Good News on the Economy
By David Henderson
Iain Murray at Competitive Enterprise Institute celebrates the 200,000 jobs and states:
It should be noted that these good job and GDP indicators have not come about as a result of any active government spending or direction. They are the result of supply-side stimuli–deregulation (or at least a halt to new regulation) over the past year and the reduction in tax burden as a result of the recent tax law.
I think that’s roughly right. I would caution that his measure that he uses to show a halt in new regulation may well instead show simply slower growth in new regulation. Murray rightly points out that President Trump’s administration has added fewer pages to the Federal Register and fewer new rules than any other president in the previous 25 years. But 61,950 pages of the Federal Register and 3,281 new rules do not a halt make. To be sure, many of those pages and many of those new rules are probably taken up with actual deregulation. When you eliminate or modify a rule, that takes pages and counts as a rule too. My guess, though, is that there has been on net new regulation.
But the spirit of his point is right. The economy can take a certain number of body blows annually and still grow. The fewer the body blows, the more likely that growth will increase.
He makes one fundamental point, though, that is mistaken. He writes:
Perhaps more importantly, the Federal Reserve Bank of Atlanta yesterday reported that its economic model suggested growth over the last quarter could be over 5 percent, double the consensus of economists. This would represent the economy bursting back into life after the long winter since the financial crisis. Indeed, such growth numbers would probably lead to inflationary pressure, which would in turn lead the Jerome Powell-led Federal Reserve to raise interest rates, probably at a much faster rate than expected. Of course, the Atlanta Fed’s figures are only model projections, and so should be taken with a healthy pinch of salt.
The part that’s mistaken? This one: “such growth numbers would probably lead to inflationary pressure.”
The old saying is that inflation happens when more money chases the same amount of output. With an increase in economic growth, there’s less inflationary pressure, not more.
Interestingly, in another part of his post, Murray links to an exposition of supply side policies that make the point I just made.