What the new Congress could mean for the economy
We should prepare for the reality that no significant economic policy will get through Congress and be signed by the president in the next two years.
Hope springs eternal that a divided government could result in some real progress in Washington.
Lawmakers could come to terms on a big infrastructure program. The president and Democrats, who will now control the House of Representatives, have consistently proclaimed that the nation needs to repair its roads, bridges, and airports.
Reforms to bring down the cost of prescription drugs are also a possibility since the midterm elections. Trump has proposed pegging payments for drugs covered by Medicare Part B to an international index of drug prices in other advanced economies. Democrats have previously advocated allowing Medicare to negotiate lower drug prices, which Trump has supported in the past. Perhaps there is a middle ground.
More of a stretch, but also a possibility, is immigration reform. This too has had bipartisan support in the past, and is obviously needed given the mounting crisis. It is wrenching to see kids torn from their parents, caravans of desperate immigrants making their way to our border, and Dreamers stuck in legal limbo. The president may eventually calculate that his virulent anti-immigration stance won't win him a second term.
However, this sounds like nothing but happy talk to me. The presidential election is two years away, but the electioneering is already in full gear. If feels as if practically every Democratic senator plans to get into the race. With such a heated political environment, how can D.C. agree on anything?
We should prepare for the reality that no significant economic policy will get through Congress and be signed by the president in the next two years. We should also get ready for the drama and uncertainty created by Congress lurching from one deadline to the next. Lawmakers will need to pass budgets to ensure the government doesn't shut down, and they'll need to increase the limit on the nation's rapidly growing debt. Lawmakers will ultimately get this done — the alternative would be economic suicide — but it won't be pretty.
With legislation no longer a possibility, a frustrated President Trump may double down on other policies he has more control over. The trade war with China immediately comes to mind. So far, this war has done little economic damage, but that will change if the president slaps tariffs on all Chinese imports, which he continues to threaten. Prospects become even scarier when considering what the Chinese might do in response.
Further deregulation of the fossil fuel, financial services, and health-care industries seems a slam dunk. The president could accelerate the opening of federal lands to energy development. He could also privatize Fannie Mae and Freddie Mac, the mortgage giants that are responsible for almost half of all the mortgages made in the country. There is a long list of things this president could do without Congress.
Even more serious, gridlock means we won't address a long list of festering economic problems. In addition to fixing our poor infrastructure and shattered immigration system, we need to get Social Security, Medicare, and Medicaid on solid financial ground. These popular and critical programs for the elderly and poor are fast closing in on insolvency.
Our troubled health-care system will also continue to teeter. The president and the previous Republican-led Congress chipped away at Obamacare, making it less effective in providing insurance coverage broadly and covering preexisting health conditions. The midterm elections made clear that these are things voters want. However, a divided Congress won't be up to the task of delivering.
Then, there is a long list of things we haven't even begun to collectively debate that are vital to our long-term economic success. These include how to fix our dysfunctional educational system, address the looming threat of climate change, and what to do about the growing gap between the haves and have-nots.
If there is good news in gridlock it is that lawmakers won't be able to mess things up with bad legislation. The president said before the election that if Congress remained Republican he would pass another tax cut. This would be especially bad policy. Another tax cut would only add to the ballooning budget deficit largely created by last year's tax cuts. The deficit is set to rise to over $1 trillion this fiscal year, equal to 5 percent of GDP. Deficits of this size have historically only happened when the economy was suffering a severe recession.
The prospect of not messing things up is perhaps why Wall Street's initial reaction was to cheer the election results. Stock prices jumped, which felt particularly good given that the market has been slumping as of late. But, I suspect investors will eventually grow weary of Washington's gridlock and realize that simply doing no harm is not a strategy for a strong economy.
The good and the bad about the Philadelphia economy