Trump set for racing start
AMONG the remarkable aspects of Donald Trump’s free-wheeling and rumbustious encounter with the press this week was the absence of questions about the economy.
Yet as the transition from Barack Obama to Trump unfolds, it has been the main battleground. Obama and his economic team have adopted a ‘yes we did’ narrative, which points to a jobless rate of 4.7pc, a 4pc rise in per capita output since the President came to office and a record-breaking 5.2pc rise in real US household income in 2015.
Trump was elected on a starkly contrasting platform of economic misery. He and his team talk of below trend growth rates of 2pc, which could be raised to 3pc-to-4pc, and tens of millions of ordinary Americans who are not counted in the unemployment figures because they have stopped looking for jobs. There also are complaints about enterprise stifled by over-regulation and the exodus of good jobs to China and India.
The truth is that both accounts are true. Obama inherited from George W. Bush in 2009 an economy falling off a cliff in the wake of the financial crisis, and he likes to take all the credit for the turnaround. But many of the decisions which allowed the US to robustly bounce back and avoid a second Great Depression were taken by the much-disparaged Bush in the waning days of 2008.
US banks, healthy or not, were force-fed new capital to strengthen their lending capacity. Just how robust they are now is illustrated by fourth- quarter earnings for 2016, with JP Morgan Chase 24pc up and Bank of America Merrill Lynch up 50pc.
The Federal Reserve, then chaired by Ben Bernanke, began a huge dollar-printing programme which went far beyond previous experience. It even included non-bank giants such as General Electric, which was allowed to exchange financial assets for cash.
Before the 2008 election, Bush used a payroll tax cut to encourage companies to take on new employees, and set in motion an infrastructure programme which was displaced by Obama’s Recovery and Reinvestment Act of 2009.
In spite of the grand name, the Obama plan did not lead to the much-needed rebuilding of roads, bridges and inner cities. It was administered poorly through the states and largely used to pay down debt.
The pledged fiscal boost was not widely shared with citizens.
Obama did learn something from the Bush experience. When General Motors and Chrysler ran into difficulty, the President pumped in capital which gave the car giants breathing space to turn around.
Amid the tumult of Trump’s press conference, there were some glimpses of policy.
Direct intervention in business is the important theme to emerge during the transition. This was evident from the Carrier air conditioning plant investment in Indiana, Ford’s choice to put funds into Michigan rather than Mexico, the attack on big pharma over drug prices, and the invective against Lockheed Martin for cost over-runs on the new F-35 fighter. Trump is also flirting with some kind of border tax to be imposed on firms manufacturing in Mexico which sell into the US.
Trump also made an enigmatic reference to how he would be spending his first few days in office doing ‘signings’. What could this possibly mean?
Much of Obama’s eight years in the White House was blighted by an obstreperous Congress so he was forced to rule by executive orders. But what one executive order does, another president can sign away.
Targets for repudiation are thought to include the Paris Agreement on greenhousegas emissions. Trump is expected to authorise reactivation of work on the Keystone Pipeline which moves oil from Alberta in Canada to the refineries of the Gulf Coast, suspend the Syrian refugee settlement programme and order the Commerce Department to bring trade cases against China.
The biggest and most important changes, which drove the post-election stock market rally, are proposals to cut corporation tax, deliver tax relief to middle-income Americans and an enormous splurge on infrastructure. These can be done only through Congress. What the President wants and what he gets are different, even if the direction of travel is clear. The US recovery was largely driven by monetary policy and rebuilding the banking system. Trump and his advisers want to see fiscal policy and deregulation drive growth rates higher. Wall Street likes it but economists are unconvinced.
Those pesky experts again.
Flash boys
WHEN the sterling ‘flash crash’ occurred in the early hours of October 7 last year, it looked as if the worst warnings of the Remain camp were about to be realised.
What we now know, from a report from the Bank for International Settlements, is the cause was badly designed automatic trades and a crude headline in the FT.
Since then the British economy has roared away and Monetary Policy Committee member Michael Saunders predicts that the jobless rate will stay below 5pc next year.
There’s a surprise.