Donald Trump keeps bragging about the economy—an unemployment rate of just 3.9 percent, 3.7 million jobs created since he took office, consumer confidence up. Will this help the Republicans in the 2018 midterms? Probably not.
If anything, the good economic performance paradoxically will hurt the GOP. Why? Because it’s not trickling down to ordinary people. Voters hear news reports and claims about the strong economy but know that their own wages are still lousy. This reinforces their sense that someone else is making off with the gains. And the statistics bear them out. Because of structural changes in the job market, real wages adjusted for inflation are actually flat.
What structural changes? A shift in power from the worker to the boss. A shift to part-time, temp, and contract work. An escalation in the war against unions.
This the first time in modern economic history that very low unemployment rates and tight labor markets have not led to higher worker earnings. Regular people may not grasp the finer nuances of labor market theory, but they know when the boss is giving them a good screwing.
Same story with the tax cut. Republicans thought it would give them bragging rights with voters. But so little of it actually trickles down that Republican candidates have stopped bragging about it. Rather, Democrats hit pay dirt when they emphasize that the immense deficit created by the ten-year cuts have become the excuse for Republicans to target cuts in Social Security and Medicare.
If anything, the picture is likely to worsen in the coming months—in three respects. First, the huge tax cuts have created an old-fashioned deficit-driven stimulus. That’s not a great idea when the economy is already at full employment because it creates concern about inflation. This is exaggerated in this low-wage economy, but it gives the Federal Reserve a reason to hike interest rates.
The Fed has held off on rate hikes for the moment but is likely to increase interest rates in coming months, most likely in September, two months before the midterm elections. These higher rates will cycle through to everything from credit cards to home mortgages. Consumers will not experience higher wages, but they will experience higher costs.
Secondly, corporations have put their savings from Republican tax cuts into stock buybacks. This pumps up share value, enriching executives and investors, but risks creating another financial bubble. And that is very likely to pop on Trump’s watch.
And lastly, Trump’s trade war has not done serious damage to the economy as a whole―yet. But damage in key sectors that supported Trump is coming soon, from manufacturing to soybeans.
So the economy displays strong numbers, on average and for the moment. But the average good performance is not benefiting workers, and it is not likely to last.
It takes quite a president to preside over an economy with unemployment rates below 4 percent and to not benefit politically. This is not all Trump’s doing. The erosion of labor bargaining power and the union bashing has been occurring for decades, as has the failure to rein in speculative finance.
But the more that Trump and the Republicans try to brag about this economy, the more they own it. And that’s good news for Democrats. It’s one more topsy-turvy reality in TrumpWorld.