What 3 economists say about the state of the union

Editor’s note: Steven Pressman, professor of economics at Colorado State University; David Bishai, professor of health economics at Johns Hopkins University; and James Lake, associate professor of economics at Southern Methodist University, authored the following article for The Conversation in January 2019, ahead of President Trump’s State of the Union Address. Colorado State is a contributing institution to The Conversation, an independent collaboration between editors and academics that provides informed news analysis and commentary to the general public. See the entire list of contributing faculty and their articles here.

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A hallowed chamber for an important address.  AP Photo/J. Scott Applewhite

The State of the Union is back on after Speaker of the House Nancy Pelosi said she invited President Donald Trump to address Congress and the nation on Feb. 5.

Earlier, she had disinvited the president from giving the speech in the House on the scheduled date of Jan. 29.

While we await Trump’s address, we asked three economists to give us their own assessments of the state of the union, as well as the president’s performance so far. Each picked a theme.

State of the national debt: Sky’s the limit

Steven Pressman, Colorado State University

As a candidate, Trump promised to eliminate America’s national debt in eight years through faster economic growth. How’s he done so far?

Not so good. The debt has climbed from US$20 trillion when Trump took office to $21.5 trillion at the end of 2018.

The budget deficit – or the difference between government revenues and spending – is what changes the national debt. After falling continuously from $1.4 trillion in 2009 at the end of the Great Recession to $585 billion in 2016, the U.S. budget deficit has risen during the Trump presidency. It hit $779 billion in 2018, the highest level since 2012, and is expected to reach $900 billion this year.

The two main forces driving this are greater spending on the military and disaster relief and the 2017 tax cut, which reduced corporate income taxes by $92 billion.

The Trump administration, and the Republicans who pushed for the tax cut, promised that economic growth would increase tax revenues and offset the losses. Most economists, including me were skeptical that corporate tax cuts would substantially increase investment and economic growth. So far, the data supports the skeptics.

The greatest problem, however, is that budget deficits should fall during economic expansions. This provides more policy flexibility whenever the next recession hits.

During recessions, tax receipts fall and government spending rises, pushing up the deficit. The appropriate fiscal policy response – increase the budget deficit even more – becomes harder the larger it already is.

State of trade: Uncertainty and trade wars

James Lake, Southern Methodist University

American trade with the world is crucial to the U.S. economy, exceeding 25 percent of gross domestic product. But with uncertainty over tariffs, trade wars and trade agreements keeping U.S. businesses on their toes, the state of trade is in flux.

The raw numbers tell a mixed story. After increasing for six straight quarters, the brunt of strong foreign retaliation over Trump’s tariffs pushed U.S. exports down 1.24 percent in the third quarter of 2018, the latest data available. It’s the biggest fall since the depths of the Great Recession in 2009.

At the same time, imports jumped that quarter as U.S. companies wary of higher tariffs on Chinese goods stocked up. Imports from China surged 11.1 percent, the most since 2011.

As a result, America’s trade deficit with the world – one of the president’s most-cited metrics and a reason he’s fighting his trade warswidened to a 10-year high.

The Trump administration has spent the better part of the past year escalating its war of words and tariffs with China, with tit-for-tat trade barriers being hurled back and forth. Trump’s tariffs on $200 billion of Chinese goods were set to ratchet up from 10 percent to 25 percent in January until he and Chinese President Xi Jinping agreed to a three-month truce to come to a deal. The deadline is March 1.

But rather than leading to Chinese concessions, Trump’s strong-arm negotiating tactics have led to a new suit this month against the U.S. at the World Trade Organization. And, despite continuing to push hard on Chinese telecom giant Huawei, there’s now talk that the Trump administration’s tariff stance may be softening.

All of this uncertainty together with the higher tariffs are starting to hurt markets as well as companies like U.S. manufacturing bellwether Caterpillar and iconic motorcycle maker Harley-Davidson.

Another major area of concern has been the renegotiation of the North American Free Trade Agreement, which lasted some 18 months and resulted in a deal that looked strikingly similar to the original. There were some modest changes for the dairy and auto industries, but by and large it was the same old agreement.

Nevertheless, Congress still needs to actually vote on the new deal, known as the U.S.-Mexico-Canada Agreement, and newly empowered Democrats are talking about reopening the deal to demand stronger labor and environmental protections.

And, unsurprisingly, Trump is once again threatening to withdraw from the pact altogether. So, more uncertainty ahead for U.S. business, workers and consumers.

State of health care: High mortality, higher costs

David Bishai, John Hopkins University

In his inaugural address, Trump vowed to end “American carnage.” If carnage is measured in American mortality, things are are not getting better, unfortunately.

U.S. life expectancy fell to 78.6 years at the end of 2017 – the latest data available. This continues a slide from 2015, the first time it has shown a sustained three-year fall in four decades, according to the Centers for Disease Control. Comparable countries like Canada,the U.K., France and Germany continue to see life expectancy climbing well above 80.

One of the big reasons is the opioid epidemic, which is estimated to have cost the economy $1 trillion from 2001 to 2017. Every state in the union is seeing epidemics of drug overdoses, suicide and alcohol related deaths despite better access to health insurance.

States that expanded access to health insurance showed slower growth of drug overdose mortality and increased access to rehabilitative treatment for addiction. The Affordable Care Act helped cut the share of uninsured Americans from 17 percent in 2013 to 10 percent in 2015, where they have remained.

Better insurance also brings access to services that have lowered death rates from congenital malformations, heart disease and cancer. Yet the ACA is not a panacea and has not prevented lethal epidemics from sweeping the nation.

This is especially frustrating because Americans spend 18 percent of GDP on health care, or $10,739 for every man, woman and child.

So the problem isn’t spending. It’s how we spend it. Research and real-world examples are showing how communities bringing together multiple groups outside of health care to pursue various approaches can lead to promising results. Examples include cutting overdose death rates in Dayton, Ohio, and Wilkes County, North Carolina.

That’s the best way to finally stem the flow of American carnage.
The Conversation
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