A Recession’s Threat to Trump's Re-election

For weeks Donald Trump down played the pandemic facing the globe and bragged that the illness was a hoax and then that his closing of the boarders to those from some nations had kept the nation safe.  Now, with 8,700 known cases in the USA, that claim - like most of what comes from Trump's mouth - was a lie.   Trump's real concern is that an economic collapse and a tanking of the stock market (which has already happened) would deprive him of the one thing to run on for re-election: a strong economy.  Trump's not the only Republican with this worry.  The incredible stupid Ron Johnson (R-Wisconsin) has more or less said that the economy should not be shut down simply because 3.4% of the population might die.  A piece in Larry Sabato's Crystal Ball looks at why Trump and others in the GOP are terrified of an economic recession or worse.  Here are article excerpts:

The coronavirus pandemic has upended almost every aspect of American life over the past few weeks, and the 2020 presidential election is no exception. We have already seen candidates forced to cancel rallies, hold a debate with no audience present, and shift their campaign staffs to working online. But the biggest impact of the crisis on the 2020 election is likely to be through its effect on the U.S. economy.

With major sectors of the economy grinding to a near-standstill due to the pandemic, many economic forecasters are now predicting that the U.S. will experience a major downturn in economic growth in the current quarter that could continue for at least the next two quarters. Some forecasters are predicting a major recession with the economy shrinking by 5% or more in the second quarter of 2020. That’s significant because, in many election forecasting models, including my own “time for change” model, economic growth in the second quarter is a key predictor of the election results. . . . . So it’s possible that even if the economy recovers later in the year, the most electorally-salient perceptions will nonetheless be formed in the spring and summer.

It takes 270 electoral votes to win a presidential election. The results indicate that, despite the huge boost that Trump is predicted to receive as a first-term incumbent, an economic downturn in the second quarter, combined with a net approval rating in negative territory, would very likely doom Trump’s chances of winning a second term. The only scenario here in which Trump would be favored to win a second term would be modest economic growth combined with a small improvement in his net approval rating, which has been stuck in the vicinity of -10 for many months according to the FiveThirtyEight average. The model suggests that a major recession would likely result in an Electoral College landslide for Trump’s Democratic challenger, especially if it is accompanied by a further decline in [Trump's] the president’s approval rating.

Based on the results of presidential elections since World War II with running incumbents, a president with an upside-down approval rating and an economy in recession would have little chance of winning a second term in the White House. If President Trump’s net approval rating remains where it is now or declines further, and if the recession is severe, with real GDP shrinking by three points or more in the second quarter, the result could well be a defeat of landslide proportions.

A few caveats are in order here. Voters may not hold an incumbent president responsible for a recession brought on by an unforeseeable disaster like the coronavirus pandemic — although they may hold him responsible for the government’s response to the pandemic, which is a story that is still being written.

Overall, one of the best arguments in favor of [Trump’s] the president winning a second term has been strong economic performance for much of his term. The public health crisis seems very likely to depress that performance for at least the next few months. This poses an electoral threat to [Trump] the president, which the model vividly demonstrates.

Setting the Stage for a Possible Global Recession.

Racism and greed were, in my view, the main motivations for those who voted for Trump in 2016.  The racists were the angry whites fearful of lost white privilege while never looking in the mirror to see their own role in the plight.  The other group was comprised of the very wealthy and others of a similar mindset who want to horde their money and never contribute to the best interests of the nation.  Now, thanks to the actions of Der Trumpenführer - trade wars, tax cuts ballooning the federal deficit, and the government shutdown - , actions  of like minded anti-immigrant racists in the UK and other parts of Europe, and China's structural economic problems, these same people may be about to see the start of a recession that will worsen their plights.  A column in the New York Times looks at the potentially coming Trump/GOP recession.  Here are highlights: 

The last global economic crisis, for all its complex detail, had one big, simple cause: A huge housing and debt bubble had emerged in both the United States and Europe, and it took the world economy down when it deflated. 

[The slump] in 1990-91, was a messier story. It was a smorgasbord recession — a downturn with multiple causes, . . . . The best guess is that the next downturn will similarly involve a mix of troubles, rather than one big thing. And over the past few months we’ve started to see how it could happen. It’s by no means certain that a recession is looming, but some of our fears are beginning to come true. Right now, I see four distinct threats to the world economy. (I may be missing others.)

China: Many people, myself included, have been predicting a Chinese crisis for a long time — but it has kept not happening. China’s economy is deeply unbalanced, with too much investment and too little consumer spending; but time and again the government has been able to steer away from the cliff by ramping up construction and ordering banks to make credit ultra-easy.

But has the day of reckoning finally arrived? Given China’s past resilience, it’s hard to feel confident. Still, recent data on Chinese manufacturing look grim.

And trouble in China would have worldwide repercussions. We tend to think of China only as an export juggernaut, but it’s also a huge buyer of goods, especially commodities like soybeans and oil; U.S. farmers and energy producers will be very unhappy if the Chinese economy stalls.

Europe: For some years Europe’s underlying economic weakness, due to an aging population and Germany’s obsession with running budget surpluses, was masked by recovery from the euro crisis. But the run of good luck seems to be coming to an end, with the uncertainty surrounding Brexit and Italy’s slow-motion crisis undermining confidence; as with China, recent data are ugly.

And like China, Europe is a big player in the world economy, so its stumbles will spill over to everyone, the U.S. very much included. Trade war: Over the past few decades, businesses around the world invested vast sums based on the belief that old-fashioned protectionism was a thing of the past. But Donald Trump hasn’t just imposed high tariffs, he’s demonstrated a willingness to violate the spirit, if not the letter, of existing trade agreements. . . . . For now, corporate leaders reportedly believe that things won’t get out of hand, that the U.S. and China in particular will reach a deal. But this sentiment could turn suddenly if and when business realizes that the hard-liners still seem to be calling the shots.
 The shutdown: It’s not just the federal workers not getting paid. It’s also the contractors, who will never get reimbursed for their losses, the food stamp recipients who will be cut off if the stalemate goes on, and more. Conventional estimates of the cost of the shutdown are almost surely too low, because they don’t take account of the disruption a non-functioning government will impose on every aspect of life.

As in the case of a trade war, business leaders reportedly believe that the shutdown will soon be resolved. But what will happen to investment and hiring if and when corporate America concludes that Trump has boxed himself in, and that this could go on for many months?

So there are multiple things going wrong, all of which threaten the economy. How bad will it be?

The good news is that even taking all these negatives together, they don’t come close to the body blow the world economy took from the 2008 financial crisis. The bad news is that it’s not clear what policymakers can or will do to respond when things go wrong.

Monetary policy ­— that is, interest rate cuts by the Federal Reserve and its counterparts abroad — is normally the first line of defense against recession. But the Fed has very limited room to cut, because interest rates are already low, and in Europe, where rates are negative, there’s no room at all.

Fiscal policy — temporary hikes in government spending and aid to vulnerable workers — is the usual backup to monetary easing. But would a president who’s holding federal workers hostage in pursuit of a pointless wall be willing to enact a sensible stimulus?

Finally, dealing effectively with any kind of global slump requires a lot of international cooperation. How plausible is that given who’s currently in charge?

Again, I’m not saying that a global recession is necessarily about to happen. But the risks are clearly rising: The conditions for such a slump are now in place, in a way they weren’t even a few months ago.