by Greg Valliere, AGF Management Ltd.
WASHINGTON IS BUZZING OVER comments made this week by White House Chief of Staff Mick Mulvaney, who has committed a cardinal sin: he has spoken candidly, without the usual spin, about budget deficits and the need for more immigrants.
MULVANEY’S COMMENTS WERE LARGELY OVERLOOKED as two other stories hogged the headlines: the Democrats’ desperate search — thus far unsuccessful — for a savior to block Bernie Sanders’ astonishing surge, and President Trump’s scorched earth campaign to rid his administration of any dissenters.
YET A VOCAL DISSENTER is Trump’s Chief of Staff, who probably will be ousted by spring. Why? Mulvaney said this week that Republicans who once opposed big budget deficits are now hypocrites.
THE KEY QUOTE: “My party is very interested in deficits when there is a Democrat in the White House. The worst thing in the whole world is deficits when Barack Obama was the president. Then Donald Trump became president, and we’re a lot less interested as a party.”
THE DEFICIT WILL EXCEED $1 TRILLION THIS YEAR, even with a full-employment economy, and is on a path to soar well past $1 trillion annually for the next several years. This has begun to embarrass GOP deficit hawks like Mulvaney, who rose to prominence in South Carolina with an anti-spending Tea Party agenda.
DEFICIT SPENDING HAS BEEN EMBRACED BY BOTH PARTIES: It’s almost as if Washington has been seduced by the Modern Monetary Theory, which contends that deficits don’t matter much because there’s such an insatiable investor demand for Treasury paper. This theory overlooks the inevitable surge in debt servicing costs later this decade, in our opinion.
MULVANEY IS A VERY AMBITIOUS FELLOW, probably thinking about a presidential run in 2024, so carving out a niche as a deficit hawk makes sense. But his comments this week on immigration are riskier, considering the Trumpian aversion to not just illegal immigration, but legal immigration as well.
THE U.S. ECONOMY CAN’T GROW MUCH FASTER without allowing more immigrants into the country, Mulvaney said in a private meeting this week. According to a transcript obtained by The Washington Post, he said “We are desperate — desperate — for more people.” Mulvaney added: “We are running out of people to fuel the economic growth that we’ve had in our nation over the last four years. We need more immigrants.”
GOOD LUCK WITH THAT ONE: Trump may express support for allowing highly skilled workers into the country, but the distinction between them and illegal immigrants is lost on his rabidly anti-immigrant political base. Hard-line Trump adviser Stephen Miller wants restrictions on legal immigrants, a position that increasingly frustrates U.S. businesses, which have run out of workers.
AS WE TRAVEL AROUND THE COUNTRY, we constantly hear two complaints: first, there’s an acute labor shortage that is hurting economic growth; second, there’s no way trillion dollar budget deficits can persist without consequences. Trump’s chief of staff agrees — and he will pay for his candor, as all dissent is crushed.
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This post was first published at the AGF Perspectives Blog.
