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Why does anyone want this job if you can’t do the fun stuff that makes voters happy: cutting taxes and spending money? From the WSJ:
Donald Trump and Hillary Clinton are likely to recite their varied promises for fresh government spending at Monday’s first presidential debate. One reality they’re unlikely to note: Whoever wins in November will enjoy far less latitude to spend money or cut taxes than any president since World War II. Not since Harry Truman will a new leader enter office with a higher debt-to-GDP ratio. And for the first time in decades, the new president will face the specter of widening deficits despite a growing economy. “The next president, no doubt, is going to be very constrained,” said Rep. Charlie Dent, a Pennsylvania Republican who sits on the House appropriations committee and hasn’t endorsed anyone for president.
This chart sums up the supposed fiscal constraints, including the historically high debt-GDP ratio:
As WSJ reporter Nick Timiraos points out, “A President Trump or Clinton could try to barrel ahead anyway, of course.” Indeed, they could. On the GOP side, Trump has shown no substantive concern about debt. He has proposed a giant tax cut, a $500 billion infrastructure concept, and opposes entitlement reform. How many Republicans will learn particular lessons from his success? Keep in mind, also, his GOP partners in the House GOP have offered a tax cut that would reduce federal revenue by over $2 trillion on a static basis, according to the Tax Foundation.
Now, as Timiraos adds, “Mrs. Clinton, in particular, is likely to be checked by the opposing party’s control of at least one chamber of Congress.” In that scenario, maybe the debt-GDP ratio climbs more or less in line with CBO forecasts. Then again, Democrats may push hard for more fiscal stimulus given that “secular stagnation” thesis — particularly influential on the left — suggests more fiscal room for debt and infrastructure spending may pay for itself.
Perhaps the Fed is a bigger potential constraint than all those debt statistics and forecasts. If the Fed thinks the US is at full employment and growing at potential, might not inflation concerns nudge the central bank to offset new fiscal stimulus with higher rates? As economist Scott Sumner has written:
If the central bank is steering the economy or, more precisely, nominal aggregates, such as inflation and nominal GDP, then fiscal policy would be unable to impact aggregate demand. As an analogy, imagine a child attempting to turn the steering wheel of a car. The parent might respond by gripping the wheel even tighter, offsetting the push of the child. Even though the child’s actions would initially change the direction of the car, ceteris paribus, the parent will push back with equal force and correct this turn to keep the car on the road.