Kevin Williamson’s recent article “Of Presidents and Economies” offers some excellent perspective on the limits of any president’s ability to influence economic growth. Every administration inherits problems and benefits from its predecessors and must deal with domestic and international events beyond its control.
However, fortune also presents presidents with unique opportunities to encourage economic growth with the right policies, or to discourage it with the wrong ones. The Obama and Trump presidencies are excellent examples.
President Obama was elected during the Great Recession, which ended in June of 2009, a mere five months into his presidency. Typically the economy grows quickly coming out of a recession, and in August of 2009, Obama’s economic team projected that economic growth would “accelerate in fiscal 2011 to 3.8 percent” and “exceed 4 percent per year in 2012–2014.” As it turned out, President Obama’s post-recession average was an anemic 2.1 percent (our average annual GDP growth rate since 1948 is 3.2 percent).
There are numerous progressive academic theories attempting to explain this lackluster growth. But from the perspective of America’s business community, the explanation is straightforward. For eight years the Obama administration waged war on business with policies intended to grow the government, not the economy. They worked. The government grew; the economy did not.
In March of 2010, the Democrats enacted Obamacare, putting government bureaucrats in charge of our health care. It created compulsory health-care mandates for individuals and businesses alike, drove young people out of the market, dramatically increased the costs of health insurance, and discouraged businesses from hiring full-time employees.
Four months later, Congress enacted Dodd-Frank, implementing the most comprehensive regulation of America’s financial sector since the Great Depression. In the end, it caused an increase in the size of the “too big to fail” banks and a significant decrease in the number of community banks — the banks that small businesses depend upon for financing — as the smaller banks were unable to afford the law’s compliance costs.
In November of 2010, voters returned control of the House of Representatives to Republicans and this legislative onslaught mercifully came to an end. But that did not stop the president from furthering his anti-business policies with his pen and his phone through executive orders and regulation.
In 2016, nearly 100,000 pages’ worth of regulations — the most in history — were published in the Federal Register. Although regulatory costs are difficult to calculate accurately, a report from the National Association of Manufacturers found that “U.S. federal government regulations cost an estimated $2.028 trillion in 2012 (in 2014 dollars), an amount equal to 12 percent of GDP.” A report by the Heritage Foundation found that Obama-era regulations alone were costing businesses and consumers nearly $100 billion per year by 2016.
As a result, even though Obama should have enjoyed high economic-growth numbers coming out of a major recession, he became the first president in modern history who failed to see a single year of even 3 percent GDP growth.
On the positive side, Obama’s economic policies have set the stage for President Trump to encourage a repressed business sector to excel. Early indications are that he intends to take full advantage of the opportunity.
One of the things that distinguishes Trump from other politicians is that his commitment to free markets is practical rather than ideological. He doesn’t articulate the arguments on each side of the economic debate like an ivory-tower academic. He’s experienced capitalism by living on its cutting edge day to day, rather than discussing it in the faculty lounge.
He understands that the vice of regulations is more than just their costs. It’s also the uncertainty that an expanding regulatory climate creates for business. When I was CEO of CKE — a quick-service-restaurant company — I had to make decisions about how much to invest every year, and I had to make those decisions based on whether I thought investing would return a profit.
Regulatory uncertainty can have as negative an impact on such decisions as actual regulation. Investors hate uncertainty. When a business knows that the government is going to constantly increase its regulatory burdens, but doesn’t know when or where the burden will fall, or how much it will cost, the uncertainty tends to make decisions about profit difficult and therefore tends to freeze investment.
Less investment, less growth, fewer good paying jobs: President Trump may not have a Ph.D. in economics, but he understands that.
Once in office, President Trump immediately got to work rolling back Obama’s expanded regulatory state. He ordered government agencies to appoint regulatory “task forces” to identify anti-business regulations that needed to be eliminated. He signed a memorandum ordering a moratorium on all new regulations until a Trump-appointed official could review them. He also signed an executive order requiring that for every new regulation, two be eliminated.
Those orders paid off. By July 2017, the Trump administration announced that it was pulling or suspending 860 regulations the Obama administration had proposed, completely withdrawing 469 and setting aside an additional 391 to be reevaluated. The administration referred to deregulation as removing “that slow cancer that can come from regulatory burdens that we put on our people.”
Between Inauguration Day and May 2017, the Trump administration issued just 15 new major regulations, by far the most dramatic reduction in regulatory output in history. By July, rather than two regulations for every new one, the Trump administration had actually eliminated 16 old regulations for every new one.
In October of 2017, an analysis by the Competitive Policy Institute found that, compared with Obama at this time in 2016, Trump’s had reduced the Federal Register’s page count by an impressive 32 percent. This put him on course to beat President Reagan’s record of a “one-third reduction in Federal Register pages following Jimmy Carter’s then-record Federal Register,” which took Reagan years to accomplish. “So, by this metric, Trump is moving much faster,” already making him “the least-regulatory president since Reagan.”
It is not a coincidence that business investment declined under Obama, lowering GDP, while it has increased this year, contributing to greater GDP growth.
So far, President Trump can take credit for the results in the second and third quarters of this year (traditionally, presidents do not get credit or blame for the first quarter following their inauguration as there is little they can do to influence the numbers). GDP came in at 3.1 percent in the second quarter and 3.3 percent in the third, the best six-month stretch of growth in three years. The president’s Council of Economic Advisers estimates that third-quarter GDP growth would have been 3.9 percent but for three major hurricanes making landfall.
Williamson is correct that some factors, such as crop failures or hurricanes, are beyond anyone’s control and can affect economic growth. Economic failures and successes often have their genesis years, if not decades, in the past. Every president’s economic success or failure must be judged in the context of his times and circumstances.
But it is also true that, like elections, economic policies have consequences. If a president chooses to grow government rather than the economy, the odds of meaningful economic growth are very low. While it is important to acknowledge both causes and context, believing that a president can influence the economy’s direction, or its rate of growth, is far from a superstition. To the contrary, the right leader at the right time can make a big difference.