The economy is closer to the boom stage of the cycle than it is to the bust.
Unemployment is as low as it has been since the late 1960s. In the eyes of the Federal Reserve chairman, the economy is near full employment. It’s been three years since President Obama declared in his State of the Union address that “the shadow of crisis has passed,” and policymakers see little risk of another crisis on the horizon.
With the 2018 elections approaching, Republicans are hoping that the strong economy will save their Congressional majorities, while the boom is forcing Democrats to adjust to talking about how economic benefits aren’t being distributed equally.
There’s universal acknowledgment that some of the government actions and policies that were geared for the financial crisis and its lingering fallout are presumably no longer appropriate. For its part, the Federal Reserve is well into a campaign of reversing the stimulus measures it put in place starting in 2008.
President Trump has set out an agenda of stoking the already hot labor market by cutting taxes and boosting government spending. At the same time, he’s tried to boost the supply side of the economy by cutting government regulations, and also attempted a high stakes renegotiation of trade agreements.
That program, however, is what Trump is settling for, not what he would want in an ideal world. The administration has also called for federal agencies to spend less and for a trillion-dollar infrastructure spending package, but it’s become clear that those goals are politically unattainable.
“We need to overhaul our regulatory apparatus so that entrepreneurs can keep America at the cutting-edge of technological advancements that propel economic growth, higher living standards, and even better medical outcomes,” argued Rep. Erik Paulsen, R-Minn., the chairman of the Joint Economic Committee.
Paulsen also called for going beyond the Trump tax cuts to “fine-tune the tax code,” improving the administration’s approach to trade deals, and better preparing workers to fill the record number of open jobs.
One thing he did not mention was the federal debt. Only a few free-market conservative sitting Republican lawmakers are eager to bring up the debt and entitlement reform, but right-of-center economists have honed in on those topics.
“If we don’t fix the entitlement programs and the debt trajectory, we’re just going to run straight into the wall,” said Douglas Holtz-Eakin, president of the right-of-center American Action Forum and a former adviser to Republican presidential candidates.
The Congressional Budget Office warned that the federal debt, driven by greater spending on entitlement programs like Social Security and Medicare, is headed toward a record level sometime in the early 2030s, and could make it harder for Congress to spend money on other priorities.
“Getting the U.S.’s fiscal situation in better order by reducing our projected budget deficits” should be the first order of business, said Michael Strain, the director of economic policy studies at the conservative American Enterprise Institute. “This should be accomplished mostly through reforming entitlement programs.”
The second mandate, Strain said, should be reforms to boost work and earnings for low-income workers. Among those: Expanding the Earned Income Tax Credit that subsidizes work, promoting apprenticeships, and reforming federal disability programs.
Democrats, on the other hand, are more squarely focused on inequality. Faced with the problem of running against incumbent Republicans who can brag about the abundance of jobs, Democrats can make the case that lower-income families are not benefiting, that many of the new jobs aren’t good jobs, and that too many people are at risk of losing health insurance.
“While parts of our economy have recovered from the Great Recession, millions of Americans haven’t seen a raise or an increase in their standard of living in years,” said Rep. John Yarmuth of Kentucky, the ranking Democrat on the House Budget Committee. “Income inequality plagues our economy, threatening our nation’s strength and the success of current workers and future generations.”
On Yarmuth’s checklist: Federal spending on infrastructure and education, and raising the minimum wage, as well as expanding health care access.
Jared Bernstein, a former economist for Vice President Joe Biden and a fellow at the left-leaning Center on Budget and Policy Priorities, agreed that it should be a priority to ensure that the benefits of economic growth extend to more workers and parts of the country.
He also added a top concern should be to ensure that Congress is prepared to respond to the next recession.
“I think it makes a lot of sense to fix the roof when the sun’s shining,” he told said. “And, in macroeconomic terms, there’s some pretty good sun out there.”
One agenda item would be shoring up state unemployment insurance trust funds. More than half of states had below the minimum levels recommended by the Department of Labor at the start of 2018.
Another way to prepare, Bernstein said, would be simply to educate members of Congress, especially centrists, regarding the fiscal wherewithal that the government still has in the case of another recession. The goal would be to avoid lawmakers skimping on stimulus spending in the case of a downturn. The policy would be to “make sure they have lots of excellent snacks and really take them through the economics,” he said.
Some lawmakers on the left flank of the Democratic Party have also called for more ambitious and untested new government policies. Sen. Bernie Sanders, I-Vt., for one, has backed a “jobs guarantee,” the promise of a government job for anyone who might seek one. The idea is to counter Trump with a bold populist agenda, making a play for some of the same working-class voters who opted for the president in 2016.
Bernstein said he was open to that and related ideas, but stressed the importance of planning now for the next downturn.
So did Jason Furman, President Obama’s top economic adviser who is now at the Peterson Institute for International Economics.
Furman advocated bringing more people into the workforce to stay, for instance by making workplaces more supportive of women. He also recommended boosting productivity through immigration reform and expanding trade, and reducing inequality through higher minimum wages and more progressive taxes, among other policies.
“Finally, at some point in the future we will have another recession and now is a good time to start preparing for it,” he said in an email exchange with the Examiner. “including improving automatic stabilizers that will expand fiscal policy when it is needed.”
