Wednesday, June 22, 2016

Economics 101 quiz: What could trigger the next recession?

Which of these four events will do the worst damage to the U. S. GDP?

(a) U. S. continues on present course

(b) Britain leaving the European Union ("Brexit")

(c) Chinese economy slides into recession ("China crash")

(d) Donald Trump wins and his current ideas are implemented

Make your choice and then see the answer after the break.

Catherine Rampell (Washington Post) asked that question of one of the authors of a "new report from Moody’s Analytics forecasting what would happen to the U.S. economy under Donald Trump’s major fiscal, trade and immigration policies. The result looks pretty catastrophic." In the long run, Trump's policies would do far more damage to the U. S. GDP than a China Crash.

Trump’s policies initially give the economy a tiny jolt, driven by the short-term stimulative effect of large deficit-driven tax cuts. But soon they start to weaken the economy significantly as the country buckles under the weight of exploding debt, trade wars and further economic isolation.

A decade out, then, the economy looks far worse under Trump’s policies than it does after the China Crash. Total output is also projected to be nearly 7 percent smaller in 2026 under Trump’s policies than under a continuation of current ones.

Check out the graphic and analysis at Rampell's Rampage.


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