Trump’s Economic Message: Everything Is Great, but We Need Huge Stimulus Now!

Every time the economy trembles, the president and White House staff face a quandary.

On one hand, they wish to instill confidence and project optimism. No president wants to talk down the economy, and a pessimistic tone from the highest office of the land could be self-fulfilling.

On the other hand, they need to be ready with the right policy plans in case things do start to sour, to help prevent a mild downturn from becoming a severe recession. The problem is that publicly talking about those contingency plans tends to undermine the goal of projecting optimism.

Rather than try to finesse that tension, the Trump administration has elected to ignore it.

President Trump and his aides are sending two simultaneous, contradictory messages about the economy: that it is booming, and everything is fine. And that it is time for emergency measures to keep this boom going.

Even more curiously, the administration has focused its public comments on actions over which it has no direct control.

Remedies rooted solely in the executive branch might assure investors and business leaders that an economic downturn could be swiftly addressed. In the last few days, Mr. Trump has instead mentioned possible actions for which he’d need help that could be hard to get — specifically, new stimulus measures from the Federal Reserve and from Congress.

And while discussing the trade war with China — a key cause of the rising recession risks that Mr. Trump controls directly — he indicated no intention to change direction in the event the economy worsens. On the contrary, he said Tuesday that tariffs on China were essential even if they caused temporary economic pain.

“Whether it’s good for our country or bad for our country, short term, it had to be done,” Mr. Trump said.

The president and senior administration officials spent the weekend pushing against the possibility the economy could be heading toward a downturn. “I don’t think we’re having a recession,” Mr. Trump told reporters in New Jersey on Sunday. “We’re doing tremendously well.”

It is understandable that the White House would want to play down reports of a downturn.

“You can’t expect them to come out and say, ‘We’re really worried about the economy right now and think we might be seeing a recession,’” said Tony Fratto, who led the George W. Bush White House’s communications about the economy as the 2008 recession began. “It’s tactically not the right thing to do, would be irresponsible to do, and would make the problem worse” by potentially causing economic decision makers to panic.

But there is a striking juxtaposition between that strategy and the administration’s words and actions since then.

On Monday morning, President Trump tweeted that the Federal Reserve should cut interest rates by a full percentage point and restart its “quantitative easing” program to stimulate the economy by buying bonds. Those are moves that the Fed, which operates independently from the White House, would undertake only if its leaders saw a major downturn on the horizon.

Later Monday, The Washington Post reported that the administration was considering a temporary cut in payroll taxes in the event of a worsening economy. After a denial by White House staff, the president on Tuesday affirmed it was being studied.

“We’re looking at various tax rate deductions, but I’m looking at that all the time,” Mr. Trump told reporters during a White House event. “Payroll tax is something that we think about, and a lot of people would like to see that.”

That was an approach used in the Obama administration to increase people’s take-home incomes as a form of fiscal stimulus. But to make it happen, the Trump administration would need to persuade both the Democratic-led House of Representatives and Republican-led Senate to go along.

There is precedent. The Bush administration succeeded in securing a bipartisan fiscal stimulus in early 2008. But there were important differences. The president was not up for re-election that year. Also, this administration has shown little capacity to strike deals with Democrats, even on areas where there could be natural alignment.

Exhibit A is an ill-fated effort to develop a bipartisan infrastructure legislation. The notion of “infrastructure week” has become a running joke, and the last effort to reach some kind of agreement between congressional Democrats and the White House blew up in spectacular fashion in May. (Had a major infrastructure bill been passed in 2018 or early 2019, its economic dividends might have started to emerge ahead of the 2020 election.)

On Wednesday, Mr. Trump backed off his comments of a day earlier and said he was not considering a payroll tax.

President Trump also said Tuesday that he had the authority to effectively reduce capital gains taxes without going to Congress, by indexing the amount owed to inflation. As a stimulus measure, this has two problems: It would most likely get tied up in court over legal challenges, and would benefit only those taxpayers who have investment gains, and not those who rely on wages for income.

If the economy begins to slump and Mr. Trump seeks some form of fiscal stimulus from the Democratic House, Speaker Nancy Pelosi would probably strike a hard bargain, if she is willing to deal at all.

“Even if consensus emerges on the need for fiscal stimulus, Democrats may not embrace a payroll tax cut exclusively,” wrote Krishna Guha and Ernie Tedeschi, analysts at ISI Evercore, in a research note. “They may insist on other provisions such as a federal minimum wage hike or further infrastructure spending that would be very hard for Senate Republicans to swallow.”

The most plausible narrative for how the 2019 trade tensions turn into a 2020 recession involves a policy response that is inadequate to the task of offsetting weakness from overseas. So far this week, the Trump administration has shown that it is doing at least some contingency planning for that possibility.

The open question is whether it is a type of planning that is likely to instill more confidence, or less.

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