Most presidential honeymoons are characterized by congressional and presidential vows of everlasting cooperation, but the policy cohabitations are soon torn asunder by the healthy re-emergence of political differences. President Trump's honeymoon period was different. He chose to abuse his potential partners-in-government, and they chose to return the abuse, trebled. Our new president huddled comfortably with old political and ideological friends, and produced executive orders that redeemed, or seemed to redeem, the vows he had made on the campaign trail. "The administration is less a government than a small clique of bloggers and tweeters," claims conservative columnist David Brooks. No need for cooperation with any other branches of government. The president's new constraints on immigration were favored by most Americans—55 percent for, 33 percent against. But failure to consult the relevant agencies produced an implementation fiasco. As the late, esteemed Daniel Patrick Moynihan, senator from New York, long ago warned, "inbred policy-making can result in a "minimal understanding of what is inescapably ahead".
Going forward, Trump will need the cooperation of the establishment he rubbished in his inaugural address, in the presence of its leading members. On February 28, the president will address a joint session of Congress and lay out his plans in more detail than he has so far. He will call for a major cut in corporate and personal taxes, and an increase in military and infrastructure spending, while at the same time repeating his pledge not to reduce social security and other entitlement spending. Unless the economy stages a spectacular growth spurt, Trump's plans would increase the deficit substantially, and add to that debt mountain, something congressional Republicans won't abide.
Until a few days ago, it seemed that Republicans, led by House speaker Paul Ryan, had a found a solution: a reform of the tax system that would raise revenues by disallowing the deduction of the cost of imports as a business expense. The increased funds would cover the tax cuts that Trump is demanding. Alas, one of the landmines strewn across the president's path to 2020 exploded: Walmart, Apple, and important conservative funders such as the Koch brothers formed groups to fight that proposal, which would raise the price of the sorts of trainers, apparel, and other goods lower-income consumers buy.
That creates two problems. One is for the president: many of those shoppers are Trump core supporters who would not welcome an estimated 20 percent increase in the cost of the stuff they buy. The other is for congressmen. They are proving difficult to persuade that it is in their interest to antagonize America's retailers and other small businesses, and important donors such as the Kochs, when they seek re-election in 2018, which to them seems like tomorrow. If Trump is to get the tax cuts and spending increases he wants, he will have to sit down and negotiate a solution with congressional leaders, a prickly group at best and one aiming to regain power lost to the Obama imperial presidency. He earned his reputation as a top-notch negotiator dealing with suppliers who needed his business, or bankers who had a stake in his financial survival—not best-positioned to face him down. Ryan in the House and lawmakers such as John McCain in the Senate have independent power bases.
Another bomb due to explode is in the hands of a little grey-haired lady from Brooklyn, chair of the Federal Reserve Board, Janet Yellen. Yellen has reason to claim some credit for limiting the magnitude and length of the Great Recession. There she sits, in a chair that is hers until early in 2018, poised to raise interest rates directly. My guess is that she is also preparing to shrink the Fed's balance sheet, which has swelled from less than $1 trillion in 2007, before the financial crash, to $4.43 trillion.
That means she will start to sell some of the mortgages and bonds the Fed has bought, which will drive down their prices, raising interest rates even more. Just as Trump is trying to raise the speed at which the economy is growing, doubling the current annual rate of 2 percent, the Fed will be stepping down harder on the brakes to prevent the economy from over-heating. The president will not appreciate that drag on growth, especially if the Fed's action hits share prices hard, converting the Trump bump to a Trump slump, as several Wall Street analysts are putting it. Since Trump has taken credit for the post-election share-price rise, he will be lumbered with responsibility for any slump.
Of course Trump has an answer to many of his critics: by reducing regulations, he will remove serious impediments to more rapid growth. He has issued an order requiring regulatory agencies to eliminate two old regulations for every new rule they impose on businesses. It is proof of his lack of experience with government bureaucrats that he really believes this formula will work. Those of us who have been around regulators here and, I might add, in Britain, know that the regulations that will be binned will either be meaningless, outdated ones, or those that limit regulators' existing power. It will take cooperation by congress to reduce the scale and scope of Obama's regulatory state, and many congressmen know that by reducing regulation they are reducing their own power, part of which derives from supervising regulatory agencies.
Perhaps most important is a ticking time bomb called the U.S. economy. Although the president is right to point out the devastating effect of globalization on some sectors of the economy and those who worked in them, the economy as a whole is in reasonably good shape. The private sector surprised on the up side by adding 237,000 jobs in January. Competing interpretations followed: the Obama legacy includes strong job growth, or the animal spirits unleashed by Trump have employers on a hiring spree, the position immediately taken by the president in one of what has become a daily self- congratulatory television session. (I have made "politics more interesting than the Super Bowl".)
If he is to boost the growth rate, Trump will have to address the longer-term impediments to growth, those that cannot be removed by a tweet or even an executive order. Productivity is not growing, meaning that the economic pie has to be shared among more and more workers. The labor force participation rate seems stuck at close to record lows, and will rise further now that the baby-boomer generation has hit retirement age and begins drawing social security payments, which Trump has promised not to reduce, and driving up health-care costs, for which Trump and his Obamacare repealers as yet have no solution—if indeed there is one, given the national consensus that all Americans are entitled to have health insurance.
When the period of unilateral executive action ends, Trump will find that one of his critics, Pulitzer-Prize winning columnist Charles Krauthammer, is right: tweeting "is highly entertaining, but it is a sideshow. Congress is where the fate of the Trump presidency will be decided."