When it comes to economic performance, US presidents have considerably more influence over long-term trends than over short-term fluctuations. And it is by this standard that Donald Trump’s administration should be judged.
President Donald Trump regularly thumps his chest and claims credit for each new uptick of the fast-growing US economy. But when it comes to economic performance, US presidents have considerably more influence over long-term trends than over short-term fluctuations.
.. Still, it is not easy to speed up a $20 trillion economy, even by running a budget deficit of nearly $1 trillion, as Trump’s administration is doing.
.. In a cantankerous political environment, it is not easy to think about the long term. But, thanks to the magic of compound interest, measures that marginally raise long-term growth matter a lot. For example,
- the transportation deregulation policies of President Jimmy Carter’s administration in the late 1970s set the stage for the Internet retail revolution.
- President Ronald Reagan’s massive tax cuts in the 1980s helped restore US growth in the ensuing decades (but also exacerbated inequality trends). And
- President Barack Obama’s efforts (and before him President George W. Bush’s) to contain the damage from the 2008 financial crisis underpin the strong economy for which Trump wants to take full credit.
.. The end-2017 corporate tax reform was one of those rare instances where the US Congress comprehensively streamlined and improved the US’s Byzantine tax system, though the corporate tax rate should have been set at 25%, not 21%.
.. Obama would likely have been very happy to pass a similar bill. But, during his presidency, the Republican-controlled Congress insisted that any proposal had to be “revenue neutral” even in the short term, which is a tough political hurdle for any fundamental tax reform.
.. institutions and political culture are the single most important determinants of long-term growth.
.. political culture in the US may take years; if so, the economic costs could be considerable.
.. Moreover, in accordance with the administration’s disdain for science, the proposed budgets for basic research, including for the National Institutes of Health and the National Science Foundation, were reduced sharply (fortunately, the US Congress
rejected the cuts).
And anti-trust enforcement, needed to counter excessive monopoly power in many parts of the economy, is essentially dormant.
That will exacerbate inequality over the long term; Trump’s coal mines and trade tariffs are at best band-aids on a bullet wound.
.. many of the regulations that Trump is targeting ought to be strengthened, not eliminated. It is hard to imagine that gutting the Environmental Protection Agency and withdrawing from the Paris climate agreement are helpful for long-run growth, given that the costs of cleaning up pollution later vastly exceed the costs of mitigating it today.
.. As for financial regulation, the reams of new rules adopted after the 2008 financial crisis have been a dream come true for lawyers. Rather than try to micromanage banking, it would be far better to ensure that shareholders have more “skin in the game,” so that big banks are more inclined to avoid excessive risk. On the other hand, neutering existing legislation without putting anything adequate in its place sets the stage for another financial crisis.
.. although the US economy is indeed growing rapidly, the full extent of Trump’s economic legacy might not be felt for a decade or more. In the meantime, should a downturn come, it will not be Trump’s fault – at least according to Trump, who is already gearing up to blame the US Federal Reserve for raising interest rates and ruining all his good work.