford too reported that Trump’s tariffs would cost the company over $1 billion in earnings this year. Tesla also reported a drop in its China sales of over 70% in October, after warning last month that the trade war would harm its business. Finally, new reports suggest that the 25% tariff on foreign-made autos that Trump is considering would destroy a further 715,000 jobs in the auto industry and reduce annual GDP by $59 billion. Rather than revitalize US manufacturing, Trump’s tariffs instead have reduced its global competitiveness. With rising input costs and constrained export access, US companies particularly in the auto industry have been forced to lay off workers and close plants.

Large Losses in American Agriculture

The second biggest supposed benefactor from Trump’s tariffs were American farmers, who Trump claimed were taken advantage of by Canada and European protectionism. More so than any other industry, Trump’s trade policy has significantly harmed American agriculture. From June to September 2018 (the most recent data), US agricultural exports fell 1.8% YoY and the US trade surplus in agricultural products fell by 26%. As a result, the recent increase in farm bankruptcies throughout the country that began in 2017 has continued unabated, reaching levels over twice as high as those in 2013 and 2014. Soybean farmers in particular have been devastated by Trump’s trade war with China, and have seen a 97% decline in exports over the past three months.

Furthermore, while $12 billion in government bailouts has kept some farmers afloat, the damage done to agriculture (and to the rest of the US economy) will continue long after the tariffs are rescinded. New supply chains that exclude American workers, instead going to Canadian and Brazilian exporters, have been developed in place of American ones that took decades to develop. Further, the level of uncertainty over basic trade policy created by the Trump administration makes it less likely that American or foreign firms will invest in long term projects in the US.

Today there is an overwhelming body of evidence that Trump’s tariffs are unpopular and causing material harm to the US and global economy. The question now is, what do we do about it? In a recent Wall Street Journal interview, Trump showed that he doesn’t understand what he’s doing and that no rigorous analysis backs up his views on trade. As a result, it is unlikely that he can offer ideas to address the growing risks of the trade war with China and the conflict with our closest allies over auto tariffs. It will be up to members of both parties in the next Congress to challenge Trump far more directly on his reckless trade policies, and remove the threat to the US and global economies. 

Trump’s Tax Cuts Have Failed To Deliver On Their Promises

Trump’s tax cuts and tariffs have been the pillars of his administration’s economic policy and rhetoric around the economy. We’ve addressed the tariffs earlier, so now we’ll take a closer look into the tax cuts. Taking effect in January of this year, they were promoted as beneficial to long-term economic growth by strengthening the labor market and increasing business investment. Almost a full year into the plan, however, the results have been underwhelming. Each of those mechanisms for boosting growth has fallen flat, while the tax cuts instead have significantly increased the budget deficit and sent interest rates surging.

First, how have the tax cuts affected the labor market? While Trump often touts a record-low unemployment rate, much of that progress was made pre-2018, so it is helpful to look at the change in the trajectory of the labor market since the tax cuts went into effect in January 2018. Since then, the unemployment rate has fallen by an annualized 0.5 percentage points (pp), compared to a decline of 0.6pp in 2017 and an average decline of 0.5pp in 2015-16. Very normal looking. But the unemployment rate doesn’t tell the full story – it can fall based upon people becoming discouraged and leaving the labor force rather than getting jobs, so it’s helpful to also look at prime age labor force participation. Here the case for a tax cut-driven labor market boost looks very poor. Since December 2017, labor force participation has actually fallen by 0.1pp, compared to gains of 0.5pp in 2017 and 0.4pp in 2016. Both unemployment and labor force participation are included in the prime age employment-to-population ratio, making that metric a good barometer for the health of the labor market as a whole. Since December 2017, it has increased by 0.3pp, a much slower growth rate than gains of 1pp in 2017 and 0.7pp in 2016. On Trump’s promise of a higher trajectory for the labor market then, what has been the result? Rather than seeing a surge in job growth, the labor market actually appears to be on a lower growth trend in 2018, even in the midst of the tax cut’s $202 billion fiscal stimulus to the economy this year alone.

Second, how has business investment changed since the tax cut was enacted? Since then, real non-residential fixed investment has increased by a quarterly average of 7% (annualized), only slightly larger than the 6.3% quarterly average increase in 2017. For manufacturers, meanwhile, orders of capital goods have increased 5.5% this year (annualized), much less than the 10.5% growth seen in 2017. So investment growth this year seems to be rather similar to what it was in 2017, a significant blow to Trump’s claims that the tax cut would supercharge investment spending. Taking the non-residential investment number, the dollar value gain from increasing investment growth from 6.3% (in 2017) to 7% (in 2018) is $18.1 billion. Compared to a loss of revenue of $202 billion into the Treasury in 2018 alone, this means that for every $100 in tax cuts, only $9 in new investment spending was created. Even this simple analysis overstates the tax cut’s impact on investment. This impact is very front-loaded (because firms will invest now if they think there will be more demand in the future), so it’s likely that investment growth will slow down now from its already moderate level. Indeed, non-residential investment grew at an annualized rate of only 0.8% in the 3rd quarter of this year, and manufacturer’s orders of capital goods have actually declined for two straight months since July.

So the tax cut has done little to spur the boosts to the labor market and investment spending that Trump argued would lead to stronger long term growth. It is no wonder then that the Congressional Budget Office projects less than stellar growth effects from the tax cut. While it is true that the tax cut will increase growth this year and next, they estimate that it will actually reduce growth each year from 2022 to 2027 (the last year studied). Overall, they estimate that the tax cut will increase real GDP by 0.7% by 2027, equal to about $180 billion out of an estimated GDP of $25 trillion, compared to an increase of $1.8 trillion to the federal debt. As a result, for every $10 of tax cuts, only $1 of new growth will be created, for a multiplier of only 10%. By contrast, economists estimate that the multiplier for infrastructure spending is much higher (with some showing it closer to 80%).

While its benefits to growth, jobs, and investment have been minimal, the costs of the tax cut to the economy are large and will heavily weigh down future prosperity. First, the tax cut has blown a hole into the federal budget. While Trump and Mnuchin have repeatedly said that the tax cut will pay for itself, corporate tax revenue fell $91 billion in 2018 and overall revenue was $202 billion less than the CBO’s pre-tax cut projection. As a result, the entire $113 billion increase in the federal deficit from 2017 to 2018 could have been wiped out if the tax cut hadn’t reduced revenues so significantly. The rapidly rising deficit has made it very challenging to manage the next recession, of which JP Morgan projects there is a 60% chance within the next two years. By 2020, the federal deficit will be 4.6% of GDP (compared to 1.1% in 2007 on the eve of the Great Recession), meaning that there will be little room for fiscal stimulus to boost a recovery.

Second, the tax cut has played an important role in raising interest rates throughout the economy. While the Fed clearly has a significant effect on rates, the tax cuts increased the supply of US government debt (by increasing deficits), causing yields on that debt to increase. Furthermore, the increase in stock prices as a result of increasing corporate profits made bonds less attractive to investors, also causing an increase in yields. As a result, since January, yields on the 10-yr treasury have increased from 2.4% to 3.1%, while the interest rate on an average 30-yr fixed rate mortgage has increased from 4% to 4.9%. This increase in rates will have a major negative effect on the US economy. First, rising rates have been part of the reason why the US stock market has performed so poorly over the last month (with the S&P 500 currently down 1.8% for the year) and why new housing starts have suffered a significant decline, falling 5.3% in September alone. Second, rising rates reduce the disposable incomes of average Americans. The increase in average mortgage rates from 4% to 4.9% means that the average new American homeowner will pay an additional $1,800 per year (compared to a total increase in median household income of $1,000 from 2016 to 2017). Finally, rising rates mean that the government has to pay more interest on the federal debt. By 2028, the CBO estimates that interest payments will cost 3.1% of GDP, greater than the cost of Medicaid and over four-fifths of total US military spending.

Trump’s tax cut was sold as a minimally expensive way to improve America’s long term growth trajectory. Instead, trend growth has barely moved, while the country’s ability to deal with a worsening fiscal outlook and future recessions has been harmed significantly. Looking back, however, these outcomes do not seem surprising. The US economy was close to full employment in December 2017, and US companies had had access to near-zero interest rates to finance investment for almost a decade. It is little wonder, then, that Trump’s tax cut has failed in the promises that he made to Americans.

Are We Better Off Under Trump? - A Series

In a new series challenging Trump's economic policy, we argue that Americans are not better off after almost two years of the Trump administration. Job and wage growth is down, the trade and budget deficits have surged, and healthcare access has declined for the middle class and poor. Further, the decline in export opportunities for US businesses and significant deterioration in the fiscal sustainability of the government mean that Trump's policies will harm Americans for years to come. 

Trump's Tax Cuts Have Failed To Deliver On Their Promises - 10/30/18 - Trump’s tax cut promised to boost growth by strengthening the labor market and business investment, but today both metrics look very similar to their pre-tax cut trend. Instead, the deficit has surged to unprecedented levels and rapidly increasing interest rates are hurting ordinary Americans.  

Are We Better Off Under Trump? Charts, Graphs, Data - 10/25/18 - After Trump's first two years, jobs and income growth is slower, while the budget and trade deficits have surged. This presentation highlights the data behind NDN's argument that Americans are not better off under Trump.

Are We Better Off Under Trump? The Short Answer Is No - 10/18/18 - Most measures of the US economy are worse today than when Trump took office. Worse still, the President’s policies have made it very challenging to manage the next recession or global economic downturn.

Challenging Trump's Tariffs - An Ongoing Series - 10/12/18 - In a new series challenging Trump's tariffs, we argue that the President's trade policy is illegal, recklessly ignorant, damaging to the US economy, and historically unpopular. Congress must step up and rescind them this fall.

Aditional writings from Rob Shapiro:

The Latest Outlook On The Economy: Another Canary Swoons - 10/24/18 - There are growing signals of a possible recession 10 to 15 months from now - a flattened yield curve, weak investment growth, and stagnant productivity. On top of that, big drops in new home sales threaten to throw the construction industry, and the 7 million workers it employs, into a downward spiral. 

Don't Be Fooled: Working Americans Are Worse Off Under Trump - 9/30/18 - The typical working American's earnings, when properly measured, have declined during the Trump administration. It is no wonder, then, that Americans have been unmoved by economic news over the past two years.

Are We Better Off Under Trump? - Charts, Graphs, Data

Last week, NDN produced an analysis arguing that Americans are not better off after two years of the Trump administration. We took a look at jobs and income growth, the level of the budget and trade deficits, and metrics affecting the lives of everyday Americans such as mortgage rates, healthcare insurance, and gas prices, and concluded that most measurements showed a weakening economy compared to the one Trump inherited in early 2017. 

The attached presentation takes this argument and visualizes the data that backs it up. Compared to the last two years of Obama's presidency, job growth in 2017 and 2018 has not been very impressive, even in the midst of significant fiscal stimulus.

Furthermore, deficits have surged under Trump and are projected to continue growing as a result of the President's tax cuts, which reduced revenue by $200 billion in 2018 alone.

To find other data on the Trump economy, click on the presentation slides below.

Some Thoughts About The Caravan

This essay was originally published on the website Medium.

Looking back, everyone involved in this Caravan story has to wonder how it led to the President declaring a national security emergency. It is about 7,000 poor, unarmed, mostly Honduran Central Americans desperately attempting to escape worsening economic and political conditions. It includes about 2,000 kids. As of today, October 23rd, the caravan is about 1,000 miles away from the closest part of the US, and at current rates will make it to the US border in early to mid-December. That is if somehow they can keep themselves fed, clothed, housed, and safe during this grueling trek north. No one is funding this journey, and recent news reports suggest many are tired and close to giving up. But what keeps them going of course is that in their minds they can’t go home, and have nowhere else to go.

A terrific Daily Beast story today details how this all started. Desperate conditions at home, and mistaken news reports that there was funding to send a caravan north. It would allow people to avoid paying $7,000 for a coyote, and there would be physical safety in numbers. Perhaps we will learn that some more nefarious plot was behind this unusual event but as someone who has studied these matters for a long time, this is all very believable. So today what has been described as a dangerous mob in right-wing media here in the US may very soon become a tragic humanitarian disaster as they run out of food and shelter far away from home.

What has been most extraordinary about this unfolding tragedy is the reaction of the President of the United States. Egged on by hysterical right-wing media, the President himself became hysterical and declared this far-away march of some of the hemisphere’s poorest people a national security emergency for the United States of America. To make it all the more threatening, the President claimed, without evidence, that terrorists and violent gang members had joined the caravan and were intending to use it to sneak into the United States (today he admitted he made up the Middle Easterner thing). The President threatened to cut off aid to the countries of the region if this Caravan kept going. The aid he was referring to largely goes to prevent further erosion of regional security so the President was essentially threatening to force the region into even greater chaos and weakening our own security along the way. Remarkably the Secretary of State and the Vice President echoed these claims in the last 24 hours. And there we had it — the most powerful nation in the world, the winners of World Wars and Cold Wars, was now officially terrified and mobilizing its military, financial, diplomatic, and homeland security resources to repel an “invasion” of a few thousand ragged, unarmed Central Americans far away from the US homeland and weeks away from arriving at the border itself. It has felt far more Monty Python than John Wayne.

Flows of authorized immigrants into US fraction of what it was — system has capacity to manage surges

For context, it has to be noted that the flow of unauthorized immigrants into the United States is a fraction of what it was 10–15 years ago, and even this year’s flow has been within recent norms. The President had already declared a national emergency earlier this year and added National Guard troops and military judges to the border region to help provide additional capacity to manage what was in fact a small and not historically significant increase in border arrivals. So the boy had cried wolf once, and when the flow didn’t decrease, the Administration moved on to its infamous “zero tolerance,” kids in cages strategy; a strategy voided by federal courts a few months ago. Not a whole lot of winning for the President on his immigration strategy these last two years.

2018 inline with previous years — not a crisis

So while this whole Caravan thing both feels and is absurd, it is now part of the political discourse in these closing days of the 2018 elections and Democrats need to make clear where they stand. As an old Clinton War Room guy I firmly believe that any attack must be challenged or it sticks. Democrats are being attacked daily by the President for something they have not done, and need to challenge both the President’s inaccurate story about immigration and its impact on America, and the President’s misguided policies to address an “immigration crisis” which never existed. So, in short, I think Democratic leaders should do three things:

Address Worsening Conditions in Central America — Democrats should make clear they know that the worsening economic and security situation in Central America is a problem which needs to be addressed by the next Congress. Unauthorized flows like the Caravan are wrong, and we need to find a way to keep people at home and to honor the legal immigration system in place today. Whatever plan we come up with will have be developed with our Southern neighbors and both parties and chambers in Congress. It will take work over many months to do something lasting and effective. Fox fueled fiats from an ill-informed President are making finding lasting solutions far harder, not easier.

Put Comprehensive Immigration Reform back on the table — Democrats should reaffirm their commitment to the bi-partisan and thoughtful McCain/Kennedy, Gang of 8 framework and offer to enter into talks with the President and the Republicans about a bi-partisan reform package. They should be open to reducing the # of green cards issued for a time if we can legalize millions of undocumented immigrants already living and working here.

Offer Ideas for Smart, Effective and Humane Reform Of Our Immigration Enforcement System — At a rhetorical and policy level, Democrats have to be more forceful in talking about how to make border and immigration enforcement better, more effective, and more humane. In our book President Obama did a far better job at managing our border and domestic enforcement system than many have given him credit for. DHS and ICE can certainly be improved, but talks of abolishing it are silly and should be rejected by responsible leaders in the days ahead. Creating a path for legalization — and I hope citizenship — for the 11m already here require a big rethink of our entire enforcement system.

So even if the Caravan disperses in the coming days, and this “urgent threat” is removed from the political debate, the underlying issues raised by the Caravan remain. The immigration status quo is unacceptable, and has been for a long time. Democrats have been trying to improve and modernize our approach to immigration, and address many of the problems that have surfaced here, for 13 years. We passed smart bi-partisan bills through the Senate twice, only to have them blocked each time by a reactionary Republican House leadership. If the Democrats control the House next year we will have the opportunity to do something truly meaningful on immigration; something which can grow our economy, cut a spiraling deficit, and humanely resolve one of the most contentious political issues in the nation today. The President sure does seem to want to do something — let’s challenge him to use his vaunted deal making skills and do right by the American people and our close neighbors to the South. It is time now.

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