This is a second update on the economy with some thoughts on where we are in the business cycle. Yesterday, in my first update, I talked about monetary policy because of the upcoming Fed meeting in Jackson Hole. This time, I want to talk more about the political economy.

I think the headline mostly gets at what I am going to say. We are only seven months into Donald Trump’s presidency. And I think we can call it a failure. I’ll have a lot more to say on that momentarily. But I want to flag this as not being a dealbreaker for the US or global economy.

I think people put too much emphasis on the political economy in Washington. In some ways, it’s a sideshow since government obviously doesn’t dominate the US economy. Federal government outlays are just one-fifth of US gross domestic product. So even if a president’s economic agenda is sidetracked, delayed, or simply ineffective, it doesn’t mean the economy won’t keep chugging along.

At the same time, as emerging markets like China get bigger, the US economy recedes in importance globally. If you look at the global economy on a purchasing power parity basis – that is, holding purchasing power constant across economies – the US is only 22% of the global total. That’s less than one-fourth. So the US federal government is one-fifth of one-fourth then – which isn’t a whole lot.

But Donald Trump is failing. His economic agenda is failing. And I think his agenda isn’t just stymied or delayed. It will never come to fruition. And by that I mean that he is President of the United States because of economic pain in the American working class. You don’t get a serial bankrupted, inherited wealth reality TV star with no military or government experience as President unless something is seriously wrong with the economic fortunes in large swathes of the population. So Trump’s success or failure has to be judged on whether he delivers for his base – blue collar America.

Remember my post-election November post, “Donald Trump and the return of Rockefeller Republicanism”? Here’s what I was saying about Trump then:

“With the Republicans taking both houses of Congress as well as the Presidency, the potential for Trump to reshape the party in his image is immense. The question now regarding the Trump economic platform is how much he will bend to the will of the Republican establishment and how much will Trump remain focused on his blue-collar and middle class base of support.