Donald Trump ran for president by running down America. In his bizarro alternate reality, the United States of Barack Obama was "a poor country," maybe even a "third world country." Certainly with a whopping "real" unemployment rate of 42 percent, this was a troubled nation greatly in need of being made great again.
Now that he's president, Trump would like voters to think he's already turned around this once-failing enterprise. Or least made a pretty significant course correction. Hey, just look at that skyrocketing stock market, something Trump has tweeted about more than 100 times over the past year. (In one representative example, President Trump wrote, "Our economy is booming, investments and jobs are pouring back into the country, and so much more! … We ARE Making America Great Again.")
It's inarguably true that many good economic things are happening, such as JPMorgan Chase announcing Tuesday that it will make a $20 billion investment in U.S. operations, including raising wages to as much as $18 an hour for its customer service representatives. Other big companies, such as Walmart and Apple, have also promised higher spending — although not all have partially credited the Trump tax cut and deregulation as the megabank did. What's more, all this comes on top of last year's overall increase in business investment. Indeed, if some real-time indicators are correct and fourth-quarter real GDP comes in at 3 percent or higher, it would be the first time the economy has notched three straight such quarters since late 2004 and early 2005.
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Now, Trump's apocalyptic campaign rhetoric about America's economy was obviously overdone. But it also wasn't just Trump saying something was fundamentally wrong. While he blamed trade and immigrants in his exaggerated and dystopian analysis, Democrats had their own theory to explain the weak recovery after the Great Recession: "secular stagnation." This was the idea that because of demographics, sputtering innovation, and rising inequality, low growth and low labor-force participation were here to stay. And the best way to try and tackle the problem was by redistributing income from the rich to the poor, and by embarking upon big government spending plans.
Democrats never got a chance to put this plan into action. But a year into Trump's presidency, things do seem to be looking up. Economic growth has picked up, the stock market continues to "melt up," unemployment continues to fall, and prime-age participation rates continue to rebound from their recessionary nadir. How much credit should Trump get?
Probably not much for what's already happened. For that you can mostly thank a slow-but-steady domestic rebound — what you would expect after a financial crisis — and a synchronized global recovery years in the making. Trump hasn't been in charge long enough to really take credit for what's happened thus far. As I wrote last summer:
That said, Trump should get some credit for good economic news going forward. And you can expect that we'll have some, though perhaps not as much as Trump thinks.
The International Monetary Fund just upgraded its prediction for world economic growth in 2018 and 2019, saying "U.S. tax policy changes are expected to stimulate activity" both in the U.S. and its trading partners, at least over the next couple of years. Even so, the IMF isn't predicting warp speed growth. Instead it raised it U.S. forecast from 2.3 percent to 2.7 percent in 2018, and from 1.9 percent to 2.5 percent in 2019. This leaves the U.S. economy far short of "fixed."
Rising deficits and higher interest rates, due in part to those very same tax cuts, may well offset the longer-term impact of the fiscal stimulus. More importantly, there is little sign that consistently weak productivity growth has significantly accelerated. And that's what it will take for the U.S. to consistently growth at near 3 percent or better, as Trump has promised. The tax cuts may help that, but probably not anytime soon. Remember, the early 1980s Reagan tax cuts were supposed to boost productivity right away, but productivity didn't accelerate for more than a decade after. Maybe Silicon Valley will come to the rescue as in the 1990s, but policy makers shouldn't count on it.
There are also host of pro-growth issues that the Trumpublicans have shown little interest in, such as land-use deregulation and loosening intellectual property rules. Everything isn't Big Money and Big Oil. Moreover, faster growth for some is not faster growth for all. For instance, one recent study found that high-paying technology jobs are becoming increasingly concentrated in just eight metro areas, most of whom are on Amazon's short list for its second headquarters.
While the U.S has a greater capacity for growth than the gloomy secular stagnationists think, a rising stock market and short-term growth bump hardly proves Trump's turnaround case. There's so much more left to do.
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