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WERE WE READY?

Many of the facts presented to this point may come as a surprise

 

 

An important piece by economist Pierre Lemieux in the libertarian Cato Institute’s journal Regulation asks the question: “Suppose a wholly impartial observer, trained in economics, visited the United States in December 2019 and, after looking around for a bit, was asked if the country was ready for a big economic shock. What would he have said?”

The economic consequences of the pandemic would have been severe, regardless of which administration was in office when it hit. The only fair question to be asked, then, is whether this administration’s economic policies enhanced or undermined America’s preparedness for that shock.

Mr. Lemieux begins with several caveats: A president is constrained by the Constitution and the other branches of government; the policies of previous presidents and Congresses create economic trends that are hard to undo; and since the US economy represents only 15% of the world economy, it is vulnerable to the vicissitudes of the other 85%.

The good news of the last three years is that during “the first three years of Trump’s presidency, the economy expanded, unemployment and poverty fell, wages increased, taxes were cut, the stock market moved upward, and some reforms of federal regulation were introduced.” But the other good news is that

the Obama economy and the Trump economy seem to be the same economy. This observation applies to many… measures of American prosperity. When Trump entered the Oval Office in the first quarter of 2017, the recovery from the Great Recession, although slow, was already one of the longest measured recoveries in American history.

Thus, for example, “the poverty and unemployment picture improved slowly from 2009 to 2019, with no radical break when the occupant of the White House changed.” Unemployment reached its lowest level under Trump, but fell faster and further under Obama, from a post-Great Recession high of 10% in October 2009 to 4.7% in December 2016. The poverty rate, too, decreased under the Trump administration, but more slowly than in the last two years of the Obama administration.

What about economic growth? Obama inherited the Great Recession, which started nearly a year before his election and had its worst quarter in late 2008, and the average annual growth starting in 2010 was 1.4%. Under Trump, it averaged 2.0%, slowing in 2019 to 1.8%, nothing remotely like the 3.2% predicted by his Council of Economic Advisers in 2018. These data, writes Lemieux, “are consistent with the continuation of a slow recovery from the Great Recession…. Under both Trump and Obama, the American economy generally grew faster than the Canadian and Eurozone economies.” The average monthly rate of wage increase for the lowest-paid workers was only marginally better under Trump (1.2%) than during the Obama presidency (1.0%).

Although much has been made of the stock market boom of recent years, he says that “the stock market was not much different, and was less volatile, under Obama.” Thus, the S&P index of the stock prices of the 500 largest US companies skyrocketed in late 2019, but also crashed by nearly 20% in late 2018, due partly to fears over the trade war with China. Overall, however, the average daily increase in the index was 0.0500% under Obama and 0.0502% under Trump.

Another area touted as a success of this administration is in the area of deregulation. But as economist Ryan Young of the conservative Competitive Enterprise Institute has written: “President Trump’s first three years of regulation are mixed. He deregulated in some areas and added new burdens in others…. The most likely verdict is that he has slowed regulatory growth but has not cut regulation on net.”

Perhaps the two most significant factors shaping the country’s economic health in the last three years have been the areas of trade and governmental spending. The trade wars of this administration against Chinese, Korean, and European products increased prices for American companies and consumers, and exports of American goods and services ceased growing, as they had been since the end of the Great Recession. Several econometric studies estimate that the cumulative effect of these trade policies has been to reduce US GDP by around 0.4% per year.

On the other hand, the 2017 tax cuts should have been a boon to business investment. Yet, they did not have that lasting effect. This was reflected in the levels of both business and consumer confidence. Lemieux writes that “From 2017 to 2019, American consumer confidence was not exuberant and business confidence was volatile…. Consumer confidence was roughly the same at the end of December 2019 as it was in January 2017, the beginning of the Trump presidency, and for that matter the same level as in 2015.”

Finally, there is the matter of runaway governmental spending and not even the pretense of concern for the burgeoning federal deficit. This administration oversaw an increase in the deficit from $585 billion in Obama’s last year to $984 billion at the end of 2019. The overall federal debt was up 14% from 2016, reaching $22.7 trillion.

Many of the facts presented to this point may come as a surprise, especially to those whose perception of the health of the economy is shaped by a glance at headlines trumpeting stock market records or bombastic statements about “the best economy ever,” something that isn’t true, even as compared with recent administrations, let alone those of Clinton and Reagan.

Returning to the question of what an impartial visitor to the United States in December 2019 would have thought about our readiness for a cataclysmic shock to our economic system, Mr. Lemieux’s response is a pointed one: “He certainly would have thought the federal government was very badly prepared to deal with an economic shock. He would have been right.”

Originally featured in Mishpacha, Issue 817. Eytan Kobre may be contacted directly at kobre@mishpacha.com

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