The Trump normal

Three months after Barack Obama was sworn in as president in 2009, Mohamed A. ElErian, then the Chief Executive Officer of PIMCO and a past deputy director of the IMF, popularized “the new normal,” a term to describe the protracted, low- growth era that the economies of the Western world were then entering. Impressed with his prescience, Obama in 2012 would make El- Erian the first chairman of the White House’s Global Development Council.

“The new normal” became the received wisdom of the left and numerous others to explain the failure of the Western economies to bounce back after the Great Recession of 2007- 8. The Reagan recovery following the early 1980s recession saw U. S. GDP leap by 7.5 per cent in 1984, en route to average growth of 4.8 per cent over six years. The Obama years never once managed GDP growth of three per cent, eking out instead a post- recession GDP average of just 1.5 per cent per year. Obama not only presided over the worst recovery since the Great Depression, he is the only president since the Second World War to log an uninterrupted string of low growth. To the left, this was an affirmation that a new normal had arrived, especially since the rest of the West also performed dismally.

The developed world was facing a “new mediocre,” stated IMF Managing Director Christine Lagarde in 2014. Larry Summers, a former U. S. Secretary of the Treasury, called the comi ng era “secular stagna- tion.” The World Bank, in a June 2017 report subtitled “A Fragile Recovery,” twice referenced articles whose titles referred to the “new normal,” and concluded that America under Trump would grow at a rate as anemic as under Obama, with the Euro Area and Japan faring worse still. In November, the BBC reported that “low growth is the new normal” in relaying the view of the Bank of England that U. K. growth will be mired between one and two per cent into the next decade.

Low growth, however, is not the Trump normal. Neither is a mere three per cent growth, the pre- Obama normal. “To get the economy back on track, President Trump has outlined a bold plan to create 25 million new American jobs in the next decade and return to 4 per cent annual economic growth,” the White House announced to an incredulous press on the day that Trump was sworn in as president. During the election campaign, Trump had claimed that three per cent, even four per cent or more was doable. As president, rather than walking back his boasts, he was carving them in stone.

“Donald Tr ump’s 4% Growth Target Is Easier Said Than Done,” declared a Wall Street Journal headline. “Trump is officially making an economic promise that will be nearly impossible to keep,” echoed Business Insider. “Forget 4% growth: 3% would be a major feat for Trump after record drought,” stated MarketWatch.

Yet the economy achieved the “major feat” of three per cent growth in the second quarter of 2017, Trump’s first full quarter as president. And then in the third quarter, it hit 3.3 per cent. In December, the New York Fed projected that growth in the 4th quarter could reach four per cent.

That was before t he Tr u mp a d minis t r a t i o n passed one of the largest corporate tax cuts in U. S. history. This week JP Morgan CEO Jamie Dimon, bullish on the tax legislation, told Fox Business that “If we have a couple of years of good growth, that could justify the markets where they are. Four per cent economic growth this year is possible.” Various economists are also warming to the prospect of four per cent growth and few now doubt the feasibility of three per cent growth. In less than one year, Trump has shattered the notion that low growth is inevitable in a modern economy.

Oh, one last indication of how the zeitgeist has changed. A speaker l ast month at a global conference of mayors in Chicago took credit for the economic growth now seen, characterizing it as a continuation of the Obama policies. That speaker, former president Obama, may have been j oking when he quipped “Thanks, Obama,” but he was also conceding that the Trump normal — a robust economy — is no joke.

TRUMP HAS SHATTERED THE NOTION THAT LOW GROWTH IS INEVITABLE IN A MODERN ECONOMY.