June 29, 2017
Why Economists Say Donald Trump Will Cause A Recession

The next president will likely face a recession, but Donald Trump's policies could be the direct cause of one according to a report organized by economist Mark Zandi. Hillary Clinton is using the paper as ammo against the GOP candidate, calling his ideas dangerous. Then again, Zandi is a contributor to Clinton's campaign, and the report contradicts other economic forecasts.

According to CBS News, Hillary Clinton dug into Trump using the report in a speech at Columbus, Ohio.

"A few weeks ago, I said [Donald Trump's] foreign policy proposals and reckless statements represent a danger to national security. But you might think that because he spent his life as a businessman, he'd be better prepared to handle the economy. Well, it turns out, he's dangerous there, too."
She added, "He's written a lot of books about business. But they all seem to end at Chapter 11."

Hillary Clinton has honed her Trump bashing, insisting that he
Hillary Clinton has honed her Trump bashing, insisting that he "shouldn't have his finger on the button, he shouldn't have his hands on the economy." [Photo by J.D. Pooley/Getty Images]

Still, the report isn't as dire as Hillary Clinton presents it. In fact, in one scenario, Zandi's report says the country doesn't even go into recession under the GOP candidate. But, if Donald Trump's policies are implemented as they stand with limited obstructions, the Moody's model predicts GDP growth over the next 10 years will go from 2.1 percent to 1.4 percent and employment growth will shrink from 0.9 percent to 0.2 percent.

So, why do Trump's policies slow economic growth according to Moody's?

A large part of the problem is debt. The candidate's policies, from huge tax breaks to unprecedented mass deportations, will cost a lot. The tax cuts alone would mean cutting the government by 20 percent. Since the GOP candidate is also expanding military spending and border patrols outlays, the report assumes that plan will not be financed and will add to the government's already large debt.

That will crowd out other economic activity and raise interest rates. The tax breaks themselves might have limited positive returns as well, since the analysis concludes that the wealthiest Americans will benefit the most from the new tax code, and upper-income people spend a smaller portion of their incomes on consumer goods.

The recession Clinton is ripping Donald Trump over will start in 2019 and last through 2020, according to the paper. Hillary Clinton says that Trump's policies will lead to 3.5 million lost jobs, but that is over-simplifying the situation. Overall, the difference between no policy change and Trump's policies is about 10 million jobs after 10 years.

Most surprising might be the small impact of Donald Trump's trade policies. The candidate is pushing for high tariffs of 35 percent or more against Mexico and China, but Moody's projections show that consumer prices will only rise 3 percent a year (CBO numbers say that it will be about 2.1 to 2.4 percent).

Donald Trumps rally in Phoenix Arizona. [Photo by Ralph Freso/Getty Images]
Donald Trump's rally in Phoenix, Arizona. [Photo by Ralph Freso/Getty Images]

Donald Trump hasn't been an easy figure to predict, though, and Zandi's report tries to accommodate a certain level of ambiguity in his future policies. There is a scenario where the candidate makes big compromises to push his policies through Congress. In that situation, there is no recession at all; although, the economy grows at a slightly slower pace.

Trump's campaign is attacking the report, saying that it is based "on flawed assumptions about policies that haven't been fully fleshed out by the campaign."

The report's "no-Trump" scenario also contradicts other economists. It suggests little or no change to unemployment and near constant GDP growth rates just under 2 percent a year for about 10 years. Still, many believe that an uneventful 10-year period is highly unlikely.

As previously reported by the Inquisitr, roughly two-thirds of economists believe that there will be a recession in the next 5 years. According to CNN Money, the typical growth cycle without a recession is about 5 years. The U.S. is entering its seventh year of growth, making it past due.

Brad McMillan, chief investment officer at Commonwealth Financial, has a more specific date in mind.

"I think the end of 2017 or the start of 2018 is quite possible for a recession. All the indicators seem to be lining up for that time frame."
Still, one important figure from Zandi's report is the federal deficit and debt levels. If Donald Trump is going to deflect Clinton's criticisms, he'll need a better articulated idea of how to reduce the deficit while executing his other policies.

[Photo by Ralph Freso/Getty Images]