Presidents’ spat raises a serious question

At least they agree on one thing. The US economy, despite the wobbles on the stock market, is doing brilliantly well. That, however, is where the consensus falls apart. Both the former and the current president are trying to claim ownership of the surge in output over the last year.

It would be easy to dismiss that as a typical, if slightly undignified spat. But it matters, and not just for Americans.

If Trump’s radical tax cuts and deregulation are responsible, everyone might follow his lead. But if it is merely a continuation of Obama’s cautious fiscal and regulatory management, the boom will be dismissed.

There is no question that the US economy has been on a roll. In the second quarter, growth accelerated to 4.2pc. Yesterday’s growth figure for the third quarter, 3.5pc, was down but still impressive. Unemployment has dropped to a mere 3.7pc and jobs growth has been robust. Wages are starting to pick up and even manufacturing has been recovering, while the big beasts of the tech industry continue to drive it forward. The Federal Reserve has even managed to steadily push interest rates back up towards normal without damping the expansion. No other major economy looks in such good shape.

Barack Obama has made it clear that it was the hard work done during his eight years that laid the foundations.

“When you hear this talk of economic miracles, remember who started it,” the former president insisted in a speech this week. Trump, true to form, has been fighting back with his usual mix of bluster and aggression on Twitter. He argued growth would be “minus four per cent” if the Democrats had won and claimed the expansion was down to his own brilliance.

In many ways that is just grandstanding and rhetoric; we are used to similarly ridiculous claims and counter-claims at Prime Minister’s Questions every week and none of it usually amounts to very much.

But underneath the argument, there is an important battle of ideas. And who wins will help determine what kind of policies are adopted globally in the next few decades.

Both men, of course, have some evidence. During the four years of Obama’s second term, for example, growth averaged 2.3pc, a figure most of the world would regard as decent yet that is relatively mediocre by American standards. Wages largely stagnated, especially for blue-collar workers, and entrepreneurship dwindled alarmingly.

Despite warnings from the economic establishment that his reckless tax cuts and trade policies would lead to a crash, there is no question growth has accelerated since Trump took office, with an average rate so far of 2.7pc a year, a significant improvement.

In Obama’s view, his cautious nursing of the economy as it recovered from the crash, his emphasis on healthcare and his commitment to open trade created the conditions for continued expansion. In Trump’s view, it was his bold decision to almost halve corporate taxes in one of the most radical reforms of the last century, and his assault on red tape, that kick-started an economy that had settled into a “new normal” of dismal growth.

Who’s right? We will probably have to wait until at least the end of Trump’s first term, and perhaps longer, to answer that. It might turn out that he has simply engineered a modern-day version of the Eighties “Lawson Boom” in this country, with tax cuts overheating an already expanding economy and setting up a crash.

Against that, Trump has moved faster and further on tax and deregulation than anyone expected, and he is reaping the rewards. In truth, for all his personal obnoxiousness, his chaotic administration and the batty destructiveness of his tariffs and trade wars, Trump has already made some significant reforms to an American economy that was settling into European-style sluggishness.

The result? We have already seen faster growth, and that is going to continue. It is important that is widely recognised, and that Obama and the Democrats don’t steal the credit. Why? Because the rest of the world would benefit from the same kind of progrowth, pro-business policies that have kick-started the US economy – and that won’t happen unless the trigger for the boom is correctly identified.

‘Trump has moved faster and further on tax and deregulation than anyone expected’