It’s not a wonderful economy
But with some policy corrections, the economy can become prosperous again
Since the election, the stock market has soared, consumer confidence has climbed to its highest level in 20 years, and several companies have committed to multibillion dollar new investments in the United States. To say that America has a new spring it its step — at least for now — would be an understatement. It feels like the last joyous scene in “It’s a Wonderful Life” when George Bailey stumbles home on Christmas Eve to a house full of friends and family.
The burst of optimism has President Obama and supporters of his policies proclaiming that Obamanomics was a grand success after all. Last week the White House put out it’s annual economic report which not only restated that Mr. Obama’s stimulus bill and bailouts not only helped “stave off a second Great Depression,” but also has, as Obama put it, created “the strongest, most durable economy in the world.” His chief
economist Jason Furman boasted last week: “I didn’t think I’d ever see the unemployment rate this low.”
The media is echoing these claims. The New York Times gushes: “President Obama is Handing a Strong Economy to His Successor,” while CNN claims that the economy is “Obama’s Gift to Trump.”
A gift? Did It ever seem to occur to these folks that consumers and investors are singing “Ode to Joy” precisely because Barack Obama and his policies are leaving in a few weeks?
It’s true the economy is showing some signs of improvement. The housing market is strong, job growth is slow but steady, and wages are finally nudging up. But most Americans aren’t buying the Garden of Eden scenario. A Fox News poll last week finds only 30 percent of voters think Obama policies left them better off since the end of the recession.
The real verdict on the economy was delivered by voters last month. If economic conditions were nearly as strong as Democrats claim, why did Mr. Obama’s heir apparent, Hillary Clinton, lose the election?
Here’s the obvious answer: for most Americans not living in Silicon Valley, Hollywood, Manhattan or Washington, D.C., the economy is still dramatically underperforming. Even the Fed is saying that the forecast is for the U.S. to slodge along in the rut of 2 percent growth for the next several years and many private economists see a recession looming before the next election without a sharp change in policy.
Here is a brief list of the structural economic problems President-elect Trump will have to tackle in his first year in office:
1. The growth deficit. Mr. Trump is inheriting an economy with an ever-widening growth gap. The 2 percent recovery has downshifted over the last year to 1.5 percent is now producing $2 trillion less GDP each year than if we had experienced even a normal recovery of 3 percent growth. The Obama recovery is nearly $3 trillion behind the Reagan expansion of closer to 4 percent. This is the equivalent to the combined output of Ohio, Pennsylvania and Michigan combined gone missing.
2. Flat-lined incomes. One repercussion of slow growth is stagnant wages. The Census report showed good news on incomes for 2015 with wages finally (after eight years) rising and poverty taking a nice dip. But the numbers also show that median household income is $1,200 lower after adjusting for inflation than it was in 2000. This decade and a half of stagnant take home pay helps explain why so many voters think the American Dream is dead.
3. The investment/productivity drought. For eight years now America has been in a severe investment slump. Compared to one year ago, private domestic business investment has cratered 29 percent and productivity is an anemic one percent. There can be no sustainable real wage gains without productivity and capital investment. It’s not too shocking that the president who raised investment taxes on capital gains and dividends by nearly 60 percent — to 23.8 from 15 percent — has presided over an investment slump.
4. Real unemployment rate in America is close to 10 percent. The low headline unemployment rate of 4.5 percent that Jason Furman touts is a statistical mirage. When counting underemployed part timers and those working age Americans who have dropped out of the labor force, it is closer to 10 percent. Nearly 95 million Americans over the age of 16 are not working — an all-time record high. The biggest decline has been among 16- 30 year olds. No wonder so many are sleeping in their parent’s basement.
5. The budget and debt are spiraling out of control. Here’s the real “gift” Mr. Obama is leaving for Mr. Trump. The budget deficit is expected to climb back to $1 trillion a year for as far as the eye can see. Mr. Obama’s economic philosophy has been that borrowing would make us richer, so during his tenure, the national debt has nearly doubled to nearly $20 trillion. The federal debt has reached nearly $200,000 per household — which is like a second mortgage.
6. Welfare still near record highs. If the robust economy is here, why are a near record 44 million Americans still on food stamps? That’s 12 million more than at the start of the recession. ObamaCare put more than 10 million more Americans on Medicaid as well.
7. The regulatory crush. Mr. Obama has greatly surpassed his predecessors in the issuance of costly government regulations. New regulations on power plants, fuel standards, banking, and healthcare have raised consumer costs while stifling industry. A study by The Heritage Foundation finds that Obama has imposed 229 major regulations, costing $108 billion annually. The National Association of Manufacturers estimates regulations cost anywhere from $10,000 to $30,000 PER worker. Is it any wonder that factories have been heading to China and Mexico?
So, no Mr. Trump isn’t inheriting a wonderful economy from Mr. Obama. It’s a financial house of cards built on years of debt and cheap money. Americans get that and this is why they voted for a change of leadership. Which brings me to the real reason for holiday cheer: with some swift policy course corrections — on taxes, regulation, health care, and energy the economy can become genuinely prosperous again in a hurry.