There are two distinct threats to the U.S. economy of 2025. One is the president’s shoot-first-ask-questions-later trade war, which has rattled both consumers and the bond market, not to mention economists. The other is the government’s projected annual deficit of $1.9 trillion, despite more than three years of low unemployment and consistent growth.
The first threat makes a recession more likely, and the second would make a recession harder to deal with. At the risk of crying wolf in the face of an economy that has yet to show any tangible signs of weakness, allow me to say: The House Republicans’ tax bill is so ill-suited to the moment that the most charitable conclusion is that they simply do not know how to manage the economy.
Where to begin.
The U.S. economy has had 13 recessions since World War II. After each downturn, the playbook is revised — informed by experience about what the economy needs as it contracts.
Nearly 70% of the U.S. economy is household consumption. So a critical component of macroeconomic stabilization is to prop up demand and keep households spending — or, to put it more bluntly, getting money to people who will quickly spend it. In general, the marginal propensity to consume is inversely related to income and wealth. Hence, during recessions, the government needs to get money and resources to low-income households and those who have lost their jobs.