Now we know. It will be Hillary Rodham Clinton vs. Donald J. Trump only some seven months from now, when election day arrives and puts a merciful end to our elongated campaign season. The winner will inherit an economy that, in all probability, will be continuing its slow crawl, with growth at or somewhat below an annual rate of 2 percent. Or less, if the possibility of a Trump presidency rattles the denizens of the nation’s board rooms into stalling any planned investments until they can be certain that the polls are right, and that voters will return The Donald to his Trump Tower penthouse rather than give him the keys to the White House. Remember: among other Trump ideas is to give holders of US Treasury bonds "a haircut"—reducing the value of their government bonds so as to reduce the national debt. A presidential candidate who sees the IOUs of the US government as akin to those of Argentina, Puerto Rico, and to the companies he has taken into bankruptcy, is not going to persuade our corporations to build the next factory or increase R&D spending.
The steady mud-slinging that is already under way will not morph into full-blown election campaigns until after the party conventions this summer formally anoint the winners of the recent primary battles. Both candidates carry heavy baggage and are widely disliked. Clinton is seen by a majority of voters as dishonest, Trump as a misogynist bigot. Both will begin campaigning in an economy that most probably will be growing at its current moderate rate, unless some "event, dear boy," (the thing former British prime minister Harold Macmillan said he feared the most) in the Middle East, the South China Sea, or Eastern Europe tips us into recession. Or billionaire trader Stanley Druckenmiller is right that conditions at home so closely resemble those in the period before the 2008 financial crisis that we are on an "ephemeral sugar high" of low interest rates, to be followed by another recession.
On Friday the government reported that April saw 160,000 new jobs added in April, a bit below the 200,000 monthly average of the past five years and the fewest in seven months. Not great, but producing more yawns than tears. That makes five years of reasonably steady job growth, which is good news as economic news goes these days. The bad news is that the economy continues to add jobs but refuses to grow—GDP increased at an annual rate of only 0.5 percent in the first quarter of this year. That means that productivity—what each worker can produce in an hour—is declining, if we assume it is being properly measured. More workers, static output, drive labor costs up and profits down, which bodes ill for the business investment needed if the economy is to grow faster, and businesses are to invest in the capital equipment needed to make workers more efficient and therefore more highly paid. That is a long-run ailment that neither Trump nor Clinton has unveiled a plan to correct.
They are more concentrated on the here-and-now, which means day-to-day media coverage. Clinton, who on most issues is presenting herself as the candidate to carry forward much of the Obama economic agenda, needs an economy that is performing relatively well as we approach election day in November. Trump needs an economy that is sputtering, and a weak jobs report on November 4, the Friday preceding the November 8 election. Clinton will most likely be able to point to continued strong vehicle sales, a healthy housing market, a low unemployment rate (around 5 percent), and the lowest number of long-term unemployed in the past seven years. Trump will point to sectoral problems: the death of the coal industry, rising health care costs due to Obamacare, home prices that are beyond the reach of first-time buyers, a crumbling third-world infrastructure, and an unemployment rate crowding 1 percent when discouraged workers and those involuntarily working only part-time.
Clinton will have the advantage of sponsoring a tax plan that will appeal to those voters who feel that the top 1 percent has grabbed an unfair portion of the benefits of recent growth, and favor her proposed 4 percent increase in marginal rates to be paid by the rich, and a minimum 30 percent tax on millionaires, as well as higher inheritance taxes. She wants to redistribute income in two ways: by raising tax rates on the wealthy, and using the new revenues to expand entitlements, which benefit mostly lower earners. Trump will have the burden of explaining how his plan—which he now says is negotiable, evidencing a lack of conviction or a new-found flexibility, take your pick—to concentrate the benefits of his tax- cuts-for-everyone on the richest Americans, while ballooning the government deficit by about $10 trillion over the next decade, will so accelerate growth as to pay for itself by increasing economic activity and tax revenues.
Clinton will have the advantage of the support of a still-popular husband who dearly wants to become America's first First Gentleman, Wall Street, Hollywood and Silicon Valley, and of the Obama coalition of black men, unmarried women, and highest and lowest earners. Trump will rely on older white men, married women, middle earners and voters who feel that a radical change in the way the nation is governed is needed if they are to break out of the stagnant-income situation in which they have been stuck for years. He will have to convert his fans into first-time voters, and persuade conservative donors to open their wallets and purses to a candidate that has in effect engineered a hostile takeover of their party.
Both candidates will be offering plans to stop perfidious foreigners from stealing American jobs. Clinton would levy an exit tax on companies leaving the US for more favorable tax venues; Trump would lower the corporate tax rate from around 35 percent to 15 percent, or from some ten percentage points above the 24 percent average of industrialized countries to ten percentage points below it. And impose killer tariffs on the products of run-away factories. Both say they oppose Obama's Trans-Pacific Partnership (TPP), a massive (5,000-page) trade deal, although with an important difference. Clinton might sign on if revisions are made to strengthen environmental and worker protections. Trump is unalterably opposed to any trade deals, not because he opposes free trade, which he says he supports, but because the deals in effect have been negotiated by "incompetent" politicians duped by our trading partners into signing one-sided deals.
Clinton has a substantial lead in most polls, but she is not underestimating the man whose candidacy was considered a joke—until he knocked sixteen Republican opponents out of the race for their party's nomination. And who is attracting grudging support from some of the establishment Republicans who once viewed his candidacy with fear and loathing, but now profess to want to unite the party, perhaps while waiting for a cabinet appointment should Trump upset the pollsters in November.