As the stock market teeters on the precipice of bear territory, the economy — arguably the best thing President Donald Trump has going for him — appears to be in jeopardy.
Forget Russia, Syria, Mueller, the U.S.-Mexico border wall, impeachment proceedings, etc. That’s all a sideshow.
If the economy tanks, Trump 2020 becomes a long shot. Restoring confidence in the markets going into the new year will be pivotal for Trump’s presidency.
There are silver linings, though. The post-2016 election boom doesn’t seem like one fueled by speculation, like the housing boom of the 2000s or the dot-com boom of the 1990s. There is real economic activity underway.
In Alabama, for instance, Gov. Kay Ivey is attending some kind of ribbon-cutting ceremony every week, either for the expansion of an existing plant, like the $250 million Shaw Industries is spending to upgrade its carpet fiber manufacturing facility, or a new one like the $1.6 billion Toyota-Mazda plant set to be built in northern Alabama’s Limestone County.
That is tangible economic activity, some of it fueled by foreign investment.
The “boom” may have started with Trump’s election, but growth was long underway before it. The U.S. economy just marked 36 consecutive quarters of positive gross domestic product growth in November, which began in the fourth quarter of 2009.
Paul Krugman and other “experts” told us that a Trump presidency would send the U.S. spiraling into a second Great Depression. Obviously that hasn’t been the case. However, the fear was that someone as erratic as Trump could send the wrong signals and cause a wave of pessimism to ripple throughout the economy.
In the case of this potential looming crisis, Trump’s response could be better.
Many will say the government shutdown triggered calamity in the stock market, with its wild hundred-point swings. While that is likely the case, there are other factors to consider, like the threat of interest rate increases. Further, the potential for future government shutdowns has also spooked investors.
With Nancy Pelosi set to assume control of the House of Representatives, the likelihood of more, similar impasses increased. When Republicans took control of the House after the 2010 midterm elections, government shutdowns were frequent.
The public and, perhaps more importantly, business executives should expect history to repeat itself between now and the 2020 presidential election.
Trump is in a difficult position as he seeks to strike the right chord between satisfying his base and making peace with Democrats in Washington long enough to provide that much-desired certainty the business community requires to plan for the future.
Some of the president’s enemies would not mind seeing the economy suffer if that means weakening Trump’s 2020 election chances.
“I think one way you get rid of Trump is a crashing economy,” HBO’s Bill Maher said back in June. “So please, bring on the recession. Sorry if that hurts people, but it’s either root for a recession, or you lose your democracy.”
Are there some irrational Trump haters who would not mind seeing him debilitated by an ailing economy? Perhaps, but if the economy struggles too much, the electorate’s reaction could be a significant turn in governance.
The Great Recession, which started in December 2007, was a big reason for the election of Barack Obama. Coming out of the 2008 Republican National Convention in Minneapolis, John McCain got a boost from his selection of then-Alaska Gov. Sarah Palin as his running mate.
The market crash and the rush to pass the Troubled Asset Relief Program (TARP) bailout damaged McCain. The public frowned on speculators, who it believed acted irresponsibly, and voted for the heavy hand of government to come in and make things right. At the time, “the heavy hand of government” candidate was Obama.
A second round of economic upheaval could push the country even further to the left. To win a primary with an electorate comprising hardcore activist Democratic Party base voters, a Democratic candidate will need to embrace an almost Western European-style brand of democratic socialism.
Trump supporters might like that potential opponent, believing there is no way Americans will elect someone that far to the left to be president.
However, once you enter the general election stage of the presidential campaign as one of the two major parties’ candidate, the chances are close to 50-50 of winning the presidency. If you throw a prolonged economic downturn into the mix, one that can allow for demagoguing of Wall Street, the Democrat could almost certainly be the beneficiary.
Trump needs to keep the economy from contracting. That may require a serious and sober-minded address to the nation pledging he will do what he has to do, and not a 4 a.m. tweet directed at Federal Reserve Chairman Jerome Powell.
Economic cycles come and go. But in this political environment, a serious enough downturn in the economy could result in an entirely different view of the role of government in America.