Editor’s note: This is a lightly edited transcript of today’s video from Daily Signal Senior Contributor Victor Davis Hanson. Subscribe to our YouTube channel to see more of his videos.
The Trump budget is making its way through the Senate. And people on both sides of the issue of fiscal sobriety are arguing because the Biden deficit, which is somewhere between $1.9 trillion and $2.1 trillion, doesn’t seem to be radically reduced, given the DOGE cuts are offset by not cutting other programs that came in under Biden.
The Build Back Better and New Green Deal—all of that stuff is not radically cut. And more importantly, there are some tax cuts—things like taxes on tips, the SALT state tax deductions—that suggest that either there won’t be this sizable budget deficit reduction, as promised by the Trump administration, or it won’t occur until later on, or it could get bigger.
But there is a wild card here. And consider that in March through April, all the way into May, we had some monthly data. And income—real income—is substantially up. So is the savings rate. Energy prices are down. The inflation rate came in at April at 2.1%. The economy, according to the Federal Reserve Bank in Atlanta, will not grow at 3.8%, but it could, they think, at an annualized rate of 4.6%.
That’s critical, because in a $33 billion-plus economy, if you get two or three points of additional economic growth, then obviously, you’re going to have more federal revenue. It could be $200 or $300 billion more.
Also, people discounted the Trump tariffs. They said, either one of two things would happen. They would either, and believe it or not, they said the trade deficit might increase because of retaliatory tariffs that would increase faster than ours or decrease trade. But we might be in a recession.
And yet, when you look at the April data, the $160 billion monthly trade deficit has been halved. It’s incredible. It’s almost like the story on the border: That we went from 10,000 people a day to virtually nobody.
So, what does all this mean? We saw these gyrations in the stock market. We read The Wall Street Journal every day: recession, slow growth, market uncertainty, trade wars, recession, but if you actually look at the data, two things pop out at you.
The economy is doing very, very well. And a lot of it is the expectation of the things that are in process. The $10 trillion of foreign investment. The extensions of the tax cuts. Incentives for investment in the new budget. And so, this is completely unknown territory. If Donald Trump were to get—as Ronald Reagan did in the first half of 1984, he got up to an annualized rate of 7%. Especially in the latter part. If he were to get 4.6% or 5%, then this mythical idea that we all discounted, that you can grow your way out of deficits, it wouldn’t quite be realized but it would really help. And that $1.9 to $2.1 trillion deficit could go down substantially.
All of us never believed supply side will solve the problem. It won’t solve the problem without physical cuts and discipline. But it will do a lot for the economy.
And this is emblematic of this first mysterious four months of Donald Trump, when people said that Donald Trump could shut the border down, nobody believed him.
When people said that he could deal with the universities, and then Harvard had a lot of exposure, violating the Supreme Court’s rulings, not reporting Chinese and Middle East money, overcharging the government. And yet, all of this exposure that’s happening on the campus is enlightening the American people about issues they didn’t think was possible, just in the first 120 or 130 days of this administration.
So, what’s the bottom line? What am I getting at? There are revolutionary—maybe counter-revolutionary—developments going on at the border, going on with the universities. But especially with the economy. It’s being rebooted. It’s being redirected in ways that economists are not even able to figure out because we haven’t done this before. And the net result might be that we’re going to make progress, both in the expansion of the economy and through growth in federal revenues and cut down these deficits.
Victor Davis Hanson, a senior contributor for The Daily Signal, is a classicist and historian at the Hoover Institution at Stanford University and host of “The Victor Davis Hanson Show.” His website, The Blade of Perseus, features columns, lectures, and exclusive content for subscribers
Reproduced with permission. Original here: Trump’s Economic Growth Challenges Traditional Fiscal Beliefs