Don­ald Trump: Eco­nomic czar?

It is not fair to down­play Pres­i­dent Trump’s achieve­ments by cit­ing post-war growth rates

Business Standard - - OPINION - SITHARAM GURUMURTHI The writer was a Staff Mem­ber of the In­ter­na­tional Mon­e­tary Fund, Wash­ing­ton DC

Ever since Don­ald Trump as­sumed charge as the Pres­i­dent of the United States on Jan­uary 20, 2017, not a sin­gle day passes with­out some con­tro­versy or the other. Trump’s out­spo­ken crit­i­cism of top lead­ers of his Nato al­lies is well known. His fir­ing of al­most all the top ech­e­lons of his ad­min­is­tra­tion has not even spared the sec­re­tary of state. His own elec­tion cam­paign is un­der the scanner with the Robert Mueller in­ves­ti­ga­tion reach­ing an ad­vanced stage. At the same time, it is nec­es­sary to re­flect on the per­for­mance of the US econ­omy dur­ing the last 25 months, which has re­ceived com­par­a­tively lit­tle cov­er­age in the me­dia.

Mr Trump in re­cent months has been say­ing “We have the best econ­omy we have ever had in the his­tory of our coun­try”. Ac­cord­ing to the Wash­ing­ton Post, Mr Trump has re­peated this at least 40 times. When he took charge in Jan­uary 2017, he vowed to achieve a growth rate as high as 6 per cent. Ac­cord­ing to the US depart­ment of com­merce, the econ­omy grew at an an­nu­alised rate of 3.2 per cent in the third quar­ter of 2017. GDP growth reached an an­nu­alised rate of 4.2 per cent in the sec­ond quar­ter of 2018. Though this is the best for sev­eral years, it was still less than the 4.9 per cent achieved in the third quar­ter of 2014.

Daniele Polumbo, a data jour­nal­ist, draws at­ten­tion to the fact the Dow Jones In­dus­trial Aver­age not only rose to record highs through­out 2017 in a run that stretched back to Au­gust 2016, but broke through the 20,000 mark for the first time 10 days af­ter Mr Trump’s in­au­gu­ra­tion. It is now close to 25,000. Oil has fallen by dou­ble dig­its, with the US be­com­ing a net ex­porter in Novem­ber 2018 for the first time in 75 years. Sim­i­larly, Stan­dard & Poor’s 500 In­dex and the Nas­daq also reached his­tor­i­cal heights.

Cor­po­ra­tion tax cuts prior to Christ­mas 2017 gave a big boost to US shares cou­pled with Mr Trump’s US-cen­tric poli­cies, clam­p­down on the bu­reau­cracy and prom­ises of in­vest­ment in in­fras­truc­ture have been cited as fac­tors re­spon­si­ble for this phe­nom­e­non. Ac­cord­ing to the Oc­to­ber 2018 re­port of the Re­al­ity Check Team of BBC, the Dow reached record highs un­der the Trump Pres­i­dency “largely un­fazed by geo-po­lit­i­cal risks like ris­ing trade ten­sions with China and Trump’s de­ci­sion last year to ditch the Trans Pa­cific Part­ner­ship (TPP) trade deal”.

The unem­ploy­ment rate in Septem­ber 2018 was 3.7 per cent, the low­est since 1969. In fact, the down­ward trend had started dur­ing the Barack Obama years. Ac­cord­ing to Ryan Sweet of Moody’s An­a­lyt­ics, the US now has a greater pro­por­tion of older and bet­ter ed­u­cated work­ers, both of whom tend to have lower unem­ploy­ment rates. Ac­cord­ing to Mr Sweet, the unem­ploy­ment rate was be­low four per cent in 2000 and de­mo­graphic changes since then would sug­gest the cur­rent rate should be even be­low the 3.7 per cent in Septem­ber 2018. African Amer­i­can unem­ploy­ment lev­els have also reg­is­tered record low lev­els. In May 2018, unem­ploy­ment for black Amer­i­cans fell to 5.9 per cent, the low­est since the 1970s. Ivanka Trump proudly tweeted that the unem­ploy­ment rate for women was at a 65-year low.

On Fe­bru­ary 1, the labour Depart­ment re­ported that pay­roll has in­creased by 304,000 in Jan­uary, which was about 130,000 more jobs more than what economists in Wall Street had been pre­dict­ing, notes John Cas­sidy in the New Yorker: The job gains were widely spread across the econ­omy, with con­struc­tion, health care, re­tail and leisure, and hos­pi­tal­ity show­ing par­tic­u­lar strength. The re­port also said wages are still ris­ing at an an­nu­alised rate of more than three per cent, while con­sumer price in­fla­tion is fall­ing, be­cause of cheaper en­ergy prices. That in­fla­tion-ad­justed wages are ris­ing, is the key point ac­cord­ing to Mr Cas­sidy.

If Mr Trump wants to go down in his­tory as the great­est jobs-pro­duc­ing pres­i­dent of the US, he will have to cre­ate more than 18.6 mil­lion jobs, es­ti­mates Kim­berly Amadeo in the Jan­uary 28 is­sue of The Bal­ance. While Bill Clin­ton created many jobs, Mr Trump will have to cre­ate at least 32.7 mil­lion jobs to beat the record of Pres­i­dent Franklin D Roo­sevelt, who had in­creased the num­ber of jobs by more than 21 per cent. Ms Amadeo notes that the con­struc­tion in­dus­try makes the most ef­fi­cient use of fed­eral dol­lars to cre­ate jobs. A study by the Univer­sity of Mas­sachusetts at Amherst found that $1 bil­lion spent on pub­lic works created 19,795 jobs, which was bet­ter than de­fence spend­ing, which created 8,555 jobs at the same cost.

Mr Trump’s plan is to cre­ate jobs by elim­i­nat­ing out­sourc­ing and bring­ing jobs back from Ja­pan, China and Mex­ico. The US lost 34 per cent of its man­u­fac­tur­ing jobs be­tween 1998 and 2010. Many were out­sourced by US com­pa­nies to save money while oth­ers were elim­i­nated by new tech­nol­ogy (ro­bot­ics, ar­ti­fi­cial in­tel­li­gence and bio-engi­neer­ing). Mr Trump’s thrust on in­fras­truc­ture de­vel­op­ment (the “Re­build Amer­ica” pro­gramme) en­vis­ages spend­ing $200 bil­lion over 10 years to match $800 bil­lion in busi­ness spend­ing. While this will cre­ate one mil­lion ap­pren­tices in two years, it also re­quires the ap­proval of Con­gress.

Mr Trump’s crit­ics, how­ever, hold that GDP growth was much higher in the 1950s and 1960s. Me­gan Black, as­sis­tant pro­fes­sor of his­tory at the London School of Eco­nomics, notes that the post-war era wit­nessed tremen­dous eco­nomic growth, most no­tably in man­u­fac­tur­ing, agri­cul­ture, trans­porta­tion, trade, fi­nance, real es­tate and min­ing, and back in the 1950s, the unem­ploy­ment rate was even lower than the cur­rent rate of 3.7 per cent. Ac­cord­ing to Mark Zandi, chief econ­o­mist at Moody’s An­a­lyt­ics, “We are ex­pe­ri­enc­ing a boom now but it is in­creas­ingly likely it will bust early in the next decade when the fis­cal stim­u­lus fades, and the econ­omy strug­gles to man­age the much higher in­ter­est rates.” Mr Zandi pre­dicts that the next re­ces­sion will ar­rive on June 20, 2020.

It is not fair to down­play Mr Trump’s achieve­ments by cit­ing post-war data. There is no deny­ing the fact that Mr Trump has trans­formed the US into a boom­ing econ­omy in less than two years.

Job gains in Jan­uary were spread widely across the econ­omy, and wages are still ris­ing at an an­nu­alised rate of more than three per cent

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