Financial apocalypse

Economists, President Trump disagree on how midterm vote will affect US economy

By JOSH BOAK

AP Economics Writer

WASHINGTON

President Donald Trump has warned that if Democrats regain political power in the midterm elections, the U.S. economy would essentially implode.

Democrats, he insists, would push tax hikes and environmental restrictions that stifle growth. Undocumented immigrants would steal jobs and unleash a crime wave that would halt commerce. Health insurance would devolve into a socialist program offering shoddy care at unsustainable cost.

“At stake in this election,” Trump declared at a rally in Houston, “is whether we continue the extraordinary prosperity that we’ve all achieved or whether we let the radical Democrat mob take a giant wrecking ball and destroy our country and our economy.”

Almost no private economist agrees with Trump’s portrait of a financial apocalypse.

If Democrats win control of the House in next week’s congressional elections, their legislative priorities wouldn’t likely much alter a $20 trillion economy. For one thing, Trump would remain able to block Democratic initiatives – just as they could stop his plans for more tax cuts and a 5 percent cut to Cabinet department budgets.

What instead would likely result is continued gridlock – perhaps even more entrenched than what exists now in Washington. Arrayed against a stout Republican majority in the Senate, a Democratic House majority couldn’t do much to reorder the economy, which typically hinges more on the willingness of consumers and businesses to spend and on the state of the global economy than on government policy priorities.

“It’s probably not that much of a change,” Beth Ann Bovino, chief U.S. economist at S&P Global, said of the likely outcome. “While you might see further gridlock if the Democrats take the House, that doesn’t mean it would tip the boat and slow growth.”

Many polls and analyses suggest – though hardly assure – that the Democrats could regain a majority in the House if their voters turn out in sufficient numbers in key races. If so, Trump would have to contend with a divided government instead of one with Republicans in complete control.

Yet depending on voter turnout, it’s also possible that the Republicans could maintain their hold on both the House and the Senate.

Analysts at Goldman Sachs and Morgan Stanley foresee a divided government as most probable. So do their peers at Oxford Economics and Keefe Bruyette & Woods.

“The most likely political consequences would be an increase in investigations and uncertainty surrounding fiscal deadlines,” Goldman Sachs concluded in a client note.

Oxford Economics’ senior economist, Nancy Vanden Houten, has suggested that the Republicans’ legislative agenda would stall if they lost the House.

“A Democrat-controlled House would, in our view, be a line of defense against further tax cuts, reduced entitlement spending and efforts to repeal the Affordable Care Act,” she said

The economy has enjoyed an acceleration in growth this year – to a gain estimated to be 3 percent after deficit-funded tax cuts. Unemployment is at a 49-year low of 3.7 percent, and employers continue to post a record number of jobs openings. The economic expansion is already the second-longest on record.

But annual growth is widely expected to dip back to its long-term average of near 2 percent by 2020. It’s even possible that the economy could slip into a recession within a few years as growth inevitably stalls – for reasons unrelated to who controls the White House or Congress. A global slowdown could, for example, spill over into the United States. Or higher interest rates, spurred by the Federal Reserve, might depress economic activity.

Trump would still have plenty of discretion on some key economic issues. His trade war with China and his drive to reduce regulations are two of them. The president has managed to pursue those priorities without Congress’ involvement, though his updated trade agreement with Canada and Mexico would need congressional approval.