During this period, there was a general antipathy toward government regulations in most sectors of the economy, whether finance, energy or environmental controls. “The White House, in the view of critics, fostered a free-market hothouse in which these [borrowing] excesses were able to flower,” the New York Times wrote in September 2008. “It avoided regulation of banks and mortgage brokers, leaving much of that work to the Federal Reserve, which, under Alan Greenspan, showed little appetite for regulation.”

Then the economy dissolved, leading to the worst recession since the Great Depression. By 2009, GDP had fallen by 2.5 percent, and average unemployment jumped from 5.8 percent to 9.3 percent in one year. The Bush administration ended with a $1.4 trillion deficit, 9.8 percent of GDP.

The government began to bail out the banks in 2008, and the new Obama administration used further Keynesian stimulus to halt the freefall by 2010.

Trump’s Fiscal Path

Fast forward to Trump. In 2017, with the eight years of President Barack Obama’s policies mostly still in place and before any of Trump’s policies could really kick in, the economy grew at 2.2 percent. GDP growth rose by 2.9 percent in 2018.

To get that “extra” growth, there was pretty good jolt of Keynesian stimulus. Federal taxation fell from 17.2 percent of GDP in 2017 to 16.5 percent in 2018, and is estimated to fall to 16.1 percent for 2019. Spending fell a little in 2018 to 20.3 percent of GDP from 20.7 percent in 2017, but will jump to 21.3 percent in 2019.

The net outcome is that Trump’s policies resulted in one year of modest incremental growth at a cost of large increases in the deficit: from $665 billion in 2017 (3.2 percent of GDP), up to $779 billion in 2018, Trump’s first budget (3.8 percent of GDP), and $1.1 trillion in 2019 (5.1 percent) of GDP.

A 5.1 percent budget deficit in an economy with only a 3.9 percent unemployment rate — that is a strange pair of numbers. As the director of the Congressional Budget Office, Keith Hall, pointed out in late January, the high deficits mean that lawmakers will have less flexibility to use tax and spending policies to respond to unexpected challenges. It also means less money for investments in education and infrastructure that really do produce long-term growth.

If the $2 trillion infrastructure investment that Democrats and Trump appear to want is to become a reality, Trump may well have to undo a good chunk of his 2017 tax cut.

Trade Deficit