Against the backdrop of a one-third collapse in quarterly output and an unemployment rate rivaled only by the Great Depression, at the Republican National Convention, President Trump, members of his family, his economic adviser and sundry other Republicans have attempted to defend the boast of building “the greatest economy of any country.” Yes, the economic implosion is largely because of the pandemic. But the president must take responsibility for impacts of COVID that are embarrassingly more severe in the U.S. than in the rest of the developed world.
Much touted at the convention have been the 2017 tax cut and the easing of regulations on businesses, which fueled a buoyant stock market and drove unemployment to a historically low rate of 3.5 percent last November. Both successes, though, are fleeting. Stock market bulls are inevitably stalked by stock market bears, and the S&P matters little to the majority of Americans. Unnaturally low unemployment cannot be sustained: If COVID hadn’t spoiled the party, the inevitable return to the midpoint of the business cycle would have reversed much of the job creation.
The real issue is how these policies affected the economy’s long-run growth and our standard of living. How, in particular, did 2017-2019 policies influence the capital accumulation critical to growth? (All figures cited below are from the Bureau of Economic Analysis and the Bureau of Labor Statistics. Comparisons of 2013-2016 and 2017-2019 are based on average shares during the respective periods.)
As a share of gross domestic product, investments by private businesses and households during 2017-2019 were barely larger than during 2013-2016 (17.4 percent vs 17.2 percent). The increase was well less than the hole in the federal deficit created by the tax cut, and the level was well short of the 19-20 percent shares of GDP achieved during the Reagan and Clinton boom years. Despite advantageous borrowing rates, public investment to fix the deteriorated infrastructure foundered. Nor was national health care, an important determinant of human capital, reformed. The dismantling of environmental regulations promoted deaccumulation of our natural assets, like clean water and air and an amiable climate. In terms of laying the foundation for growth, the legacy lies between undistinguished to disappointing to tragic.
Also highlighted have been Trump’s mercantilist trade policies. Like deregulation and tax cuts, their mixed success is short-lived and their long-term costs are dire. Protectionism may have slowed the hemorrhage of U.S. manufacturing employment or wrung concessions from our trading partners. But comparing 2013-2016 to 2017-2019, U.S. jobs in manufacturing declined as a share of total jobs, and U.S. production in manufacturing declined as a share of total production. Over the same period, the balance of payments deficit on current account increased in relation to GDP.
The policies cannot buck the trend of de-industrialization experienced by the U.S. for the last 50 years. One can agree with several of the president’s goals in trade negotiations but question the wisdom of a strategy of threats, tariff escalation and unilateralism. The short-run costs to consumers and exporters are high. If continued, the strategy will weaken international cooperation and the adherence to international norms on policies that spill across borders. Such norms permit mutually beneficial trade, and such cooperation is essential to solving global problems such as climate change.
“The greatest economy of any country”? Rather, like the morning after a night on the town, Trumpenomics seems to have brought transitory and sometimes dubious gains at the expense of long-term growth and the ability of countries to make policies in their mutual interest.
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