US Economy Misses Trump's 3% Growth Target

US Economy Misses Trump's 3% Growth Target

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Plus: The F-35 can’t shoot straight
Thursday, January 30, 2020

U.S. Economy Grew 2.3% in 2019, the Weakest Pace Under Trump

The U.S. economy grew at a 2.1% annual rate over the final three months of 2019, the Commerce Department estimated Tuesday. For the full year, gross domestic product grew by 2.3%, down from 2.9% in 2018 and 2.4% in 2017.

“Trump and his fellow Republicans have portrayed the U.S. economy’s performance as ‘unprecedented,’ ‘historic,’ and in the ‘fast lane’ after the GOP tax cuts, but economists say it is best characterized as slightly above potential,” The Washington Post’s Heather Long and Andrew Van Dam write. “The strong gains in 2018 did not last.”

The deceleration in 2019 reflected slowing in business investment and consumer spending and a drop in exports. Business investment has fallen for three straight quarters amid uncertainty created by President Trump’s trade wars with China. “That's the longest contraction since the great recession and suggests GOP tax cuts didn't lead to the kind of sustained spending boom advocates had touted,” The Wall Street Journal says.

Those drags on growth were partly offset by increased state, local and federal government spending. “U.S. government spending has been a consistent driver of growth during the Trump administration,” the Journal notes. “Federal expenditures and investment have added to GDP for 11 straight quarters, the longest such stretch since the recession and its immediate aftermath.”

Economists expect growth to slow a bit further in 2020 and come in around 1.8%.

Here’s What the Democratic Candidates’ Agendas Will Cost — and How Much They’ve Paid For

The Progressive Policy Institute, a centrist Democratic think tank, has released an analysis of the tax and spending proposals of four leading Democratic presidential candidates: former Vice President Joe Biden, former South Bend, Indiana, Mayor Pete Buttigieg, Sen. Bernie Sanders, Sen. Elizabeth Warren.

“All four leading Democratic candidates for president would offer a dramatic departure from the Trump administration’s agenda of cutting taxes for the rich, slashing public investment, and undermining health-care coverage for millions of Americans,” the report by Ben Ritz and Brendan McDermott says.

While each candidate would raise both taxes and spending, Sanders and Warren propose far greater increases in both. The report, unsurprisingly, warns that they “would likely have trouble finding enough revenue sources to pay for their expensive agendas without exacerbating the enormous budget problems America already faces. Warren proposes over $8 trillion more in new spending than in new revenue over the next decade, while the Sanders shortfall is over $27 trillion – more than the total value of all goods and services produced by the U.S. economy in a year.”

Given that Warren has already proposed steep tax hikes on the wealthy, Ritz says that it will be difficult for her to fund all of her plans without breaking her commitment to avoid raising taxes on the middle class.

Biden, meanwhile, has proposed $1.8 trillion more in spending then he has in revenue increases. His plans call for the least new spending, but the highest share going to infrastructure, education and scientific research — areas that the authors say lay the foundation for long-term economic growth but where government spending has fallen by more than 40% since the 1970s.

Buttigieg is the only candidate among the four to have fully offset the cost of his agenda, with $200 billion more in revenue than new spending.

The think tank says that there isn’t enough information available to assess the fiscal effects of proposals from two other Democratic candidates, former New York City Mayor Michael Bloomberg and Sen. Amy Klobuchar.

See the full report here.

With Deficits Topping $1 Trillion, Is There Room for More Spending?

With the Congressional Budget Office projecting annual deficits greater than $1 trillion for years to come, many experts are calling for a renewed focus on the country’s fiscal path. But one contrarian economist says that the federal government could be running much larger deficits without running into trouble.

Stephanie Kelton, an economist at Stony Brook University who has advised Sen. Bernie Sanders and who is one of the leading proponents of Modern Monetary Theory, told Bloomberg TV’s Erik Schatzker Thursday that in her view the U.S. could increase its current deficit by about 50% without causing any immediate problems.

“We could safely increase the deficit, let’s say by another $500 billion or so, before we begin to see inflation accelerating to something that we would consider problematic,” Kelton said, citing research by analyst Philip Pilkington at the investment firm GMO.

The main thing to worry about is inflation, Kelton said, but the data show no problems in that area despite years of substantial budget deficits. Although standard economic theory says that increased federal borrowing should push inflation and interest rates higher, the opposite has happened over the last decade, signaling that there’s still plenty of fiscal space that could be exploited by policymakers to make public investments in education or infrastructure — or even for more tax cuts — before inflation becomes a problem.

See the full interview with Kelton.

Poll of the Day: Public Option More Popular Than Medicare for All

The Kaiser Family Foundation’s latest tracking poll finds that a majority of Americans, 56%, favor Medicare for All — but more than two-thirds (68%) like a “public option” plan. Almost half of Americans support both health proposals, but 17% back only the public option.

More than eight in 10 Americans expect taxes to go up under either plan. Majorities also expect people will continue to pay deductibles and co-pays under both plans, despite Sen. Bernie Sanders’s emphasis that his Medicare-for-All plan would do away with those payments.

The poll also finds that a majority of Americans (56%) disapprove of the way President Trump has handled health care, while 42% approve.

Number of the Day: 78.7

Americans born in 2018 are expected to live an average of 78.7 years, up from 78.6 the year before — the first increase in life expectancy in four years, driven in large part by a drop in cancer deaths and fatal drug overdoses.

The F-35 Can’t Shoot Straight: Report

The gun on the most common version of the F-35 Joint Strike Fighter is so inaccurate that its performance was deemed “unacceptable” in recent Pentagon tests, according to a report Thursday from Bloomberg’s Anthony Capaccio.

Accuracy isn’t the only problem for the 25mm canon on the Air Force version of the jet. The gun housing on the aircraft manufactured by Lockheed Martin is cracking, too, forcing the Air Force to restrict its use. (The less common Navy and Marine variants use a different type of gun mount, and those jets have received “acceptable” ratings for accuracy.)

The $428 billion F-35 program, whose total cost will exceed $1 trillion over its lifetime, still has more than 800 unresolved issues, many related to its troubled operating system, Capaccio said, based on the latest assessment from the Pentagon’s test office. Those issues include 13 “Category 1” problems that could affect safety or combat capability, and that the Defense Department says should be fixed before the manufacturer commences the next phase of production, which has a price tag of $22 billion.

The F-35 has also failed to pass what’s being called the Mattis Test, after former Defense Secretary Jim Mattis, which calls for the jet to be available 80% of the time for at least one kind of combat mission. While some units have been able to meet the requirement for short periods, most have been unable to do so on a sustained basis. And the great majority of units have been unable to meet the more demanding goal of “Full Mission Capability.”

Nevertheless, the Department of Defense continues to ramp up its purchases of the troubled jet. “Despite the incomplete testing and unresolved flaws, Congress continues to accelerate F-35 purchases, Capaccio said, “adding 11 to the Pentagon’s request in 2016 and in 2017, 20 in fiscal 2018, 15 last year and 20 this year.”


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