“The Economy is soooo good, perhaps the best in our country’s history (remember, it’s the economy stupid!)” Donald Trump via Twitter September 10, 2018
As Donald Trump lurches from one lie to another, one national embarrassment to another, and one moral failing to another, Republicans forgive his behaviour and deficiencies by focusing on the economy. A common refrain heard from likely Republican voters is, “He’s not perfect but he’s really turned our economy around.” A Republican ad running just before the midterms warns that [the strong economy] “could all go away if we don’t remember where we came from.” Where they came from, according to the Republicans, is an economic nightmare of high unemployment and slow growth, apparently just “a few years ago.”
It’s all based on a storyline that the US economy was languishing until Trump came to power. That Trump orchestrated a comprehensive economic turnaround. That job markets reversed course after Trump was elected, are now showing unprecedented growth. That Trump policies have led to an economic “miracle” (yes, that word has been used). And, it’s all a lie.
What if the economic performance of the US under Trump is really not that good, and that the Trump economy can instead be seen as merely the extension of an Obama-led turnaround from a Republican-owned recession? Or that Trump has over-stimulated an economy that was performing quite well, and in doing so has sacrificed long-term health of the economy in favour of short-term optics? What if the “miracle” is unsustainable and is set to fall like a house of Trump Casino cards?
If the economy is the major factor propping up Trump’s approval ratings, then any discouraging words about the economy would present the Republicans with a huge problem. Time to look at the numbers.
Jobs: hardly a miracle; not even an improvement
Trump’s claim of a “miracle” assumes that job creation was moribund before he arrived, and his policies have led to unprecedented job growth. That’s fake news. If supporters cared to look at the numbers, they would see that not only has there not been a turnaround; there hasn’t even been an improvement.
Here’s a picture of monthly job growth over the last 5 years, courtesy of the Bureau of Labor Statistics:
See the uptick in job creation from the Obama era (pre-2017) to the Trump era (2017 and 2018)? Neither do I. That’s because job creation under Trump has actually lagged that under Obama. In the 21 months of the Trump presidency, 4.1 million jobs have been created. Good, but under the 21 months before Trump took the helm, the US economy produced 4.5 million jobs (i.e. 11% more). During Obama’s second term, monthly job creation averaged about 215,000 jobs. Under Trump, the monthly average is about 193,000. Yet, Trump boasts of a “turnaround”.
Unemployment is still falling, but are wages growing? Not appreciably. According to the latest BLS statistics, median constant dollar (i.e. adjusted for inflation) earnings are essentially flat over the Trump term. Median earnings are more representative of the situation of the average working person, as the numbers are not skewed by high income earners who have benefited disproportionately from tax reductions.
Stock markets: no time to gloat
How about the stock markets? After all, Trump places a lot of weight on the stock markets being a barometer of his economic policies:
“The reason our stock market is so successful is because of me.” Donald Trump – November 7, 2017
“Stock market hit yet another all-time record high yesterday. There is great confidence in the moves that my Administration is making.” Donald Trump – November 7, 2017
Observers cautioned Trump at the time that he shouldn’t take too much credit for stock market appreciation, for if he “owned” the increases he’d also “own” the declines. Here’s the picture as of October 30 2018:
Whatever “Trump bump” was evident in the stock market indices after the last election has vanished, leaving Trump with a market that has underperformed that of his predecessor, even with the massive boost to earnings from Trump’s corporate tax cut.
- Under Trump, the S&P 500, which is generally viewed as a broader, more representative index than the limited DJIA, has increased at an annualized rate of 9.8%
- Under Obama, the S&P 500 increased at an annualized rate of 13.8%
- For Obama’s second term (the period that supposedly forms the basis of Trump’s “turnaround”) the annualized increase was 11.0%
- During 2018, when corporate America benefited from the Trump-led reduction in the corporate tax rate from 35% to 21%, the S&P 500 has declined at an annualized rate of 0.6%
Trump “owns” stock market results that compare unfavourably to those during his predecessor’s term. No turnaround evident here either.
Robust growth, but…..
Here’s the 5 year history of quarterly GDP growth in the US:
According to the latest US Commerce Department estimates, the US GDP rose at an annualized rate of 3.5% in the 3rd quarter of 2018 (down from last quarter’s 4.2%, but still robust). Trump says that these numbers prove that his policies are working. But, does this represent a turnaround?
While there is some good news in the economic data, there is plenty of evidence that the situation is not nearly as rosy as the president makes it sound. First, two quarters do not make a trend, especially when those quarters were juiced by tax cuts and companies trying to jump ahead of impending tariffs. Buried in the Q3 growth numbers were the facts that there was a substantial increase in inventories, and very little increase in equipment investment. As the chief US economist at Barclays comments, “if you’re banking on strong GDP growth, you need business investment.” BOA Merrill Lynch’s economist adds that the inventory increase is not sustainable.
When you consider that it took a massive tax reduction stimulus to produce a growth rate that economists view as unsustainable, it’s all a little precarious. Nothing to boast about, and certainly nothing on which to claim a “turnaround.”
House of Trump, House of Cards
Trump inherited a healthy economy with a steadily declining unemployment rate, steady job production, and reasonable growth. He hasn’t made it better. And in not making it better, he is virtually bankrupting the country.
Republicans were advised that implementing tax cuts to stimulate the economy was unnecessary and would increase the country’s deficit and debt to unmanageable proportions. They did it anyway. To what effect?
- The Economist notes that the 2018 US deficit will be -4.8% of GDP. Of the 57 leading economies tracked, that puts the US ahead of only such paragons of economic stability as Venezuela, Egypt, Brazil, Argentina, Pakistan and Vietnam
- The Congressional Budget Office reports that the federal deficit for 2018 is $782 Billion. While this alarmed many, it actually understates the true figure – the CBO notes that if not for the advancement of certain receipts due to how the weekends fell, the deficit would have been $826 Billion.
- The president’s Office of Management and Budget estimates that the deficit for fiscal 2019 will be $1.085 Trillion. Trillion with a “T”.
- Debt to GDP, a widely used benchmark for fiscal management, is currently over 105%. It is forecasted to rise to 109% over the next couple of years. The US is the only advanced economy across the globe that is projected to increase its debt to GDP ratio over the next 5 years (source: IMF)
It’s a simple story to follow. Tax cuts funded a substantial proportion of economic growth during 2018 but have also contributed to a ballooning deficit. Trump and the Republicans have effectively “bought” short-term economic performance by piling on debt. And it’s starting to make even them nervous. Trump recently floated the idea of freezing the pay of federal workers in 2019, “in light of our Nation’s fiscal situation.” In other words, Trump was saying that the country couldn’t afford increases, and that the fiscal situation was a problem. After pushing for a trillion dollar tax cut, Mitch McConnell has somehow rediscovered his concern about deficits, now calling them “very disturbing.” Jerome Powell, chairman of the Federal Reserve, states that US fiscal policy is on an “unsustainable path.”
In short, the Trump economic “miracle” is just a big house of cards. And, it’s starting to fall apart. For example, McConnell’s proposed solution to the growing deficit is to cut programs such as Medicare, Medicaid, and Social Security. If the economy truly is “the best in history” no-one would be talking about cutting programs providing basic benefits and health care to seniors, disabled workers, and lower income Americans. Unless, of course, that’s what Trump and the Republicans were planning to do all along.
Donald Trump built his business empire on debt. Lots and lots of debt. And when he got into trouble paying it back, there was always a family member, friendly bank, or Saudi national there to bail him out. Or there was bankruptcy. Hopefully someone will advise him that for a country, there is no bankruptcy protection – unless you’re Greece.
Why this matters: what happens in the US does not stay in the US
So why does this matter to Canadians? Why should we really care about Trump’s economic and fiscal policies and whether he’s just lying to the American public…again? Because what happens in the US does not stay in the US. The ideas spill over the border and start influencing Canadians who may believe the rhetoric about an “economic miracle” and an “unprecedented turnaround.” They in turn start pressuring their own government to emulate the US policies. We end up being forced to keep pace with the US either through irresponsible fiscal policy or unwanted structural change.
If we see Trumponomics for what it really is – nothing more than a lot of bluster supporting an economic house of cards – maybe we can stop this nonsense at the border. Maybe a wall will help.