Cut Taxes, Sure. But Remember the Budget Deficit.

In Economy, Taxes On

Yet Mr. Trump faces a vastly different set of circumstances. The economy has not experienced a recent recession. The recovery from the financial crisis and Great Recession of 2008-2009 is now eight years old.

Moreover, there is no sign we are heading into another recession. Over the past year, unemployment has fallen from 5.0 to 4.3 percent, and the stock market is up about 20 percent. Some firms are complaining about labor shortages.

The Federal Reserve is responding to these events by raising interest rates. It believes, correctly in my judgment, that incipient inflation is a greater risk than recession. Keynesian pump-priming is not what the economy needs now.

The main macroeconomic problem the nation faces is slow productivity growth, which in turn leads to slow growth in average incomes. Increased budget deficits would only make this problem worse. They would cause the Fed to raise interest rates even faster than otherwise. Higher interest rates would discourage capital investments, further depressing productivity.

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