Economists dismiss warnings that a ‘blue wave’ means financial catastrophe

“If the Democrats win the House, or the House and Senate, there will be no substantive economic policy done in the next two years,” said one analyst.

By Martha C. White Nov. 5, 2018

With control of Congress coming down to the wire in a nail-biter of a midterm election cycle, the economy has become a political football.

“These are incredible numbers. Keep it going, Vote Republican!” President Donald Trump tweeted on Friday in response to Labor Department data showing an unemployment rate of 3.7 percent and 250,000 jobs created in October.

Even in the unlikely instance that Democrats regain control of both houses of Congress, economists dismiss Trump’s warnings of economic apocalypse, and discount the notion that a GOP-led government is a silver bullet against an economic downturn.

Donald J. Trump  ✔@realDonaldTrump

Wow! The U.S. added 250,000 Jobs in October – and this was despite the hurricanes. Unemployment at 3.7%. Wages UP! These are incredible numbers. Keep it going, Vote Republican!

3:46 PM – Nov 2, 2018

 “It’s not like a Democratic Congress will be able to implement an anti-business agenda. It’s not clear the Democrats have an anti-business agenda,” said said Nicolas Veron, senior fellow at Bruegel, a think tank in Brussels, and at the Peterson Institute for International Economics.

“I think if the Democrats win the House, or win the House and the Senate, there will be no substantive economic policy done in the next two years. I think it’ll be a gridlocked government,” said Mark Zandi, chief economist at Moody’s Analytics.


Trump has frequently touted soaring stock prices, but recent volatility — primarily over profit worries — has injected a note of uncertainty into the narrative. “The market was already jittery before the election,” Veron said. “It’s difficult to get a clear sense of what drives the markets,” he said.

One big reason for the current volatility stems from worry that Trump’s protectionist trade policies will cut into earnings and stifle economic growth. In this case, having a legislative branch that seeks to thwart Trump could be viewed as a positive. “If one believes the recent wobbles of the market are linked to the trade war, then a Democratic victory should reassure the market,” Veron said.


A recent survey by the National Association for Business Economics found that 56 percent of experts think the next recession will begin in 2020. “Trade issues are clearly influencing panelists’ views,” NABE survey chair David Altig wrote in the report accompanying the survey.

“Half of survey respondents have moderately increased their inflation forecasts as a result of trade policy changes,” Altig said, pointing out that nearly 80 percent of respondents lowered their expectations for GDP growth next year.


In endorsements for lawmakers around the country, Trump made the case that Republican candidates will “protect your jobs.” But a buoyant labor market depends on consumers being able — and willing — to continue spending.

“The jobs market has gotten all juiced up by the [tax-cut] stimulus,” Zandi said.” That’s supported a lot of job growth… Once the stimulus fades — and it will — the job market will also suffer.”

And with wages slow to recover, some warn this leaves many households ill prepared for the next economic slump. A Bankrate survey conducted last month found only 38 percent of Americans said their finances had improved since Trump’s election in 2016, while 17 percent said their situations had worsened, and 45 percent said there had been no change.

“Ultimately, a rising economic tide lifts many boats. It does not lift all of them,” said Mark Hamrick, senior economic analyst at Bankrate.


In the long term, Zandi predicted that another two years of a GOP-led Congress could lead to more financial pain for Americans. As the stimulative impact of the tax cuts wear off, lawmakers would face political pressure to extend expiring provisions, or create additional tax incentives altogether, even if that means taking on more debt. “Clearly there would be another deficit-funded tax cut, which would raise the odds of recession down the road,” he said. “I think gridlock is better than the policy we’d get if Republicans remain in control of government. Doing nothing is better than that alternative,” he said.

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