Prosperity

The Ultimate Test

A president’s main responsibility is to ensure prosperity. If he does that, he’s doing his job and voters are likely to reward him for it. If the economy falters, the president – and his party – are held accountable.

It has always been so, and it is always likely to be so.

Of course, presidents pursue policies for a lot of different reasons besides promoting prosperity. The most important driving force behind a president’s agenda is typically ideology, specifically party ideology. In President Trump’s case, that means conservative ideology.

Conservatives have been dreaming of taking over the federal government for decades, going back to the New Deal policies of Franklin D. Roosevelt in the 1930s, which saw a huge expansion in the size and power of the federal government. Donald Trump is devoting his presidency to the most serious effort in nearly 100 years to change the role of government in the United States.

The first order of business for every Republican president since 1980 (save one) has been to call for federal tax cuts. In his first budget message to Congress in February 1981, President Ronald Reagan said, ``The taxing power of government must be used to provide revenues for legitimate government purposes. It must not be used to regulate the economy or bring about social change. We’ve tried that, and surely we must be able to see it doesn’t work.’’

Presidents Reagan, George W. Bush and Donald Trump all started off by calling for huge federal tax cuts. The exception was Reagan’s immediate successor, George H.W. Bush. Bush ran for President in 1988 after pledging at his party’s convention, ``Read my lips: no new taxes.’’ He ended up raising taxes instead – and generating bitter opposition from his fellow Republicans.

One of Donald Trump’s priorities for his first term was the Tax Cuts and Jobs Act of 2017. Many of its provisions are due to expire at the end of 2025. President Trump has made extending the tax cuts – particularly corporate tax cuts -- a top priority for his second term. Tax cuts have become a core element of Republican ideology.

Beyond tax cuts, the conservative agenda Trump ran on in 2024 included three major commitments in domestic policy: reducing the size of the federal government, raising tariffs on imports and rounding up and removing immigrants who came to the U.S. without legal authorization. Those commitments, all resoundingly popular with conservatives, run the risk of slowing down the economy. And potentially turning Trump’s presidency into a failure.

That is exactly what a recession would signify. At this point, just two months into his presidency, most economists are not predicting a recession. But losses this month in the U.S. stock market are being taken as a sign of declining business confidence, particularly as a result of high tariffs.

Some experts are increasing their estimates of the likelihood of a recession. The chief global economist at J.P. Morgan Bank has raised his estimate of the probability of a U.S. recession this year to 40 percent. Former Treasury Secretary Larry Summers forecast ``a near 50 percent prospect of recession.’’

When a Fox News interviewer asked President Trump this month, ``Are you expecting a recession this year?’’ the President was unwilling to rule out the possibility. ``I hate to predict things like that,’’ Trump responded. ``There is a period of transition because what we’re doing is very big.’’

What the Trump Administration is doing is also very risky. The spending cuts being imposed by Elon Musk and his ``Department of Government Efficiency’’ are generating big layoffs in federal employment and threatening to reduce the country’s rate of economic growth.

In a recession, the rate of growth of the nation’s gross domestic product actually shrinks, i.e., the country’s total wealth declines. The technical definition of a recession is two successive quarters (six months) of economic decline. The U.S. has experienced nearly fifty recessions in 250 years. Most of them have had significant political consequences – most prominently, the Great Depression of the 1930s when the nation’s unemployment rate peaked at nearly 25 percent. The solution was a vast expansion of government spending, amplified by a world war.

President Trump’s unique contribution to the nation’s economic uncertainty is the imposition of higher tariffs on foreign imports. They are leading our trading partners to impose reciprocal tariffs on U.S. exports. Before the federal income tax was authorized by constitutional amendment in 1913, tariffs on foreign goods were the principal source of revenue for the federal government.

Tariffs function like a national sales tax. Consumers pay for tariffs through higher prices, and the revenue goes to the federal government. Revenue from the tariffs will help compensate for the tax cuts.

Deportations of immigrants also have a negative impact on the nation’s economy by reducing the size of the country’s labor force. The U.S. has a smaller pool of workers not only because of the declining number of immigrants but also because the native work force is rapidly aging. A smaller working age population leads to labor shortages, higher wages and ultimately, higher prices.

The combination of fewer workers, higher tariffs and government spending cuts threatens to throw the U.S. into recession. Tax cuts may counteract some of the damage. But the risk of recession remains serious. And politicians almost always have to pay a price.

Recessions ended the careers of both Presidents Bush. George H.W. Bush was in office during the recession that began in 1990. The unemployment rate peaked at 7.8 percent in June 1992 -- just in time to see President Bush lose re-election to Bill Clinton.

The ``Great Recession’’ of 2007-2009 began with a mortgage crisis during President George W. Bush’s second term. Several of the country’s leading financial institutions (among them, Lehman Brothers and Bear Stearns) collapsed. Unemployment peaked at 10 percent in 2009. The political aftershock resulted in the election of the nation’s first black president, Democrat Barack Obama, in 2008.

Jimmy Carter’s presidency was cut short by an energy crisis and hyperinflation. Carter was defeated by Ronald Reagan in 1980. The deepest recession since the 1930s happened during Reagan’s first term as president, when the unemployment rate reached nearly 11 percent – the highest unemployment rate since the Great Depression of the 1930s. The nation’s economy shrank by 2.7 percent. The political consequences were severe. Democrats gained 26 House seats and seven governors in the 1982 midterms.

President Reagan limited the damage by urging Americans to ``Stay the course.’’ The economic catastrophe of Jimmy Carter’s presidency was still fresh in voters’ minds and they did not want to go back. Reagan survived the recession and saw the economy come roaring back by 1984 when he won a landslide re-election, carrying 49 states after declaring ``Morning in America.’’

The economy saved President Bill Clinton when he was nearly brought down by the Monica Lewinsky scandal during his second term. Clinton was impeached by the House of Representatives and acquitted by the Senate. What Clinton had going for him was the dot-com boom (which turned into the ``dot com bubble’’), a roaring economy that reached a peak growth rate of 4.7 percent in 1998, the year Clinton was impeached. Americans were enjoying unprecedented prosperity and concluded that President Clinton was doing his job. (Optimistic economists are expecting a growth rate of about two percent this year.)

President Trump did experience a brief recession at the end of his first term. In early 2020, more than 24 million Americans lost their jobs (unemployment rate of 14.7 percent). Most Americans understood that the cause of the 2020 recession was the Covid-19 pandemic. Still, Trump lost his re-election bid to Joe Biden in 2020, a loss that Trump continues to deny.

The bottom line? It’s still ``The economy, stupid,’’ just as it was when James Carville coined the phrase in 1992. That’s why ``recession’’ is the biggest threat to President Trump’s legacy.

The message is that the success of a president’s policy is not judged by ideology. It’s judged by the result. Does it lead to prosperity? Voters don’t see it yet. In early March, ``the University of Michigan said its Consumer Sentiment Index dropped to 57.9, the lowest level since November 2022. . . . The Index has erased all the gains posted in the aftermath of [President Donald] Trump’s election victory.’’

Americans have always believed in limited government. Give us prosperity, they say, and we’ll solve our problems for ourselves.