It’s time for a reality check on Trump’s claims about jobs, wages and economic growth.
Recession fears may be seeping into the national conversation, but President Trump continues to boast about how great the American economy is — “the best in the world, by far,” Mr. Trump tweeted a few days ago.
Time for a reality check on Mr. Trump’s economic accomplishments, using two key measuring sticks: how well the economy is doing, compared with its performance under President Barack Obama’s leadership, and whether it has performed up to Mr. Trump’s promises.
The short answer is, the economy’s performance is not much different than it was under Mr. Obama and far short of what Mr. Trump pledged.
Take, for example, the all-important matter of jobs. Yes, many unemployed Americans are back on the payrolls. Yes, the unemployment rate continues to fall, as it did under Mr. Obama. But no, the pace of hiring has not been faster than it was during a similar period under Mr. Obama and indeed, has been even a bit slower.
In the first 30 months of the Trump presidency, jobs were added at an average rate of 191,000 a month. That’s certainly respectable, although it’s still less than the increase of 220,000 jobs a month during the final two and a half years of the Obama presidency.
Weaker Hiring Under Trump
Monthly job growth in thousands: Obama’s last 30 months versus Trump’s first 30 months.
Obama average: 220k
Trump average: 191k
300
220
200
191
100
0
2015
2016
2017
2018
2019
Moreover, on Aug. 21, the Bureau of Labor Statistics announced that it is likely to revise downward substantially payroll gains earlier this year, which could cut about 15,000 jobs a month from Mr. Trump’s tally.
Then there are wages, the other key component of what matters financially to everyday Americans. The rate of pay raises has continued to edge up under Mr. Trump, a typical occurrence in the latter part of an economic recovery. But more important is what is left for workers after inflation takes its bite.
And on that measure, earnings for American workers rose faster under Mr. Obama.
Not to mention that Mr. Trump has utterly failed to deliver on his wage promises. As part of pushing for the 2017 tax cut, his Council of Economic Advisers projected that the legislation would raise average pay by $4,000 a worker. No material amount of that has been realized.
After Inflation, Workers Did Better Under Obama
Private worker average hourly earnings, year-over-year percent change: Obama’s last 30 months versus Trump’s first 30 months.
+4
Nominal
+3
+2
Obama average: +1.5%
Real
(adjusted
for inflation)
+1
Trump average: +0.7%
0
–1
2015
2016
2017
2018
2019
Then there’s the overall economy. The sluggishness of growth since the 2008 recession has puzzled and dismayed policymakers. During his presidential campaign, Mr. Trump routinely promised to push this rate up; in seeking passage of his tax cut legislation, he said growth would accelerate to “4, 5 and maybe even 6 percent.”
That is not remotely what transpired. The tax cut produced a short “sugar high,” a momentary boost. Gross domestic product, after adjusting for inflation, rose at a 3.5 percent rate in the second quarter of 2018. But for 2018 as a whole, the 2.5 percent increase did not come close to the Trump administration’s projection of 3 percent.
All told, G.D.P. has risen at a 2.6 rate during Mr. Trump’s presidency, which, in fairness, is marginally higher than the 2.4 percent rate of improvement during the last 10 quarters of Mr. Obama’s tenure. Neither number is anything to brag about.
Growth Trending Downward for Over a Year
Year-over-year percent growth in real G.D.P.: Obama’s last 30 months versus Trump’s first 30 months.
4
3
Trump average:
2.6%
2.3
Obama average:
2.4%
2
1
0
2015
2016
2017
2018
2019
Now the economy is demonstrably slowing down, thanks in large part to Mr. Trump’s trade war. Interestingly, the business community appears more worried than consumers, who have continued to spend and who, in surveys, still express confidence.
Capital investment has ceased growing (and has even fallen a bit in recent months), manufacturing output peaked last December and business sentiment is softening.
As a result, forecasters have been marking down their projections; by the end of this year, J.P. Morgan expects G.D.P. to be increasing at only a 1.8 percent rate. (The White House seems to live in a parallel universe; it clings resolutely to its prediction of 3.2 percent growth this year.)
Should that slowdown occur, expect Mr. Trump to blame the Federal Reserve and the interest rate increases it instituted beginning in December 2015. But the Fed’s increases were modest; rates are still exceptionally low by historical standards, especially in the tenth year of a recovery.
Accordingly, private economists rank the trade war as playing a much larger role in the slowing economy than the Fed’s actions. (And, of course, now it has begun cutting rates.)
“The fears of a further slowing in growth and recession are entirely due to the trade war,” Mark Zandi, chief economist at Moody’s Analytics, told me. “If the president follows through on his current tariff threats, growth will continue to weaken to well below the economy’s 2 percent potential by early next year.”
Mr. Zandi is not alone. Private economists recently polled by Reuters gave a median 45 percent probability of the United States economy entering recession in the next two years.
Economists are notoriously poor at predicting downturns. But what’s not disputable is even if we duck a recession, when it comes to the economy, Mr. Trump still has not eclipsed Mr. Obama’s record and is many miles from making America great again.
The Trump Boom Is No Mere ‘Sugar High’
The latest liberal spin is that the economy is on a “sugar high” from deficit-financed tax cuts and spending hikes. When the rush wears off, they warn, watch out for a crash landing. It’s true that in fiscal 2018 the budget deficit swelled to nearly $800 billion, or about 4.2% of gross domestic product. But the Bureau of Economic Analysis estimates that the economic “contribution” from extra government spending added only 0.23 percentage point to growth in 2018. So even without all the budget bloat, the economy would still be growing well above 3%.
.. The same BEA data confirm that this year’s growth comes predominantly from a boom in production and investing—particularly in construction, manufacturing, and oil and gas development. While the housing market is weak, consumers are spending more as their wages rise... The real contradiction in the “sugar high” argument is that it ignores the slow growth of the Obama years, which featured an avalanche of debt spending. Deficits as a share of GDP were 9.8% in 2009, 8.6% in 2010, 8.3% in 2011 and 6.7% in 2012. Where was the sugar high then? Instead of the expected burst in output coming out of the 2008-09 recession, borrowing more than $1 trillion a year for four years yielded the worst recovery since the Great Depression. Even excluding 2009, Mr. Obama’s deficits averaged more than 5% of GDP throughout the rest of his presidency but produced less growth than Mr. Trump has with lower deficits.This wasn’t what Keynesians expected. Mr. Obama’s economic team predicted 4% growth every year coming out of the recession. Instead the “sugar high” from record peacetime deficits produced measly 2% growth. By 2016 GDP was running about $2 trillion below the trend line of a normal recovery.
The fastest growth rate over the past three decades was recorded in Bill Clinton’s second term, when federal government spending fell from 21.5% to 18% of GDP and deficits disappeared into surpluses. So much for the idea that deficit spending is a stimulant.
Mr. Trump’s fiscal policies have produced more growth than Mr. Obama’s because they were designed to incentivize businesses to invest, hire and produce more here at home. The Obama “stimulus,” by contrast, went for food stamps, unemployment benefits, ObamaCare subsidies, “cash for clunkers” and failed green energy handouts.
.. Massive government spending blitzes don’t produce “sugar highs” or anything like them. Even some conservatives erroneously argue that military spending stimulates the economy. But as Milton Friedman said, the government can only put money into the economy that it first takes out.
.. Those pushing the “sugar high” fallacy also don’t realize that the Trump tax cuts aren’t going away soon. The 2017 business tax cuts can’t cause a recession in 2019 or 2020 because they don’t expire until 2025. They aren’t sugar pills.
The biggest threats to the economic boom and financial markets today are a deflationary Federal Reserve and the specter of a global trade war. Solve those problems and the American economy can keep flying high on its own power. And Mr. Trump’s critics will be proved wrong again.
Trump’s Diminishing Power and Rising Rage
None of Trump’s extremist policy ideas has received public support. The public opposed last year’s
- Republican-backed corporate tax cut, Trump’s
- effort to repeal the Affordable Care Act (Obamacare), his
- proposed border wall with Mexico, the decision to
- withdraw from the Iran nuclear agreement, and the
- imposition of tariff increases on China, Europe, and others.
- At the same time, contrary to Trump’s relentless promotion of fossil fuels (coal, oil, and gas), the public favors investments in renewable energy and remaining in the Paris climate agreement.
.. Trump has tried to implement his radical agenda using three approaches.
1) The first has been to rely on the Republican majorities in the two houses of Congress to pass legislation in the face of strong popular opposition. That approach succeeded once, with the 2017 corporate tax cut, because big Republican donors insisted on the measure, but it failed with Trump’s attempt to repeal Obamacare, as three Republican senators balked.
.. 2) The second approach has been to use executive orders to circumvent Congress. Here the courts have repeatedly intervened, most recently within days of the election, when a federal district court halted work on the Keystone XL Pipeline, a project strongly opposed by environmentalists, on the grounds that the Trump administration had failed to present a “reasoned explanation” for its actions. Trump repeatedly and dangerously oversteps his authority, and the courts keep pushing back.
.. 3) Trump’s third tactic has been to rally public opinion to his side. Yet, despite his frequent rallies, or perhaps because of them and their incendiary vulgarity, Trump’s disapproval rating has exceeded his approval rating since the earliest days of his administration. His current overall disapproval rating is 54%, versus 40% approval, with strong approval from around 25% of the public. There has been no sustained move in Trump’s direction.
.. In the midterm elections, which Trump himself described as a referendum on his presidency, the Democratic candidates for both the House and Senate vastly outpolled their Republican opponents. In the House races, Democrats received 53,314,159 votes nationally, compared with 48,439,810 for Republicans. In the Senate races, Democrats outpolled Republicans by 47,537,699 votes to 34,280,990.
.. Summing up votes by party for the three recent election cycles (2014, 2016, and 2018), Democratic Senate candidates outpolled Republican candidates by roughly 120 million to 100 million. Nonetheless, the Republicans hold a slight majority in the Senate, where each state is represented by two senators, regardless of the size of its population, because they tend to win their seats in less populous states, whereas Democrats prevail in the major coastal and Midwestern states.
Wyoming, for example, elects two Republican senators to represent its nearly 580,000 residents, while California’s more than 39 million residents elect two Democratic senators.
Without control of the House, however, Trump will no longer be able to enact any unpopular legislation. Only policies with bipartisan support will have a chance of passing both chambers.
.. On the economic front, Trump’s trade policies will become even less popular in the months ahead as the American economy cools from the “sugar high” of the corporate tax cut, as growing uncertainty about global trade policy hamstrings business investment, and as both the budget deficit and interest rates rise. Trump’s phony national-security justifications for raising tariffs will also be challenged politically and perhaps in the courts.
.. True, Trump will be able to continue appointing conservative federal judges and most likely win their confirmation in the Republican-majority Senate. And on issues of war and peace, Trump will operate with terrifyingly little oversight by Congress or the public, an affliction of the US political system since World War II. Trump, like his recent predecessors, will most likely keep America mired in wars in the Middle East and Africa, despite the lack of significant public understanding or support.
.. Nonetheless, there are three further reasons to believe that Trump’s hold on power will weaken significantly in the coming months. First, Special Counsel Robert Mueller may very well document serious malfeasance by Trump, his family members, and/or his close advisers.
.. Second, the House Democrats will begin to investigate Trump’s taxes and personal business dealings, including through congressional subpoenas. There are strong reasons to believe that Trump has committed serious tax evasion (as the New York Times recently outlined) and has illegally enriched his family as president (a lawsuit that the courts have allowed to proceed alleges violations of the emoluments clause of the Constitution). Trump is likely to ignore or fight the subpoenas, setting the stage for a major political crisis.
.. Third, and most important, Trump is not merely an extremist politician. He suffers from what author Ian Hughes has recently called “a disordered mind,” filled with
- hate,
- paranoia, and
- narcissism.
According to two close observers of Trump, the president’s grip on reality “will likely continue to diminish” in the face of growing political obstacles, investigations into his taxes and business dealings, Mueller’s findings, and an energized political opposition. We may already be seeing that in Trump’s erratic and aggressive behavior since the election.
.. The coming months may be especially dangerous for America and the world. As Trump’s political position weakens and the obstacles facing him grow, his mental instability will pose an ever-greater danger. He could explode in rage, fire Mueller, and perhaps try to launch a war or claim emergency powers in order to restore his authority. We have not yet seen Trump in full fury, but may do so soon, as his room for maneuver continues to narrow. In that case, much will depend on the performance of America’s constitutional order.
Is Trumponomics working? Not really.
So is Trumponomics working? With one significant caveat, the answer is no. For one thing, Trump’s trade policy is turning out to be worse than expected. For another, the growth surge mostly reflects a temporary sugar high from last December’s tax cut. Economists are already penciling in a recession for 2020.
.. At a time of toxic inequality and declining intergenerational mobility, inheritance taxes ought to be increased, but Trump cut them. However, the reduction in the corporate tax rate, coupled with incentives for businesses to invest more, has boosted spending on R&D, information technology and other machinery. Extra investment should make workers more productive. It might even shift U.S. growth to a higher trajectory.
.. you can’t rule out the possibility that the Trump investment incentives are hitting the economy just as a new wave of IT innovations is ripe for deployment.
.. The question is whether the expected productivity boost will outweigh the drag from the tax cut’s other consequence: a huge rise in federal debt.
.. The extra $1 trillion or so of federal debt will have to be serviced: Today’s sugary tax cuts imply tax hikes in the future. Likewise, the corporate investment incentives are temporary: They may simply bring investment forward, depriving tomorrow’s economy of its tech caffeine jolt.
.. many Wall Streeters expect a recession once the sugar high dissipates. The Tax Policy Center estimates that gross domestic product in 2027 will be the same as it would have been without the tax cut.
.. There will be no growth to compensate for extra inequality and debt.
.. And that is without considering the harm from Trump’s trade wars. In Europe, Trump has browbeaten U.S. allies and reserves the right to beat them up further; the only “gain” is a discussion of a new trade deal that was on offer anyway before Trump’s election. In the Americas, Trump has arm-twisted Mexico into accepting a new version of NAFTA that is worse than the old one, and demands that Canada sign on.
.. But the greatest damage stems from Trump’s trade war with China. His opening demand — that China abandon its subsidies for strategic high-tech industries — was never going to be met by a nationalistic dictatorship committed to industrial policy.
.. His bet that tariffs will drive companies to shift production to the United States is equally forlorn. If manufacturers pull out of China, they are more likely to go elsewhere in Asia.
And even if some manufacturing does come to the United States, this gain will be outweighed by the job losses stemming from Trump’s tariffs, which raise costs for industries that use Chinese inputs.
.. In short, Trump isn’t helping the American workers he claims to speak for. Instead, he is battering the rules-based international system that offers the best chance of constraining China.
.. do not be surprised if the populists are temporarily popular: Popularity is what they crave most, after all. But recall that, everywhere and throughout history, the populists’ folly is unmasked in the end.