The Trump Economic Boom
By Pierre Lemieux
As the two charts below show, it is far from sure that there is a Trump economic boom. Of course, we must remain open to surprises. What is perhaps most surprising at this point, however, is how certain Trump’s economic policies and policy attitudes haven’t wrecked the economy. Yet, let’s keep in mind that, contrary to Juan Perón or Nicolás Maduro, a US president, thanks God, does not yet run the economy, as much as he can try. We probably overestimate the power of the big chief (which is not new in the history of mankind).
What happened since the end of the Great Recession in 2009 is a slow and gradual recovery. The first chart below shows this with the unemployment rate. It is as clear as anything can be that the unemployment rate (seasonally adjusted on the chart) has followed a gradual downward trend since 2010 or 2011, and there is no indication that it has decreased faster under Trump than under Obama. If anything, it might be the contrary, which would not be surprising as the economy approaches or reaches full employment.
In fact, since international trade follows comparative advantage, protectionism could, ceteris paribus, bring lower unemployment than would otherwise obtain—just like the destruction of machines or computers would. Protectionism means producing previously imported things at higher cost, that is, with more factors of production. If an economy is at full employment, of course, producing more of something implies producing less than something else. But that was just an aside.
The second chart shows the percent change in real GDP from quarter to quarter, again from the beginning of 2008 to the first quarter of 2019. From the third quarter of 2009 (the start of the recovery) to the end of 2015, high growth rates have alternated with low rates and even a couple of negative dips. In 2016, growth was less variable, without either the high or the low rates of before. Since the second quarter of 2017, growth rates are indeed consistently higher, but without the high peaks of 2009 to 2014. Perhaps we can interpret this as an improvement, but the whole trend still shows a slow recovery.
Whether the analyst is willing to die for Obama or for Trump, or for neither, he must remember that extreme prudence is warranted when interpreting quarter to quarter GDP changes. Only a longer trend can be meaningful.
If one does discern a new trend of economic growth since the beginning of 2017, it could be partly attributed to Trump’s tax cuts and to “deregulation.” It must not be forgotten, however, that the tax cuts have been accompanied by higher budget deficits, which does not presage well for the future. And I put “deregulation” in quotes because, if Trump reduced the flow of new regulations (a good thing in itself, for sure), it is not clear that the stock of regulations is decreasing. We are waiting for the 2019 edition of Clyde Wayne Crews’s Annual Snapshot of the Federal Regulatory State (Competitive Enterprise Institute) to tell us more.