Sebastian Vital



The Obama-Trump Economy: Wall Street Fiddles while Main Street Burns

The problems of the Trump presidency are real but distracting. While the media is focused on the Russian connection, criminal investigations, political impotence, White House staff changes, and insulting tweets, what is given short shrift are the fundamental problems with the US economy that gave rise to the Trump presidency, and how little is being done to address them.

The latest economic news superficially is great. The unemployment rate has dropped to 4.3%, as 209,000 jobs were added in July. This is the lowest unemployment rate in 16 years. The economy has added jobs for 83 consecutive months–a record–and it now appears that all of the jobs lost during the 2008 economic crash have been recovered. Conversely, the Dow Jones is over 22,000. Democrats will credit Obama for the jobs report. Trump supporters will take credit for both the jobs and stocks. But these rosy numbers do not tell the entire story.

The labor force participation rate is 62.9%. This number measures what percentage of the eligible workforce is working. This number remains low and has changed little in the last year. Part-time employment has changed little over the last year, the number of discouraged workers (those who have stopped looking for work) has changed little over the last year, the percentage of long-term unemployed (more than 27 weeks) has not changed much in the last year, and this group represents more than 25% of those unemployed. In terms of wages, the average increase over the last month was 9 cents, and only a total of 2.5% over the last year. Essentially, the Obama/Trump job recovery stalled at least a year ago. It has never produced much in terms of significant wage growth, and it has not done much to bring back many new workers or the chronic unemployed back into the job market.

When it comes to the stock market, many experts argue that there is no good reason for the Dow to be at 22,000, at least this is the argument by Forbes, where the claim is that stocks are over-valued. One traditional measure of stock value to determine if it is over-inflated is the price-earns ratio. Historically it is about 15–a value less than that means a stock under 15 is under-valued, over that it is inflated. In July the PE ratio for Wall Street was 20-way over value and comparable to the PE ratio in the late 1920s and 1990s before crashes occurred. It was also over 21 in January 2008, right before the current crash. Irrational exuberance might be the appropriate description here.

However, even if stocks are priced right they point to a continued economic trend in the US over the last 40 years–more and more income is being generated by stock and capital than by labor. As the economist Thomas Piketty has pointed out, this is the recipe for why the gap between the rich and poor in the US has exploded over the last two decades. Simply put, workers are making less money in terms of wages and the affluent more in terms of stock investments.

The recent unemployment figures coupled with the 22,000 Dow highlight the fundamental problems in the US economy that fueled the election of Trump. He, along with Bernie Sanders, pointed to the failure of the Republicans and Democrats to do much to help the poor and working class over the last 40 years. Good paying jobs have been lost, the gap between the rich and poor has increased, and Wall Street fiddles while Main Street burns. Trump correctly pointed to the job anxiety of white working class America who have been left out of the economy (as have people of color but Trump never talked about that), but there is no indication in the recent unemployment reports or stock market gains to suggest that things have changed.

And there is no indication that either Trump, the Republicans in Congress, or the Democrats have viable ideas to address the problems of chronic unemployment and the rich-poor gap. Efforts to repeal and replace Obamacare would have hurt working class America more, the proposed immigration reform does nothing to help American workers in terms of addressing wages or increasing employment, and what little one hears about tax reform in terms of cuts to capital gains similarly will do little to address the wage and inequality gap.

The problems of the Trump presidency are many, but they distract from a deeper set of economic problems that have existed for two decades and which no one wants to fix.