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Trump sounded downright Keynesian in SOTU speech

by Markus Schomer, opinion contributor - 01/31/18 3:45 PM ET

President Donald Trump delivered his first State of the Union address to Congress and the American people. How did he do? What he did not address may be as significant as what he did, but one policy he did discuss in detail could at least lead to a more definitive budget deal in the weeks ahead.

After listening to — and then re-reading — President Trump’s State of the Union speech, I was surprised by the lack of any reference to the rising government debt burden.

{mosads}A few years ago, Sen. Marco Rubio (R-Fla.) spent almost his entire response to President Barack Obama’s last State of the Union speech, excoriating the government for raising taxes but also for increasing spending.

In fact, Rubio stressed that the government had been spending $1 trillion more than it received in revenues since 2009 and emphasized the need to reform our mandatory spending program. We heard none of that in President Trump’s speech.

In fact, he spent most of his time listing his administration’s accomplishments — from deregulation to tax cuts — and touting the current strong economic and financial market backdrop. If there is any lesson here, it is that investors still love Keynesian economic policies and seem to care less about national debt.

State of the Union speeches often serve as a platform for new policy announcements, but there was not a lot in the president’s speech about new initiatives. The most detailed proposal dealt with his immigration initiative, which clearly remains the biggest focus right now.

He repeated most of his existing positions but offered a much broader definition of those who would qualify for the “Deferred Action for Childhood Arrivals” (DACA) program. With yet another government shutdown looming in early February, any move that increases the chances of a budget deal, which most likely will include a fix for the DACA program that expires in early March, should be seen as positive.

Probably the most important new economic initiative this year is the administration’s infrastructure plan. However, the speech contained no new information or details on the plan. The president asked Congress for at least $1.5 trillion but made no mention of the timeframe that amount would be raised over and, more importantly, did not mention how it will be financed.

While“partnering with state and local governments” may help reduce the federal share, it does not alleviate the pressure on the country’s overall public finances. Most importantly, no new plan on how to involve the private sector was mentioned other than saying private sector investment would be tapped into “where appropriate.”

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As outlined, this infrastructure plan looks like a typical Keynesian government spending program that would surely boost economic growth but also further deteriorate the country’s already precarious finances.

One notable surprise in the speech was a lack of focus on health care. The administration spent a lot of time in its first year unsuccessfully trying to repeal ObamaCare. Yet, we did not hear anything about the president’s plan on where to go from here and what health-care system he believes would be a better solution to replace the existing one.

He cited the repeal of the individual mandate he describes as a burden for low-income families as a win but provided no ideas on how to deliver health care to exactly that underserved population.

Similarly, he mentioned the country’s dire opioid crisis, which he said caused the death of 64,000 people in 2016 (almost twice as many as in car accidents), but offered no program or financial commitment on how to overcome this situation, which has started to reverse decades of rising life expectancy in this country.

The bottom line is that President Trump’s first State of the Union speech was memorable for what was not in it. It lacked plans on how to deal with rising government deficits, what to do with the country’s health-care system and how an infrastructure program could be financed.

Instead, the president delivered a list of mostly costly ideas that Congress will struggle to find the money to execute. In that regard, Donald Trump’s first speech was no different from most other presidents’ State of the Union speeches.

However, if his expanded DACA offer gets us closer to a deal and avoids another government shutdown next month, I would score this speech a success.

Markus Schomer is the chief economist at PineBridge Investments, a private, global asset manager focused on active investing.