For more than a generation, GOP politicians have compared themselves to President Ronald Reagan as the political bar to reach. When President Trump’s acolytes try to spin that his first year was littered with monumental accomplishments, they write things like “Trump Already the Most Successful President Since Reagan” or “Trump Is Greatest President Since Reagan.” Some D.C. think tanks, like the Heritage Foundation or the Competitive Enterprise Institute, have issued reports comparing the 45th president favorably to the 40th.
Normally I’d point out that Trump is no Reagan in either word or deed. The more I think about it, however, the harder it is to deny the parallels.
Trump and Reagan share some surface traits. Both entered politics after spending time in the world of entertainment. Both started as Democrats before governing as conservative Republicans. Reagan was the oldest president ever elected until Trump. Reagan, the first divorced president, tightly embraced the evangelical community; Trump has two more divorces and an even tighter grip on evangelicals. Reagan’s family was somewhat dysfunctional while he was in the White House, and you can guess how this sentence should end.
There is a deeper resonance between the two administrations, however: They both got the U.S. economy drunk on deficits.
Although Reagan campaigned as someone who would balance the budget, the combination of tax cuts and defense spending led to an explosion in the budget deficit, hitting close to 6 percent of gross domestic product in 1983. The increase was so massive after his first year in office that Reagan had no choice but to swallow large tax increases. Furthermore, the combination of greater defense spending and tax cuts fueled so much growth in consumption that for the first time in the postwar era the United States ran large trade deficits.
Fast-forward 36 years, and the Trump administration is pursuing nearly identical macroeconomic policies. The tax cuts passed last year already guarantee an explosion in the federal budget deficit, as The Washington Post’s Heather Long reports:
“The federal government is on track to borrow nearly $1 trillion this fiscal year — Trump’s first full year in charge of the budget.
“That’s almost double what the government borrowed in fiscal 2017.
“Here are the exact figures: The U.S. Treasury expects to borrow $955 billion this fiscal year, according to documents released Wednesday. It’s the highest amount of borrowing in six years, and a big jump from the $519 billion the federal government borrowed last year.
“Treasury mainly attributed the increase to the ‘fiscal outlook.’ The Congressional Budget Office was more blunt. In a report this week, the CBO said tax receipts are going to be lower because of the new tax law.”
All of this was before Wednesday’s bipartisan deal in the Senate to keep the government open. Thomas Kaplan of the New York Times summarizes what that means for spending:
“Senate leaders struck a far-reaching bipartisan agreement on Wednesday that would add hundreds of billions of dollars to military and domestic programs over the next two years while raising the federal debt limit, moving to end the cycle of fiscal showdowns that have roiled the Capitol. . . .
“The deal would raise the spending caps by about $300 billion over two years. The limit on military spending would be increased by $80 billion in the current fiscal year and $85 billion in the next year, which begins Oct. 1. The limit on nondefense spending would increase by $63 billion this year and $68 billion next year.”
So, taxes have been cut and government spending has been increased. This all comes on the heels of a 2017 in which the trade deficit also exploded, as the Associated Press reported Feb. 7:
“The Commerce Department reported Tuesday that the U.S. trade deficit in goods and services rose 12 percent to $566 billion last year, biggest since 2008. A record $2.9 trillion in imports swamped $2.3 trillion in exports last year.
“The deficit in the goods trade with China—frequently accused of unfair trading practices by the White House—hit a record $375.2 billion in 2017. The goods gap with Mexico climbed to $71.1 billion . . .
“The trade gap grew even though the U.S. dollar dropped nearly 7 percent last year against the currencies of its major trading partners, a move that gives U.S. companies a price edge in foreign markets and makes imports pricier in America.”
This might explain why Commerce Secretary Wilbur Ross awkwardly admitted he shifted his rhetoric from pledging to end the U.S. trade deficit with China to a recent admission that “it was ‘not practical to set an exact deadline’ for eliminating the U.S. imbalance with China,” according to the Financial Times. This is the right thing to say, but it will likely lead Trump to copy Reagan in another way: devising trade barriers to protect favored industries.
The hangover from the Reagan deficits haunted the public policy landscape for a decade. President George H.W. Bush had to agree to a budget deal that raised taxes and sunk his reelection campaign. The political pressures of the trade deficit led to significant frictions with Japan. President Bill Clinton also raised taxes and cut defense spending to demonstrate fiscal resolve.
At minimum, Trump’s actions will have the same effect. There is one important difference between Reagan and Trump’s brands of military Keynesianism, however. The Reagan administration executed these policies during a period of relatively high unemployment with an economy that had a low debt-to-GDP ratio. The Trump administration is priming the pump in Year Nine of an economic recovery, with unemployment relatively low and debt-to-GDP ratio approaching a postwar high.
Or as Jason Furman, professor of practice at Harvard Kennedy School tweeted: “I consider myself a deficit dove. I’m comfortable with 3% GDP deficits-and higher in downturns. I don’t think deficit reduction should be our top priority. But, deliberately sending an essentially full employment economy into deficits of 5% to 7% of GDP is nuts.”
It has been more than a generation since Americans experienced anything resembling high inflation in consumer prices. Priming the pump like this in an economy that is already at nominal capacity will be an interesting test to see whether inflation is gone for good. It will also be an interesting test to see whether conservative GOP inflation hawks prove to be as shamelessly hypocritical as their colleagues have been on fiscal probity.
I am sure that Trump takes comfort in any comparison to Reagan. But the Gipper had to deal with the Fed’s decision to raise interest rates early in his presidency. We will see how Trump reacts if all this borrowing forces new Fed Chair Jay Powell to act like Reagan Fed Chair Paul Volcker.