(Bloomberg Opinion) -- The real lesson of the last 24 hours is this: Democrats, not President Donald Trump, are in control of U.S. economic policy.
No one knows for sure what prompted Trump’s tweeted intention to end negotiations over a new Covid stimulus package, which sent the markets into a nosedive on Tuesday. Some have speculated that Trump buckled under pressure from Senate Majority Leader Mitch McConnell, who is said to oppose a big bill. This ignores McConnell’s efforts, admittedly awkward, to get a stimulus bill through the Senate.
Moreover, congressional Republicans have repeatedly criticized House Speaker Nancy Pelosi over the last month for not agreeing to simply pass the things that the two parties already agree on — such as relief for airlines — because she’d rather hold out for some kind of ideal package. Their message seemed to be breaking through, or at least making Democrats in purple districts nervous, until Trump’s tweet absolved the speaker of all responsibility.
There are, of course, Republicans who oppose any further stimulus at all. When Trump, McConnell and Treasury Secretary Steven Mnuchin spoke by phone on Tuesday afternoon, it became clear that Trump lacked the political capital to unite Republicans under even a compromise proposal. Furious at his lack of influence over his own party, Trump then blew up the negotiations.
In typical Trump fashion, he then had second thoughts. The president followed up his “I have instructed my representatives to stop negotiating” tweet with one a few hours later endorsing Federal Reserve Chairman Jerome Powell’s call for more fiscal action — and then one demanding that Congress pass a bill to send new stimulus checks. The administration has since said it is open to relief for the airline industry.
In his defense, the president appears to be getting conflicting advice. Many of his economic advisers, as well as more conservative Republicans in Congress, are telling him that more stimulus would be useless if not counterproductive. Other advisers, notably Mnuchin, are saying that a heavy dose of stimulus — far more that most Republicans can stomach — is vital for saving both the economy and Trump’s electoral prospects.
The bottom line, however, is clear: Trump cannot force his preferred policies through Congress, and he knows it. Trump’s only chance is to get a major assist from congressional Democrats or Joe Biden in forging a compromise proposal that could pass with support from moderates in both parties but would lose hardliners on either side. Nothing he tweets from now until Election Day is likely to change that.
Does that mean that Americans will have to wait for a Biden presidency to see any more relief? Not necessarily. Given their solid electoral position, Democrats can afford to pass whatever bill moderate Republicans are willing to support now, and then tack on additional stimulus when they gain control of the White House and possibly the Senate in 2021.
The only downside is that Republicans, if they retain control of the Senate, would probably be unwilling to go for something bigger. But how much worse would that be than the current situation? If anything, retaining control of the Senate in the absence of further stimulus would only strengthen conservative Republicans’ argument that more spending is unnecessary. The only rationale left for Democrats’ opposition to a small bill now is that it might make it less likely that they take the Senate.
There is a chance of that. But this type of political gamesmanship is foolhardy. It’s impossible to know how the electorate will respond to a deal at this point. The only sure thing that is that, if Congress does nothing, the U.S. economy will be weaker in 2021 — and that’s something no American, least of all congressional Democrats, should want.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Karl W. Smith is a Bloomberg Opinion columnist. He was formerly vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina. He is also co-founder of the economics blog Modeled Behavior.
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