(Bloomberg View) -- Last week's drama surrounding the firing of the FBI director, James Comey, resulted in very little movement in Gallup's daily job approval for President Donald Trump. On May 6, 40 percent approved of the president while 54 percent disapproved. A week later, 39 percent approved while 56 percent disapproved. As long as Republican voters stick with the president -- and so far, they have -- it's likely that the vast majority of Republican elected officials will as well. Even if he keeps spilling state secrets to the Kremlin.
If anything is going to take down this presidency, it's unlikely that it will be Russia or the FBI. Instead, it'll be a fast-growing economy.
When an economy has a lot of labor slack in it, as was the case in first several years after the great recession, fast growth is great news for nearly everyone. Unemployed workers have an easier time finding jobs. Corporate profits surge. The increase in tax revenue reduces the federal budget deficit and alleviates the budget pressures faced by state and local governments. Politicians get to celebrate the jobs created. And as long as there remains a considerable amount of slack, inflation pressures remain low, and the Federal Reserve can sit back and do nothing.
But when the labor market is around full employment, as it currently is, a fast-growing economy is a different animal. Workers take an increasing share of economic output. Higher wage growth puts upward pressure on inflation. Companies respond to higher wage pressures by increasing their investments in equipment to become more efficient -- itself an inflationary impulse. The Federal Reserve starts to increase interest rates rapidly in order to cool inflation and slow down the economy. The whole process tends to result in a stock market correction and eventually recession.
It was this process, rather than the facts coming out of the Watergate case, that ultimately took down the presidency of Richard Nixon. Nixon's approval rating at the end of January 1973 was 67 percent. This was seven months after the break-in of the Watergate complex. But a funny thing began to happen in January 1973. The inflation rate and interest rates began to go up, and stocks began to go down. Consumer price growth in January 1973 was 2.53 percent but rising; by the end of the year it had nearly doubled to 4.71 percent. It soared higher still in 1974.
The effective federal funds rate -- the interest charged by the government to lending institutions -- went up almost 400 basis points from January 1973 until the end of the year as the Fed tightened monetary policy in response to the inflationary threat.
And the stock market responded negatively. After making a high in January, by mid-December the S&P 500 had fallen more than 20 percent. Nixon's approval ratings tanked. From the high of 67 percent, by the end of the year, which we would later learn was the second month of a recession, his approval ratings were around 30 percent.
Conditions tanked in 1974. Inflation soared. Interest rates rose. Stocks fell. And the unemployment rate began to spike in June. Nixon resigned in August.
A party might stick with its president if his problems are just scandals. But scandals plus a bad economy? Party loyalty doesn't overcome that.
What we've seen so far is that when things are going well for Trump, his approval ratings rise to the low 40s. When things are bad, they sink into the mid-to-upper 30s. But all of this has taken place with the backdrop of a rising stock market and a falling unemployment rate. At full employment, it would result in faster wage growth, upward pressure on inflation, and the Federal Reserve tightening monetary policy faster than officials have indicated. That could set into motion the end of the business cycle, leading to a stock market selloff and a recession.
Faster economic growth could ultimately kill the remaining support for the president.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Conor Sen is a Bloomberg View columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.
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