Democrats’ Flawed Arguments against Trumponomics
The U.S. economy is currently beating expectations. The unemployment rate (3.8%) has fallen to a 5-decade low. Labor-productivity growth reached 2.9% in the second quarter of 2018 – the highest increase after a two-year slump that started in the second quarter of 2015. Available jobs, for their part, are outnumbering unemployed Americans for the first time in 17 years of monthly records. And for the first time since 2008, the U.S. stands as the world’s most competitive economy in the index produced by the World Economic Forum.
But never mind. According to anti-Trump pundits and the mainstream media rallied to their cause, that performance has little, or nothing, to do with President Trump’s tax cuts and deregulatory policies. All this is due to Obama’s stimulus package and the Fed’s quantitative easing – so they say.
By arguing that way, the members of that brotherhood forget, or hide, the contention that they themselves had brandished in 2016 to challenge the criticism of Obama’s economic policies formulated by then presidential candidate Donald Trump.
At that time, candidate Trump drew attention to the weak economic growth achieved through Obama’s stimulus package and the Fed’s quantitative easing (an annual average of 0.9% in Obama’s first term and of 2.2% in his second term). In defense of Obama’s outcome, anti-Trump pundits swiftly retorted that economic recovery, albeit the slowest on record, had been the fourth longest expansion: it was at its 7th year, whereas, they added, recoveries typically have a 5-year duration. The length of the expansion thus compensated for the slowness of the recovery – so they said.
To remove Obama’s responsibility for the tepidness of the recovery that characterized his presidency, Democrats resorted to a fanciful concept, labelled “secular stagnation” – coined in the late 1930s by Keynesian economic theorist Alvin Hansen and conveniently dusted off by two progressive pundits: Larry Summers (Treasury Secretary under Bill Clinton in 1999-2001 and subsequently Director of President Obama’s National Economic Council in 2009-2010) and Nobel Economics laureate Paul Krugman.
According to the secular stagnation narrative, the modern economy was ensnared in a catch of low employment creation and lethargic economic growth. The term “secular” served to indicate that the ailment was structural, i.e. more profound and durable than a mere cyclical twist. To cope with that chronic sluggishness, a strong dose of public spending (stimulus package) – accompanied by an accommodating monetary easing – was, progressives said, the only remedy at hand. Obama, they concluded, couldn’t do more, or better, than what he had done.
The secular stagnation fable, however, has been overtaken by events, outdone by a dynamism of the U.S. economy that was unimagined during Obama’s presidency. Indeed, after the adoption of Trump’s supply-side policies embodied in his Tax Cuts and Jobs Act, economic growth is turning around an annual average of 3%, and lately is making strides in the 4% territory – thus well above the 2.2% annual average of Obama’s second term.
The perplexity in the ranks of the left-leaning punditocracy is so profound that it gave rise to a quarrel among progressives, with Economics Nobel Prize Joseph Stiglitz asserting that the current buoyancy of the U.S. economy invalidates Lawrence Summer’s secular-stagnation contention, and Summers replying that Stiglitz hadn’t read him properly.
Neither side, of course, is ready to attribute credit to Trump’s economic policies. For progressives, supply-side policies cannot possibly be a dynamo of economic vigor – it doesn’t matter that such policies worked with Ronald Reagan (and Bill Clinton didn’t dare to remove them) and are now working again with Donald Trump.
In fact, rather than acknowledging the effectiveness of Trump’s policies, progressive pundits and like-minded journalists contended that they were ill-timed. With a relatively low unemployment level such as the one left by Obama, they said, Trump’s tax cuts and increase in public spending were bound to overheat the economy, thereby triggering inflation rather than faster growth.
Too bad for progressives, their dire warnings have not materialized. The U.S. economy is not giving signs of overheating: job creation still outpaces the expansion of the labor force, and no less important, real-wage growth, while rising, is in tune with improvements in labor productivity.
True, yields have lately moved upwards. But the increase has been driven essentially, not by inflation expectations (which could be a sign of overheating), but by high-growth prospects.
Economic overheating is not the only prophecy formulated by progressives that has failed to come to fruition. In June 2016, Larry Summers predicted that, if Trump were elected, a global recession would arrive within 18 months – the 18 months have elapsed and the recession has not shown up. House Democratic Leader Nancy Pelosi, for her part, went as far as qualifying Trump’s Tax Cuts and Jobs Act as “the end of the world” and gave it the epithet of “Armageddon” – but we are still awaiting doomsday.
A piece of advice, if I may, to Democrats and like-minded media. Keep by all means blasting against the head of whom you have branded “deplorables” – if that makes you feel good. Make a mockery of his tendency to see everything Obama did as “the worst ever” and his own moves as “the best ever” – that is questionable indeed. Place your bets on a Blue Wave that would enable you to impeach the president, pack the Court with progressives and dismantle the Electoral College – that is not out of reach, whether for better or for worse is another question. But for goodness’ sake, don’t try to persuade people that Trump’s economic policies are either rubbish or Armageddon. By denying him credit in this area, you ridicule yourselves – not him.